As most of you are painfully aware, in late 2012/early 2013, the Australian Securities and Investment Commission (ASIC) concluded that restricted stock units (RSUs) should no longer be considered as nil-priced stock options, with the effect that most exemptions from the prospectus disclosure requirement no longer were available for RSUs. This meant that, in most cases, the grant of RSUs to employees in Australia would trigger a prospectus filing obligation, which would be extremely onerous for companies.
While one can debate whether ASIC was wrong in coming to this conclusion, it is clear that ASIC is standing by its decision. It demonstrated as much by publishing a consultation paper in November 2013, under which it proposed to issue a new Class Order exemption which would expressly cover RSUs.
The new Class Order is supposed to replace the existing Class Order exemption (which many companies rely on for the grant of options and the offering of their ESPPs). ASIC initially announced that the new Class Order would be issued in May/June 2014. As you no doubt have noticed, the new Class Order has still not been issued, and ASIC just informed our colleagues in Sydney that it should not be expected any earlier than the third quarter of 2014.
So, what to do while we are waiting for ASIC?
Still, for companies with very strict compliance standards, this may not be sufficient and the wait will have to continue. Alternatively, companies could consider granting another type of award until the new Class Order is issued. Options are not a great alternative because, even though an exemption from the prospectus requirement will probably be available, the tax treatment of options in Australia continues to be undesirable (generally taxed at vesting).
By contrast, restricted stock awards (RSAs) could be a viable alternative, because the existing securities exemptions apply to RSAs (such as the current Class Order exemption or the “20-in-12” exemption) and RSAs are taxed “only” at vesting when the restrictions on the shares lapse. Most companies do not grant RSAs outside the U.S. (or even in the U.S.), given that the tax treatment of RSAs often is undesirable (taxed at grant in many countries) and that RSAs can be administratively more burdensome because shares have to be issued at grant and held in escrow until vesting. Still, for those of you that are desperate to grant a full value award in Australia now, but not willing to compromise on the securities law compliance, RSAs may be the answer.
Meanwhile, we are all crossing our fingers that the new Class Order will indeed be issued by October 2014 and not face additional delays!