Many businesspeople would suggest that the recent federal government 2021-22 and 2022-23 budget (and opposition party response) was mostly devoid of any vision to improve the long term resilience, productivity, wealth and prosperity of all Australians. However, there were little gems buried amongst the budget papers that will have a positive impact longer term. One of these concerned Employee Share Schemes (ESSs).
Currently, the Corporations Act 2001 has a range of rules that companies need to meet if they want to implement an employee share scheme. These securities law requirements make it costly and administratively difficult for private companies and other unlisted companies to grant rights and/or shares to their employees.
These rules include a requirement to obtain an Australian financial services licence and impose restrictions on the company on hawking and advertising as well as needing to make certain disclosures to the participating employees.
Financial products and securities offered as a part of certain employee share schemes are excluded from some of these requirements of the Corporations Act. However, they have been limited exemptions and relief.
Changes that were announced by the Government in last year’s Budget have been the subject of consultation and the 2022-23 Budget confirms some of those earlier announcements and introduces some other reforms. See HERE for a summary of the prior announcement.
The Treasury Laws Amendment (Cost of Living Support and Other Measures) Bill 2022 passed both houses on 30 March 2022, inserting a new Division 1A of Part 7.12 on Employee Share Schemes (ESS) into the Corporations Act 2001.
The changes have received Royal Assent and are now law.
As a result, companies that now offer equity interests to employees who do not have to pay or borrow to participate in the employee share scheme, will not have to consider or comply with any requirements under the Corporations Act in respect of the employee share scheme.
In general terms, an ESS can get relief from the disclosure, hawking, advertising and financial services license requirements if:
- the equity interests are shares or rights to acquire shares;
- the participants are directors, employees, or service providers; or
- if the scheme requires payment to participate:
- certain disclosure documents are provided with the offer;
- if the scheme has an associated contribution plan, loan or trust, the contribution plan, loan or trust meet certain requirements;
- the total numbers of securities issued under the ESS over the previous three years does not exceed 5% of issued capital for listed companies or 20% for unlisted companies; and
- for an unlisted company, all participants are generally limited to outlay a monetary cap of $30,000 per year (which can be accrued for unexercised rights over a 5-year period, up to a maximum of $150,000), plus 70% of dividends and 70% of cash bonuses.
ESSs that require participants to pay for an interest to participate will need to provide certain disclosure in relation to offers under the scheme. The disclosure requirements are streamlined versions of the general requirements under the Corporations Act.
The disclosure documents required to be provided are:
- for a listed company – certain warnings;
- for an unlisted company:
- certain warnings;
- certain financial information about the company;
- a valuation of the interests; and
- a statement that the company is solvent.
These changes provide a more streamlined disclosure requirement than previously required.
These changes are welcome and come after more than 20 years of lobbying by Guerdon Associates and others for significant improvements to securities law requirements for ESSs. The changes contribute to making the country that bit more competitive for employee attraction, retention and productivity.
The legislation and the Explanatory Memorandum can be found HERE.© Guerdon Associates 2023 Back to all articles