ASIC tweaks employee incentive scheme relief

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In brief

Various amendments to ASIC's employee incentive scheme class order relief have now come into effect. Described by ASIC as 'minor and machinery in nature', the clarifications and improvements were prompted in part by market feedback. Partner Greg Bosmans looks at the changes.

The relief, embodied in Class Orders CO 14/1000 and CO 14/1001, has been operating for just over a year. Its broad operation is described in our earlier Focus: ASIC's employee incentive schemes class orders – new and improved. Overall, albeit primarily in the case of listed companies, the relief has been welcomed by the market and has been seen as successfully accommodating the customary range of employee incentive schemes in Australia.

Nevertheless, those working with the class orders, and ASIC itself, identified various ambiguities in, or omissions from, the class orders, or areas where the relief requirements went too far. The amendments now made by ASIC, which it foreshadowed earlier in the year, seek to address many of those issues. ASIC has been at pains, however, to emphasise that its underlying policy position remains the same.

Most of the changes ASIC has made are of a technical drafting nature. In terms of more substantive changes, we note the following:
  • Where an employee incentive scheme involves the operation of a trust in respect of the underlying financial products offered, the requirement to provide offerees with a copy of the trust deed or a summary of its terms now only applies where the products are to be held by the trust on an allocated basis, and the offerees will be able to control the rights (including voting) attaching to the products or will receive the income (including dividends) deriving from the products. This change removes an unnecessary burden where a trust is used simply as a delivery mechanism for underlying products upon vesting or exercise, and before that time the trustee holds those products on an unallocated basis.
  • Similarly, the requirement that participants in a contribution plan must be given voting and income rights in respect of underlying products acquired by a trustee using their contributions, now only applies where those products are held on an allocated basis. This change is only relevant to the 'listed company' class order (CO 14/1000), as contribution plans are not permitted under the other class order.
  • ASIC has also sought to clarify in the 'listed company' class order that the contribution plan provisions do not apply to one-off payments to exercise an option or upon vesting of an incentive right, or where the relevant products for which the payment is made are otherwise granted to the participant as soon as practicable (taking into account insider trading issues and securities trading policies). While technically these sorts of payments may have been previously caught, ASIC has acknowledged that subjecting them to the contribution plan requirements serves no policy purpose. (Curiously, ASIC has not made the same clarifying changes to the 'unlisted company' class order, presumably on the basis that contribution plans are not permitted under that relief. However, the clarification would still appear relevant to defining what does not fall within the scope of a prohibited contribution plan.)
  • ASIC's policy of not allowing more than nominal consideration to be payable for eligible products like options and performance rights is now made explicit in the class orders. Previously that policy was only expressly noted in ASIC's associated regulatory guide (although ASIC considered it implicit in other aspects of the class orders). However, in the context of the 'listed company' class order, ASIC has clarified that this policy is directed at relevant products that are not tradeable on an eligible financial market. Therefore, it will apply to unquoted options or performance rights, for example, but not to quoted options.
  • Similarly, the previous prohibition under the 'listed company' class order on a contribution plan being used to acquire options or incentive rights has been modified so that it only now applies to unquoted options or incentive rights (or unquoted units in an underlying product, except where those units arise simply by virtue of a trustee holding quoted products on behalf of the participants).