Submissions on Treasury's consultation paper seeking feedback on the proposed changes to the current regulatory framework for Employee Share Schemes (ESSs) closed on 30 April 2019.

The consultation paper sought comments on the Government's proposals to assist small businesses seeking to offer shares to their employees via an ESS. While the proposed reforms focus on small businesses, the consultation paper also sought feedback on possible reforms to assist listed companies.

Here, senior associate Kristy McCluskey steps you through the key proposals.

Consolidating and simplifying existing exemptions and ASIC relief

The Government proposes to consolidate and simplify the current statutory exemptions and ASIC relief from disclosure, licensing, hawking, advertising and other obligations by:

• Reviewing and moving the ASIC relief into the Corporations Act to provide a single consolidated framework for compliance, or
• Simplifying and expanding the definition of 'eligible ESS' under the statutory exemptions in the Corporations Act to align with the broader relief provided under the ASIC relief.

It is proposed that ASIC will continue to have the power to grant individual relief from the obligations under the Corporations Act, consistent with the current regime.

Increasing the offer cap per employee

Currently, unlisted companies seeking to make ESS offers without a disclosure document, relying on ASIC relief, can only make offers up to $5,000 in value (per employee) over a 12 month period.

The Government proposes increasing the value limit of eligible financial products offered by unlisted companies in a 12 month period to $10,000 per employee. To offset any potential risk for employees, the consultation paper suggests retaining or modifying the current condition for an offering company to provide a minimum level of disclosure to employees.

Facilitating the use of contribution plans

Some ESSs may include a contribution plan, where an employee makes a monetary contribution which is then used to acquire financial products offered under the scheme. Currently, unlisted companies seeking to make ESS offers without a disclosure document, relying on ASIC relief, cannot utilise contribution plans in connection with those offers. This restriction aims to protect employees of unlisted companies, given the increased risk of providing monetary contribution to acquire financial products in the absence of a reliable market and regulated disclosure document.

It is proposed to expand the relief for unlisted companies to include contribution plans, where an employee can make a monetary contribution to acquire eligible products. The following is suggested:

• Capping the monetary contribution at $10,000 per employee per year (consistent with the offer cap above), or
• Providing an independent valuation to employees where this cap is exceeded.

Expanding the exemption from public access to disclosure documents

While there is an existing exemption from the requirement for disclosure documents lodged with ASIC to be made publicly available, this is currently only available for certain eligible ESS offers made by 'start-ups' (ie unlisted companies no more than 10 years old and with annual revenue of less than $50 million).

The current proposal involves expanding the current exemption to apply to a broader range of companies (eg small companies) and ESS offers. This would enable small businesses offering an ESS to make offers under a disclosure document, without the requirement to make the disclosure document publicly available. However, the disclosure materials would still need to be lodged with ASIC.

It is not proposed for the exemption to extend to large companies which are required to lodge audited financial reports with ASIC and are publicly available.

Next steps?

The comments and feedback received will be taken into account in developing the legislation required to implement this measure. However, there is no indication as to the timing of the legislation.

Our team will keep you up to date with the outcome of the consultation process and any changes to the regulatory framework.