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ASIC seeks comment on case-specific variations to proposed relief from indirect self-acquisition provisions

by Martha.Ware 22. June 2011 09:17

ASIC has issued a consultation paper, CP 162 Indirect self-acquisition by investment funds: Further consultation—Employee share schemes (CP 162) seeking additional public comment on a proposal to vary relief that permits certain indirect self-acquisitions. The variation is aimed at facilitating the operation of specific types of employee share schemes.

Under s 259C of the Corporations Act 2001, the issue or transfer of shares or units of shares of a company to an entity it controls (indirect self-acquisition) is void unless certain exceptions apply.

ASIC’s Consultation Paper 1 Indirect self acquisition by investment funds (CP 1) and Consultation Paper 137 Indirect self-acquisition by investment funds: Further consultation (CP 137) sought feedback on the circumstances in which relief from s 259C should be given. Based on the policy proposed in CP 1, ASIC has provided case-by-case relief.

Employee shares schemes and s 259C relief

Since the release of CP 137, ASIC has become aware that some entities operating employee share schemes are having difficulty complying with one of the standard conditions of s 259C relief.

This condition says that the company and its controlled entities must not acquire the power to control voting or disposal in more than five per cent of the company’s voting shares in aggregate (the 5% limit).

ASIC understands that some institutions may not be able to comply with the 5% limit because of interests acquired by the company or its controlled entities for the purpose of employee share schemes. As a result, we are consulting on whether it is appropriate to increase the 5% limit in the case of employee share schemes, and if so, the conditions that should be imposed.

ASIC is also seeking feedback on whether there is any need to impose a condition that limits the amount of the company’s shares held by a controlled trustee or responsible entity to a certain percentage of the trust or scheme’s assets.

Other issues concerning s 259C relief

ASIC is also consulting on two other conditions we have imposed in standard s 259C relief:

  • whether the parent company’s interests or just the controlled entities’ interests should be included in the calculation of the 5% limit; and
  • how companies should report economic interests acquired through derivatives.

Feedback sought

The consultation paper seeks the views of companies, investment banks, investment funds, insurance companies and their representative organisations.

Submissions on the issues in the consultation paper close 14 July 2011.

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