ASIC has issued Consultation Paper 103 – review of Share Purchase Plan Threshold.

ASIC has invited comments from stakeholders within the industry on its proposal to triple the monetary limit for share purchase plan disclosure relief from $5,000 in any consecutive 12 month period, to $15,000. ASIC is also considering making it a condition of the relief that a cleansing notice must be lodged with the Australian Securities Exchange.

Generally, an offer of securities requires a disclosure statement (such as a prospectus, product disclosure statement or information statement) under the Corporations Act. The rationale of this requirement is to ensure that investors have access to all of the information they require in order to make an informed decision about an investment. ASIC Class Order 02/831 provides relief from this disclosure by allowing listed companies to offer existing shareholders the opportunity to purchase small numbers of shares without issuing a prospectus. This exemption is subject to a number of conditions, one of which being that a shareholder is not issued more than $5,000 worth of shares in any consecutive 12 month period.

The underlying purpose of the monetary limit for share purchase plans is to limit the risk to shareholders by restricting the amount which they can invest in a 12 month period, while still offering fundraising opportunities to small investors. An additional advantage of the exemption from disclosure is the benefits to investors such as saving on brokerage fees and the costs involved in preparing a prospectus.

The move by ASIC to increase the monetary limit comes at a time when many listed entities are struggling to secure debt finance and as such, are looking to raise capital quickly using alternative forms of capital. The proposed changes are directed at “providing shareholders with expanded investment opportunities and industry with flexible capital raising options, without unduly compromising on investor protection”.  The change is also supported by additional factors including the substantial increase in the percentage of adult Australians who own shares either directly or indirectly (currently 46%), and a considerable increase in the assets of an average self-managed superannuation fund in recent years.

Should the monetary limit be increased, the requirement to lodge a cleansing notice with the Australian Securities Exchange will warrant additional disclosure by companies looking to take advantage of the disclosure relief, which in turn will help manage the increased financial risk to shareholders. Another advantage of a cleansing notice is that it provides investors with additional information about an investment in a form less expensive and time consuming than a prospectus.

Despite the proposal to increase the monetary limit for share purchase plans, the ASX Listing Rules still provide that a company cannot issue more than 30% of its total issued shares under a share purchase plan without obtaining shareholder approval. At this stage there has been no suggestion that this 30% limit will be increased.

The monetary limit was last reviewed in 2002 and increased from $3,000 to $5,000 to reflect CPI increases and ASX minimum investment benchmarks.

ASIC has invited any comments on the proposed changes to be submitted by 13 February 2009.

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