The changes to the Corporations Act 2001 to make the implementation of employee share schemes easier for employers have been legislated and new Division 1A of Part 7.12 of the Act will have effect from 1 October 2022.

We have previously summarised the changes (see HERE). In summary, Division 1A brings together into one place the various exemptions and relief that are provided within the Act or by ASIC ‘s administrative relief through its Class Order.

The changes are most welcome and will, in due course, make ESS implementation simpler and potentially less costly. However, there is an issue that has caused concern for some companies. This article explains that it can be expected to be addressed by ASIC in coming weeks.

This issue is the prohibition on selling shares within 12 months of acquiring the initial ESS interest. Currently, employees are exempted from this prohibition through ASIC Class Order 14/1000.

There is a gap between the 12-month on-sale exemption provided under Class Order 14/1000 and the new Division 1A. The Class Order provides a broad exemption from the requirements of Part 6D.2, 6D.3 and 7.9 in respect of the subsequent sale of shares within 12 months of the equity interest being acquired. The Class Order exemption is broad and is not limited to on-sale to another participant in the employee share scheme, as is the case with the exemption provided in section 1100ZD of new Division 1A of Part 7.12.

As this seemed to be a significant narrowing of the ASIC policy and approach without any comment in the Explanatory Memorandum, Guerdon Associates has been pursuing the matter with ASIC.

We understand that ASIC is planning to publicly consult on using its modification power in section 1100ZK of new Division 1A to provide a broader on-sale exemption for listed entities. This is expected to occur in coming weeks.

As this issue directly impacts all ASX-listed companies that grant employee equity, we expect this will be readily addressed to ensure there are no barriers to implementation.

As the intent of the legislative changes has been to remove the regulatory barriers to improve employee share scheme implementation, we expect the issue will be readily remedied.

In the meantime, be careful on the timing of new grants. Before 1 October and after any ASIC action to use its modifying power is a good time; in-between is not good.

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