ASIC Corporations (Employee Share Schemes) Instrument 2022/1021

The instrument operationalises several key concepts relevant to employee share schemes (ESS) by substituting or modifying specific statutory text in Division 1A of Part 7.12. These concepts are: ESS contribution plan; the issue cap; acceptable financial information for offers involving foreign entities; the timing trigger for disclosure obligations; and regulatory relief for certain secondary sale offers of ESS interests. Each is restated below with the statutory mechanics.

ESS contribution plan (substituted s 1100T, see s 5)

• An ESS contribution plan is defined by contractual terms, not merely by practice. The plan must allow regular contributions by participants for the purpose of acquiring ESS interests under an offer (s 1100T(1)(a)). The plan must require contributions to be held on trust in an account with an Australian ADI and kept solely for acquiring those ESS interests (s 1100T(1)(b)). Plans must allow participants to elect to discontinue contributions at any time (s 1100T(1)(c)). If a participant elects to discontinue, the instrument requires contributions to cease and any subsequent contributions be repaid within 45 days, and the balance attributable to the participant plus interest to be repaid within 45 days (s 1100T(1)(d)(i)-(ii)). Written agreement to terms is mandatory before participation (s 1100T(1)(e)). The definition expressly contemplates contributions from gross wages, net wages or other monies (s 1100T(2)). The bank-account and prompt-repayment requirements do not apply to future gross wages or contributions made from loans covered by s 1100U (s 1100T(3)).

Issue cap (modified s 1100V(1)(b), see s 6)

• The instrument changes the threshold language that limits the number of ESS interests that may be issued in a scheme. It replaces “could have been issued” with “may be issued”; it narrows applicability to offers “that were both received in this jurisdiction and” and changes “the employee share scheme” to “an employee share scheme”. These textual changes affect how the numerical cap is calculated and which offers count toward it.

Financial information prepared under a foreign standard (modified s 1100X, see s 7)

• The instrument permits foreign financial statements,prepared under a “foreign standard”,to be provided for offer purposes, but requires additional information unless the issuer reasonably believes the foreign statements are prepared in accordance with United States standards (s 1100X(2A) and (2B)). The additional information must either confirm no material difference or provide a reconciliation of material differences between the foreign financial statements and the information that would otherwise be required under the main accounting standards (s 1100X(2B)(a)-(b)). If the ESS interest is not an ordinary share, the offer must include a valuation by an expert (s 1100X(3)(aa) insertion).

Period of disclosure (modified s 1100Z(1)(b), see s 8)

• The instrument modifies the temporal trigger for the disclosure obligation to events becoming known “during the application period for the offer mentioned in paragraph 1100W(2)(e)”. This ties the obligation to the specific application period rather than the broader phrase “after becoming aware”.

Regulatory relief for certain subsequent sale offers (substituted s 1100ZD, see s 9)

• The substitution creates two alternative relief pathways from the disclosure and accommodation regimes in Parts 6D.2, 6D.3 and 7.9 for subsequent sale offers of ESS interests: one for non-tradable classes offered only to ESS participants where the seller acquired the interest in connection with the scheme or from a participant (s 1100ZD(1)); another for tradable classes issued in connection with the scheme, subject to issuer intent restrictions aimed at preventing issuance for the purpose of enabling recipients or transferees to effect secondary sales, transfers or grants (s 1100ZD(2)(c)-(e)). Both rely on the offeror’s reasonable belief and on structural features of the ESS and the issuer.

Repeal (s 10)

• The instrument expires automatically five years after commencement. Any reliance on these modified texts must therefore be managed against that sunset.

These concepts are expressed as legislative text substitutions and modifications rather than as standalone policy statements. The instrument thus changes legal obligations and exemptions by altering text that determines how Division 1A operates for all persons.

The instrument changes legal treatment for a set of actors directly involved in employee share schemes and offers of ESS interests, and indirectly affects advisers, financial institutions and auditors. The affected parties are defined by the roles named in the substituted and modified provisions.

Employers and scheme operators

• Employers or bodies corporate that operate an employee share scheme are affected because the instrument alters the statutory definition of contribution plans (s 5) and the mechanics for subsequent sale offers (s 9). Those entities must ensure scheme documentation matches the substituted s 1100T terms where a contribution plan is used.

ESS participants and potential participants

• Employees who participate in salary sacrifice arrangements are affected. The substituted s 1100T requires written agreement before participation and grants participants the right to elect to discontinue contributions at any time, triggering repayment obligations (s 1100T(1)(c)-(e) and (d)). Participants making contributions from gross wages, net wages or other monies are explicitly covered by the definition (s 1100T(2)).

Trustees and trustees of ESS trusts

• If an ESS uses a trustee, the trustee is implicated by the holding-on-trust requirement for contributions in an Australian ADI account (s 1100T(1)(b)) and by the exclusions applicable where ESS interests were issued to trustees meeting s 1100S requirements (see s 1100ZD(2)(d)). Trustees must maintain the required custodial arrangements and be conscious of the instrument’s requirements for repayment and account holding.

Offerors and sellers of ESS interests

• Persons making offers of ESS interests for sale are directly affected by the substituted s 1100ZD (s 9). The relief from Parts 6D.2, 6D.3 and 7.9 applies only where the seller reasonably believes specified acquisition and recipient conditions are satisfied, or where the issuer did not issue with the purpose of facilitating secondary trading in the recipient. Offerors must form and be able to evidence the required reasonable beliefs.

Bodies corporate and responsible entities

• The instrument expressly addresses offers in relation to ESS interests in a body corporate or a registered scheme (s 1100ZD(1)-(2)). Bodies corporate or responsible entities that issue ESS interests are affected, particularly where ESS interests are in a class able to be traded on a financial market covered by s 1100K (s 1100ZD(2)(b)).

Financial institutions (Australian ADIs)

• The substituted s 1100T requires contributions to be held on trust in an account with an Australian ADI kept solely for that purpose (s 1100T(1)(b)). ADIs will therefore be the banks that accept and segregate these trust accounts.

Accountants, auditors and valuers

• The modifications to s 1100X affect accountants and auditors preparing financial statements for bodies corporate, including foreign companies. If a foreign company supplies foreign financial statements, additional information is required unless the company reasonably believes the statements conform to United States standards (s 1100X(2A)-(2B)). Valuers are implicated by the insertion requiring a valuation from an expert where the ESS interest is not an ordinary share (s 1100X(3)(aa)).

Regulators and advisers

• ASIC, as the maker under delegated authority, and advisers to issuers and participants are affected by the new text because regulatory interpretation, guidance and compliance monitoring will need to reflect the substituted provisions (refer s 3 for authority). Advisers will need to align offer documents, trust arrangements, disclosure processes and internal compliance practices with the new cuts to Division 1A.

Indirectly affected parties

• Payroll departments and HR/payroll system vendors will need to implement mechanics for salary sacrifice contributions that can be held in the required ADI account and support the 45-day repayment windows (s 1100T(1)(d)). Legal teams will need to draft written agreements that satisfy s 1100T(1)(e). Recordkeeping and internal controls must support assertions of “reasonable belief” where relief from disclosure provisions is claimed (s 1100ZD(1)(c) and (2)(c)-(e)).

The instrument therefore reaches the full chain from scheme design and payroll mechanics to offers of ESS interests and secondary sales, imposing documentary, banking and evidential obligations on different parties.

This section summarises the statutory duties created or clarified by the substituted and modified provisions, and the rights the instrument grants or preserves. Citations refer to the instrument’s section numbers and the substituted Act provisions where relevant.

Duties arising from the substituted definition of ESS contribution plan (s 5, substituted s 1100T)

• Duty to hold contributions on trust in an account with an Australian ADI, and to keep that account solely for the purpose of holding contributions for acquiring ESS interests (s 1100T(1)(b)). The duty is expressed as a mandatory term of the plan; plan terms must provide for this trust holding.
• Duty to permit participants to discontinue contributions at any time (s 1100T(1)(c)). Plan documentation must include an election mechanism enabling cessation.
• Duty to repay contributions and stop future contributions swiftly when a participant elects to discontinue: contributions made after the election must be repaid within 45 days, and any amount standing to the credit of the participant plus interest must be repaid within 45 days (s 1100T(1)(d)(i)-(ii)). This creates a clear timing obligation on the plan operator or trustee.
• Duty to secure written agreement from participants to plan terms before participation (s 1100T(1)(e)). The operator or employer must obtain and retain written consent.
• Duty to comply with any regulatory requirements prescribed in regulations for contribution plans (s 1100T(1)(f)). The instrument reserves the possibility that regulations may add further requirements.
• Duty to treat contributions in the categories specified: gross wages, net wages and other monies (s 1100T(2)). Plan operators and payroll must classify and account for these appropriately.
• Exclusions from the bank-account and repayment duties for future gross wages and for contributions from loans covered by s 1100U (s 1100T(3)). If contributions are future gross wages or arise from a loan covered by s 1100U, the repayment-and-account rules in (b) and (d) do not apply.

Duties and effects of the issue cap change (s 6)

• The change from “could have been issued” to “may be issued”, and the insertion of a requirement that offers were received in this jurisdiction, modifies how the numerical cap on issueable ESS interests is calculated and applied. The drafting responsibility falls on the issuer to determine which offers count toward the cap and to document reception in this jurisdiction.

Financial information duties for foreign entities (s 7, modified s 1100X)

• Duty to provide a balance sheet and profit and loss statements in compliance with Australian or international accounting standards, or where the body is a foreign company but not a registered foreign company, to provide foreign financial statements supplemented by additional information unless the issuer reasonably believes the foreign statements conform to United States standards (s 1100X(2)(c)(i)-(ii), (2A), (2B)). The additional information must be either a confirmation of no material difference or a reconciliation of material differences (s 1100X(2B)(a)-(b)).
• Duty to provide a valuation by an expert when the ESS interest is not an ordinary share (s 1100X(3)(aa)). Issuers must procure and include such valuations in offer materials.

Disclosure timing duties (s 8, modified s 1100Z(1)(b))

• Duty to monitor for information that arises during the application period for an offer and to respond, because the disclosure trigger is now tied to the application period rather than the broader “after becoming aware” formulation. Offerors must track the specific application period referenced in s 1100W(2)(e).

Conditions enabling relief from usual disclosure and accommodation regimes (s 9, substituted s 1100ZD)

• Duty to ascertain, and reasonably believe, specified facts for relief to apply. In the non-marketable scenario (s 1100ZD(1)), the offeror must reasonably believe they acquired the ESS interest via the scheme or from an ESS participant, and that the offer is made only to ESS participants. In the tradable scenario (s 1100ZD(2)), relief depends on the ESS interest having been issued in connection with the scheme and on the issuer not having issued for the purpose of enabling transferees to sell, transfer or grant interests or options in the ESS interest.
• Right to relief: where these conditions are satisfied, Parts 6D.2, 6D.3 and 7.9 do not apply to the relevant subsequent sale offer (s 1100ZD(1)-(2)), removing the disclosure, prospectus and some fundraising obligations for certain intragroup or intra-scheme secondary offers.

Rights of participants

• Right to discontinue contributions at any time and receive repayment within the 45-day statutory window for both future contributions and the then-credit balance including interest (s 1100T(1)(c)-(d)).
• Right to have contributions held in an Australian ADI account on trust prior to acquisition (s 1100T(1)(b)).

Evidentiary and procedural duties

• Duty to document written agreement (s 1100T(1)(e)).
• Duty to document and retain evidence of “reasonable belief” where an offeror relies on the s 1100ZD relief (s 1100ZD(1)(c), (2)(c)-(e)). The instrument uses the phrase “reasonably believes”, which imposes an evidentiary burden in practice.

No new standalone penalties in the instrument

• The instrument does not set out new civil or criminal penalties directly; it operates by changing the conditions under which existing Parts of the Act apply, and by requiring certain handling and documentation rights and duties. Existing penalty and enforcement regimes in the Act would apply where the underlying provisions that remain in force prescribe penalties.

In sum, the instrument creates concrete operational duties for plan operators, issuers, trustees, offerors and ADIs, and allocates specific rights to participants, with particular emphasis on account handling, repayment timing, documentary consent, financial information content and the conditions that permit relief from broader prospectus and disclosure regimes.

The instrument itself does not create novel penalty regimes; it modifies how existing provisions of the Corporations Act apply within Division 1A. Enforcement therefore flows from the remaining and unmodified substantive offences, civil penalties and infringement regimes within the Act and related statutory provisions. The instrument alters applicability and reliefs, which changes when those enforcement provisions attach.

No direct penalty clauses in the instrument

• The text contains no express criminal or civil pecuniary penalty clauses. It replaces or modifies wording of the Act so that certain Parts (in particular Parts 6D.2, 6D.3 and 7.9) will not apply in defined circumstances (s 9, substituted s 1100ZD). Because the instrument is a modification to Division 1A, the practical effect is to contract or expand the coverage of existing penalty-bearing rules rather than to create new sanctions in the instrument itself.

Enforcement remains in the Act

• Where the instrument leaves Parts of the Corporations Act operative, enforcement mechanisms included in those Parts continue to apply. For example, where a subsequent sale offer does not satisfy the substituted s 1100ZD relief conditions, the offeror remains subject to Parts 6D.2 and 6D.3 and the remedies and penalties in those Parts. The instrument therefore creates relief from enforcement only to the limited extent set out in s 1100ZD.

Evidentiary significance of “reasonably believes”

• The substituted s 1100ZD conditions in s 9 depend on the offeror’s “reasonable belief” about how the ESS interest was acquired and about the class of recipients (s 1100ZD(1)(c)(i)-(ii)) or on the issuer’s absent-purpose (s 1100ZD(2)(d)-(e)). In enforcement proceedings, the presence of the “reasonably believes” formulation will require the regulator or an enforcing party to examine the facts that supported the belief. If an enforcement action were brought against an offeror who claimed the relief, evidence demonstrating whether the belief was reasonable could be critical. The instrument does not itself define how “reasonable belief” is to be established.

Administrative enforcement and ASIC’s delegated role

• The instrument is made by an ASIC delegate under statutory authority (s 3). ASIC’s ability to administer or enforce the Act where the substituted text applies will remain. The instrument does not itself constrain or expand ASIC’s powers to investigate or seek enforcement remedies where conduct falls outside the relief or where terms of the substitutions are breached.

Potential civil liability arising from plan duties

• The substituted s 1100T imposes duties on plan operators or trustees to hold contributions on trust in an Australian ADI and to effect repayments within 45 days if a participant elects to discontinue. Breach of those duties could, in practice, give rise to civil actions against trustees or plan operators under trust law, contract, or under other provisions of the Act that remain in force. The instrument does not specify remedies, so existing law and remedies would apply.

No express transitional or administrative penalty amendments

• The instrument specifies a five-year repeal (s 10). It does not set out transitional enforcement or grandfathering provisions. Enforcement consequences after the instrument’s repeal would depend on the text of the Act then in force and any transitional arrangements that may be enacted subsequently.

In summary, enforcement and penalties remain governed by the Corporations Act and usual administrative processes. The instrument narrows or clarifies when certain enforcement provisions apply by providing statutory reliefs and substituted duties, but it does not itself create new penalty mechanisms.

This instrument operates by modifying how Division 1A of Part 7.12 of the Corporations Act applies and therefore interacts with multiple parts of the Act and, indirectly, with other statutory regimes referenced in the substituted text.

Interaction with the Corporations Act 2001

• Division 1A of Part 7.12. The instrument’s substitutions and modifications are explicitly framed as applying to Division 1A of Part 7.12 “in relation to all persons” as if the specified sections were omitted and replaced or varied (see ss 5-9). The instrument therefore does not amend the Act directly but prescribes how Division 1A is to operate by substituting statutory text for the purposes of that Division.
• Parts 6D.2, 6D.3 and 7.9. The substituted s 1100ZD (s 9) provides relief from these Parts in specified circumstances. Part 6D.2 concerns disclosure obligations and continuous disclosure regimes; Part 6D.3 concerns the content of prospectuses and offers more generally; Part 7.9 concerns off-market transfers and similar processes. The instrument creates carve-outs so that these Parts do not apply in specified subsequent sale offer scenarios (s 1100ZD(1)-(2)).
• Section 1100U (loans). The substituted s 1100T(3) excludes contributions from loans that are “covered by section 1100U” from the application of the account and repayment requirements. This means that where contributions are financed by such loans, different rules apply and the trust-account and repayment mechanics in s 1100T(1)(b) and (d) do not operate.
• Section 1100K (financial market coverage). The substituted s 1100ZD(2)(b) references classes of financial products “able to be traded on a financial market covered by section 1100K”. The instrument therefore preserves interaction with market definitions and status under the Act.
• Section 1100W(2)(e) (application period). The modified timing trigger in s 1100Z(1)(b) ties disclosure duties to the “application period” definition in s 1100W(2)(e). This links obligations to the discrete contractual window for offers under Division 1A.

Interaction with the Australian Securities and Investments Commission Act 2001

• The modified s 1100X(2)(c)(i) refers to “international accounting standards (within the meaning of the Australian Securities and Investments Commission Act 2001)”. That cross-reference means that the definition and scope of “international accounting standards” as defined in the ASIC Act will determine acceptable financial reporting frameworks for the statutory purposes of Division 1A.

Interaction with banking and prudential regimes

• The substituted s 1100T requires contributions to be held on trust in an account with an Australian ADI (s 1100T(1)(b)). That requirement intersects with banking regulation governing ADIs, including licensing, fiduciary treatment of trust accounts, and prudential rules. ADIs that hold ESS contribution trust accounts will need to treat those funds according to trust law, deposit-taking rules and any specific ADI obligations.

Interaction with foreign law and accounting standards

• The modified s 1100X permits foreign financial statements prepared under a foreign standard to be supplied, subject to additional information unless the issuer reasonably believes the statements conform to US standards (s 1100X(2A)-(2B)). This creates a legal interaction between the Act’s disclosure requirements and foreign accounting frameworks. Issuers must either provide confirmations of no material difference or reconciliations of differences between the foreign standard financial statements and the Australian/international accounting standards otherwise required (s 1100X(2B)(a)-(b)).

Interaction with trust and contract law

• The trust holding and repayment mechanics in substituted s 1100T invoke trust law principles, because funds are to be held “on trust” in an ADI account. Trustees and scheme operators must therefore observe trust obligations under domestic law when holding and disbursing contributions, and contractual duties arise under the written agreement requirement (s 1100T(1)(e)).

Administrative law and ASIC delegation

• The instrument is made by an ASIC delegate under s 1100ZK(2) authority (s 3). The instrument therefore sits within delegated legislative instruments that ASIC may make to clarify or modify the operation of specified provisions. This delegation interacts with administrative law principles governing the validity of delegated instruments, though the instrument’s text does not itself discuss procedural or validity considerations.

Temporal interaction and sunset

• The instrument will be automatically repealed five years after commencement (s 10). This creates a temporal interaction with any later legislative amendments or replacement instruments: compliance systems and documentation must be adaptable for the instrument’s eventual expiry.

Overall, the instrument should be read in the statutory context of Division 1A and the broader Act. It creates specific cross-references to other statutory provisions and to external accounting standards, generating operational intersections with banking regulation, trust law, foreign financial reporting regimes and ASIC’s regulatory architecture.

The instrument itself is presented as a discrete delegated legislative instrument that substitutes and modifies specified provisions for Division 1A of Part 7.12 of the Corporations Act. The instrument’s own text contains a limited amount of procedural history.

Making and date

• The instrument records it was made by Claire LaBouchardiere, a delegate of the Australian Securities and Investments Commission, and dated 16 December 2022 (header text). The instrument commences the day after it is registered on the Federal Register of Legislation (s 2). The instrument’s text does not include a legislative explanatory memorandum, second-reading speech extracts, or other ancillary materials. The instrument does not state the date of registration; this must be confirmed on the Federal Register.

Authority

• The instrument is made under subsection 1100ZK(2) of the Corporations Act (s 3). The instrument repeatedly frames its modifications by reference to "Division 1A of Part 7.12 of the Act applies in relation to all persons as if" specified sections were omitted and substituted or varied. That is the chosen drafting approach rather than direct amendments to the Act’s text in primary legislation.

Substantive substitutions and variations

• Substituted/modified sections and their instrument references:
  • s 5 substitutes s 1100T (Meaning of ESS contribution plan).
  • s 6 modifies paragraph 1100V(1)(b) (Issue cap).
  • s 7 modifies s 1100X (Financial information) and inserts additional subsections and a requirement for valuation material where ESS interests are not ordinary shares.
  • s 8 modifies paragraph 1100Z(1)(b) (Period of disclosure).
  • s 9 substitutes s 1100ZD (Regulatory relief for certain subsequent sale offers of ESS interests).
  • s 10 prescribes repeal after five years.

Sunset and expiry

• The instrument will be repealed at the start of the day that is five years after its commencement (s 10). The five-year sunset is an express part of the instrument rather than an external amendment history.

No subsequent amendments recorded in the instrument

• The instrument text contains no schedule of amendments or notes recording prior amendments. It is presented as a single instrument effecting the specified substituted wording.

Regulations and future change

• The substituted s 1100T(1)(f) preserves the potential for regulations to impose requirements for contribution plans. That provision anticipates further regulatory detail may be prescribed in regulations, but the instrument contains no regulations itself and records no subsequent regulatory instruments.

Transitional arrangements

• The instrument does not specify transitional provisions or savings clauses for offers made or contributions taken before commencement. The absence of such provisions means practitioners must consult commencement/registration information and, if necessary, seek clarification on transitional application.

In short, the instrument is a stand-alone delegated instrument dated 16 December 2022 that substitutes and modifies several provisions in Division 1A of Part 7.12, commences upon registration, and contains a five-year sunset. It does not document amendments beyond its own text.

The instrument’s text contains no litigation history. It records the substituted statutory text and the date and maker, but does not mention any court decisions, tribunal findings or prior litigation that inform or constrain the changes. Therefore, within the confines of this source, there are no reported judicial interpretations, appeals, or litigated challenges recorded.

Practical implications of the absence of litigation history

• No precedents or judicial guidance are contained in the instrument that would assist interpretation of key phrases such as “reasonably believes” (used in substituted s 1100ZD) or of the trust and repayment mechanics in substituted s 1100T. Practitioners must therefore rely on the statutory text itself and on any subsequent administrative guidance or case law that may develop after the instrument’s commencement.
• The substituted provisions create novel phrasing and shifting triggers (for example the replacement of “after becoming aware” with the application-period-limited formulation in s 1100Z) that could be the subject of future litigation. However, the instrument’s text does not anticipate or reference any particular judicial approach.

Potential areas that could attract litigation (textually evident)

• The reasonableness of beliefs relied upon under substituted s 1100ZD(1)(c) and s 1100ZD(2)(c). Because relief from Parts 6D.2, 6D.3 and 7.9 depends on the offeror’s reasonable belief, disputes about whether that belief was reasonable could arise. The instrument contains no guidance on how to establish reasonableness.
• The sufficiency of foreign financial statements plus additional information under s 1100X(2A)-(2B). If an issuer supplies foreign financial statements with a reconciliation, disputes could arise over whether the reconciliation is adequate for the statutory purpose. The instrument itself prescribes the form of additional information but does not set materiality thresholds or technical standards beyond the “material difference” concept.
• The trust-account mechanics and repayment timing under substituted s 1100T. If funds are not kept in an Australian ADI account “kept solely for that purpose” or repayments are not made within 45 days, disputes could arise regarding compliance, fiduciary obligations and remedies. The instrument itself does not set out enforcement pathways beyond the existing Act.

No recorded cases to cite

• The instrument contains no named cases and does not purport to rely on judicial construction. Any litigation history will necessarily develop after registration and practice under the substituted provisions. Users of this instrument should therefore note the absence of judicial guidance in the source material and assess legal risk accordingly.

In short, the instrument provides no litigation history or judicial interpretations. Its text creates issues that could be litigated in the future, but the instrument itself contains no record of any such litigation.

This instrument contains several drafting features and operational requirements that can create practical traps for employers, trustees, offerors and advisers. The following points identify specific provisions in the text that merit attention.

Account location and exclusivity (s 5, substituted s 1100T(1)(b))

• Contributions must be held on trust in an account with an Australian ADI that is “kept solely for that purpose”. That phrase imposes a segregation requirement. Holding contributions in a pooled but not ring-fenced account or in an overseas account would not meet the textual requirement. Practitioners should not assume international or multi-purpose bank accounts satisfy the statutory phrase.

45-day repayment clock (s 5, substituted s 1100T(1)(d)(i)-(ii))

• The substituted s 1100T imposes a strict 45-day timeline for both cessation and repayment of any contributions made after election, and for repayment of the then-credit balance plus interest. Plan operators must have operational processes to stop payroll deductions, identify balances attributable to each participant, and execute repayments within 45 days of the election date. Delays beyond 45 days could mean non-compliance with the plan-term requirements embedded in Division 1A.

Written agreement precondition (s 5, substituted s 1100T(1)(e))

• Participants must agree in writing to plan terms before participating. Verbal consent or implied consent is insufficient under the substituted text. Document drafting and signature capture processes must be robust and linked to payroll onboarding.

Exclusion for future gross wages and loans (s 5, substituted s 1100T(3))

• Paragraphs (b) and (d) (the account and repayment rules) do not apply to future gross wages or contributions from loans covered by s 1100U. If contributions are structured as future gross wages or financed by a s 1100U loan, the statutory trust/repayment mechanics do not apply. Misclassification risks arise where employers or participants treat a contribution as salary sacrifice when it is in fact a future gross wage or financed by a loan that falls under s 1100U; the rights and duties differ accordingly.

Change in issue cap wording and jurisdictional reception element (s 6)

• The modification of paragraph 1100V(1)(b) replaces “could have been issued” with “may be issued” and requires offers to have been received in this jurisdiction. That can materially affect whether the cap has been breached, depending on how “received in this jurisdiction” is interpreted operationally. Counting rules for the cap may now hinge on receipt mechanics and on whether an offer falls within “an employee share scheme” rather than “the employee share scheme”.

Foreign financial statements and US standard carve-out (s 7)

• Foreign companies that are not registered foreign companies may provide foreign financial statements plus additional information, but the additional information is not required if the issuer reasonably believes the statements were prepared in accordance with US standards (s 1100X(2A)). That creates an evidential need for issuers to document why they reasonably believe a foreign standard equals US standards. Otherwise, the issuer must include a confirmation of no material difference or a reconciliation of material differences. Failure to provide adequate reconciliation or confirmation could render the offer non-compliant.

Valuation requirement for non-ordinary shares (s 7(c), insertion into s 1100X(3))

• If the ESS interest is not an ordinary share, a copy of a valuation prepared by an expert must be provided. Some ESS interests may be hybrid instruments or options; these will need expert valuations. The need for a valuation can introduce cost and timing considerations into offering processes, especially for small or closely held companies.

Disclosure trigger narrowed to application period (s 8)

• The substitution that modifies s 1100Z(1)(b) shifts the disclosure trigger to information becoming known “during the application period” for the offer mentioned in s 1100W(2)(e). That narrows the window in which additional disclosures must be made, but also focuses attention on the precise definition of the application period. Failure to identify and monitor the correct application period could result in missing a disclosure trigger.

Relief for subsequent sale offers depends on “reasonable belief” and issuer purpose (s 9)

• Relief from Parts 6D.2, 6D.3 and 7.9 for certain subsequent sale offers turns on the offeror’s reasonable belief (s 1100ZD(1)(c)) and on whether the issuer issued interests with a purpose to facilitate subsequent trading (s 1100ZD(2)(d)-(e)). Those are fact-specific and could be contested. Sellers and issuers must create contemporaneous documentation supporting their beliefs and purpose assessments. The relief is narrow: in the tradable-class scenario the issuer must not have issued “with the purpose of” facilitating sales or transfers by recipients,proof of intent is required.

Scope limits for offers only to participants (s 1100ZD(1)(c)(ii))

• For non-marketable classes, the relief requires the offeror to reasonably believe the offer is made only to ESS participants. That limits resale markets to the participant pool; broadening marketing beyond that pool will remove the relief, triggering full prospectus and disclosure obligations.

Sunset and temporary nature (s 10)

• The instrument expires in five years. Any medium-term compliance or scheme design that relies on these substituted texts must account for the instrument’s sunset and plan for legal change or transitional uncertainty after repeal.

No transitional provisions in the text

• The instrument contains no transitional provisions. Practitioners should confirm commencement and consider how existing arrangements, offers in process, and trust accounts will be treated at the point of commencement.

In short, the principal practical risks are operational (timing and bank account segregation), classification (is a contribution future gross wages or loan financed), evidential (establishing a reasonable belief), and timing/administrative (monitoring application periods and the five-year sunset).

Below are concrete steps and controls that the instrument’s substituted and modified provisions make necessary. Each step is grounded in the relevant substituted or modified provision cited in the instrument.

1. Draft and maintain plan documentation that mirrors substituted s 1100T (see s 5)

• Ensure ESS contribution plans are written to include express terms that: allow regular participant contributions to acquire ESS interests (s 1100T(1)(a)); require contributions to be held on trust in an account with an Australian ADI kept solely for that purpose (s 1100T(1)(b)); allow participants to elect to discontinue contributions at any time (s 1100T(1)(c)); set out the 45-day repayment mechanics for post-election contributions and credited balances plus interest (s 1100T(1)(d)); and require participants to agree in writing to plan terms before participating (s 1100T(1)(e)). Obtain legal review of plan documents to ensure the terms are explicit and enforceable.

2. Operationalise trust account requirements with an Australian ADI (s 1100T(1)(b))

• Open and maintain segregated trust accounts with an Australian ADI, ensuring the account is documented as “kept solely for” holding contributions pending acquisition of ESS interests. Implement internal banking controls to prevent commingling with other funds. Confirm the ADI accepts the trust account arrangement and maintains records consistent with trust requirements.

3. Implement payroll and repayment procedures to meet the 45-day clock (s 1100T(1)(d))

• Integrate payroll systems with the plan’s election mechanics so that when a participant elects to discontinue contributions, payroll ceases further deductions and ensures that payments made after the election are repaid within 45 days. Establish clear reconciliation procedures to calculate each participant’s credited balance and interest so repayments can be effected within the statutory 45-day timeframe.

4. Collect and store written participant agreements prior to participation (s 1100T(1)(e))

• Capture signed written agreements electronically or physically and maintain records linked to payroll and trust-account records. Ensure agreements explicitly reference plan terms required by substituted s 1100T. Archive documents for the period required by corporate recordkeeping obligations and for evidentiary purposes where relief is claimed.

5. Classify contributions accurately and apply s 1100T(3) exclusions where relevant

• Determine whether contributions are future gross wages or financed by loans that fall under s 1100U. If they are, the account and repayment rules in s 1100T(1)(b) and (d) do not apply. Document the basis for the classification and apply the correct operational treatment.

6. For issuers dealing with foreign entities, provide acceptable financial information (s 7, modified s 1100X)

• Where the issuer is a foreign company not registered in Australia, determine whether foreign financial statements can be supplied in place of Australian/international standards statements. If foreign financial statements are used and are not prepared under Australian or international accounting standards, provide the additional information required by s 1100X(2B): either a confirmation that there is no material difference or a reconciliation of material differences. If you reasonably believe the foreign statements are prepared according to US standards, document the basis for that belief to avoid supplying additional information (s 1100X(2A)).

7. Obtain expert valuations where ESS interests are not ordinary shares (s 7 insertion into s 1100X(3))

• For non-ordinary share ESS interests, commission an independent expert valuation and include a copy of that valuation with the offer materials. The valuation must be prepared by an expert and included as required by s 1100X(3)(aa).

8. Monitor the application period for disclosure triggers (s 8, modified s 1100Z(1)(b))

• Identify the relevant application period for each offer per s 1100W(2)(e) and monitor for information that arises during that period. Implement procedures to capture and assess material information that becomes known during the window so that any triggered disclosure obligations are met on time.

9. If relying on substituted s 1100ZD relief for subsequent sale offers, assemble contemporaneous evidence of “reasonable belief” and absence of issuer purpose (s 9)

• Non-marketable-class pathway: maintain records showing the ESS interest was acquired in connection with the employee share scheme or from an ESS participant, and document that the offer is made only to ESS participants (s 1100ZD(1)(c)(i)-(ii)). Tradable-class pathway: document that the ESS interest was issued in connection with the scheme and that the issuer did not issue with the purpose of enabling subsequent selling, transferring or granting by transferees (s 1100ZD(2)(c)-(e)). Contemporaneous documentation could include board minutes, offer documents, allocation memos and legal opinions.

10. Review and adjust issue cap calculations and records (s 6)

• Recalculate the issue cap using the modified text of paragraph 1100V(1)(b): treat the cap as a limit on what “may be issued” and consider only offers “that were both received in this jurisdiction” when determining whether the cap has been breached. Maintain records of when and where offers were received to demonstrate compliance.

11. Ensure ADI and trustee cooperation on recordkeeping

• Coordinate with the ADI and any trustee to ensure transaction-level records show when contributions were received, who they relate to, and how repayments were effected within the 45-day window. Trustees should confirm their custody arrangements align with s 1100T(1)(b).

12. Plan for sunset and future legislative change (s 10)

• Because the instrument is repealed after five years, include a regulatory-review trigger in compliance calendars to reassess ESS documentation and practices before and after repeal. Consider contingency planning for offers that may straddle the instrument’s repeal date.

13. Seek legal and accounting advice for complex issues

• For borderline cases,classification of contributions, whether a foreign financial statement conforms to US standards, valuation methodology for unusual ESS interests, or assessing issuer purpose for tradability relief,obtain specialist legal and accounting opinions and document their basis.

14. Maintain internal training and audit trails

• Train payroll, HR, legal and finance teams on the new requirements and perform periodic internal audits to ensure written agreements, trust account segregation, repayment timelines and documentary evidence supporting “reasonable belief” are current and available.

Following these steps will help plan operators, trustees, issuers and offerors align operational practices with the substituted statutory text the instrument directs Division 1A to apply.