MARSHALL ALERTS: ASX Listing Rules Changes – Cash Payments & Promoters

Key Takeaways

  • Broad changes to ASX listing rules are effective 1 December 2019;
  • Newly listed companies face tighter restrictions for 24 months prior to listing; and
  • Cash payments now prohibited for some transactions.

Major changes to the ASX listing rules came into force in late 2019. These updates cover a wide range of areas and make it essential to have effective financial and legal advice.

This topic is too broad to cover at once, so we have directed our focus towards a sticking point that threatens to catch even seasoned players off-guard. This is particularly relevant for junior exploration companies.

For a period surrounding the listing of companies, the ASX imposes restrictions upon how assets and securities of that company can be dealt with. In general, this is to protect the system from investors using the listing to drive quick profits.

These restrictions generally require the use of ‘restricted securities’ which cannot be sold or transferred for a certain period of time.

Where we have seen companies face difficulty is in commercial transactions occurring before their listing. Deals which involve the purchase of ‘classified assets’ including mining tenements and similar explorative/speculative interests can involve mandatory restrictions on how those assets are paid for.

The recent changes have provided the ASX with the discretion to classify the vendors of ‘classified assets’, who are otherwise unrelated to the listed company, as ‘promoters’.

Tying this all together, where the ASX deems that a vendor is a ‘promoter’, it requires that any consideration paid for ‘classified assets’ must be solely in the form of restricted securities. The only permissible payments by cash are limited to reimbursement for development expenditure (and the ASX will generally require proof of payments).

In short, for 24 months prior to a company’s listing date, any mining tenements (or other similar explorative assets) acquired from a promoter must be paid for solely by way of restricted securities, and not by cash payments.

This is a significant development which affects the commerciality of businesses. We have had clients negotiate agreements without realising they risk non-compliance. 

If your company is considering an IPO, contact us today for advice. Marshall Lawyers has extensive experience in tenement transactions and ASX compliance and regularly provides advice in this area.