ASX Proposal For Non-Voting Securities

The Australian Securities Exchange (ASX) has issued a public consultation paper and invited feedback on a proposal to allow listed companies to issue and trade in non-voting ordinary shares. The introduction of such changes has the potential to affect the way in which companies float and raise capital. In our view, such a proposal, if adopted, would assist in aligning legal regimes should ASX listed companies wish to dual list in other countries such as FTSE, AIM, NYSX or TSX.

The ASX Listing Rules currently provide that on a resolution to be decided on a poll, ordinary security holders must be entitled to one vote for each fully paid security. The ASX has requested feedback on the proposal to amend this requirement, to allow listed entities to issue non-voting ordinary securities subject to the following conditions:

1. the company's constitution does not prevent the issue of non-voting ordinary securities;
2. if the company is seeking admission to the official list, it has clearly set out in its IPO documentation the terms and conditions attaching to non-voting shares or
3. if the company is currently listed on ASX, it has obtained shareholder approval to issue non-voting shares, such approval to expire after 12 months if non-voting securities are not issued by the company;
4. the rights of the holders of non-voting ordinary securities are substantially the same as the rights of holders of voting securities, except for the voting power per security;
5. non-voting ordinary shares receive a dividend equal to or greater than ordinary voting shareholders; and
6. non-voting shareholders receive equal voting rights in the following circumstances:

1. proposal to wind up the company;
2. proposal to buy-back or reduce voting ordinary capital.

The ASX expects non-voting shares to be attractive to:

• unlisted Australian family owned companies
• listed Australian companies seeking flexible capital raising arrangements
• overseas listed companies with a dual share structure
• unlisted Australian professional services partnerships
• government assets being corporatised and listed

The consultation paper also indicates that overseas securities exchanges that allow companies to issue non-voting ordinary shares include the London Stock Exchange, the New York Stock Exchange, NASDAQ and the Toronto Stock Exchange.

The consultation paper lists a number of key benefits of non-voting share structures that have been put to the ASX, including giving companies greater capital raising flexibility and choice, enhancing the competitiveness of ASX listed companies, facilitating listing of Australian family owned entities currently accessing capital from sources such as private equity, reducing reliance on debt capital and retain listings which may otherwise seek private equity funding, enhancing capital market efficiency and enhancing economic efficiency.

Some of the potential concerns noted were the alignment of shareholder and company interests, reduction of management accountability, market efficiency and potential market confusion.

At present, News Corporation is the only company that has been permitted by the ASX to have non-voting shares trading on the ASX. The ASX has also quoted shares with differential voting rights for several former agricultural cooperatives.

The ASX has stated that it has not yet formed a view on the proposal to allow quotation of non-voting ordinary shares.

The ASX has invited comment on the proposal by 7 March 2008 and indicates that if it were to proceed with the relevant listing rule changes that such changes would not come into operation before the second half of 2008.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.