ASIC targets 2016 – are you in the spotlight?

ASIC has recently given an indication of its targets for regulatory surveillance and action.  In releasing its half year report on the regulation of corporate finance: January to June 2016 (Report 489), ASIC commented on current trends in fundraising and mergers & acquisitions. Some practical insights from the report are summarised below.

Fundraising – tech IPOs under scrutiny

• ASIC reiterated its focus on due diligence for fundraising activities (in particular, for IPOs), with reference to its recent report (Report 484) - for further details see our earlier blog: IPO due diligence under the spotlight, which provides an overview on Report 484.
• ASIC has been consulting on proposed new guidance on financial information in prospectuses (in Consultation Paper 257), with a focus on the presentation of historical financial information.  Proposed changes include a requirement for all ‘full form’ prospectuses to include audited historical financial statements for 2.5 or 3 years (depending on the timing of the prospectus and the company’s financial year or half year), regardless of the structure of past corporate activities, as well as clarifying the need to include cash flow statements.
• ASIC is undertaking surveillance work on the marketing practices of brokers and issuers in connection with an IPO.  This includes a focus on the rise of social media as an additional channel for such marketing activities.  A report is expected from ASIC later this year.
• Technology company listings are currently on ASIC’s radar, with a focus on the level of disclosure by such issuers - including details on the business plan, the revenue model, the scope of true competitors and, for start-up technology companies, prominent disclosure on having a limited operating history.  This sits alongside ASX’s current consultation process for amendments to the admission requirements, which are likely to impact on early stage technology companies in particular (for further details see our earlier blogs ASX to take a harder line on early stage IPOs and ASX continues to refine proposed changes to admission requirements.

Mergers & acquisitions – virtual variations a problem

• ASIC observed that there have been noticeably fewer regulated mergers and acquisitions during the period (by takeover bid or scheme of arrangement).  Interestingly, ASIC data also shows that larger transactions are generally being completed by scheme of arrangement (rather than by takeover bid).  
• Monitoring ‘virtual variations’ to takeover bids – a practice of bidders announcing a bid will be formally increased if a certain level of acceptances is achieved.  ASIC may take issue if the virtual variation does not track to its guidance (i.e. by not being included in a regulated document, such as a supplementary bidder’s statement), or if ASIC believes the variation is otherwise contrary to the ‘truth in takeovers’ principles.

Rights issues – control transactions in the spotlight

• ASIC will also focus on any control effects arising through a rights issue and an issuer being able to demonstrate that reasonable steps have been taken to minimise the control effect of a fundraising.  ASIC cited 6 examples it has focused on in the period, which resulted in adjustments to the underwriting arrangements and/or the shortfall facility under such offers.

Corporate governance – polls required for AGMs?

• ASIC provides some pointers for the upcoming AGM season – including a suggestion that companies should call a poll on all resolutions (not just remuneration-related resolutions) at the AGM.
• ASIC has also emphasised a continued focus on the long-term challenge of cyber resilience, with ASIC Report 468, which includes commentary on the resilience of ASX and Chi-X.  The report also includes details on good practices and assurance processes for consideration by the broader financial services market.  

McCullough Robertson will continue to monitor the above developments, together with other releases by ASIC, and welcomes any feedback or questions from readers of the blog.

Reece Walker, Ben Wood and Naomi Benton