ASIC Corporations (Sale Offers: Securities Issued on Conversion of Convertible Notes) Instrument 2026/96

Continuously quoted securities. The instrument modifies the definition of this term in section 9 of the Act. Currently, a security is continuously quoted if it was quoted on a prescribed financial market at all times in the three months before the relevant day and if a prospectus or Product Disclosure Statement was lodged for the body. The instrument inserts a reference to the cleansing notice under new paragraphs 708A(12C)(e) or 1012DA(12C)(e) as an alternative to a prospectus or PDS for the purpose of establishing continuous quotation status. This means that an entity can use the cleansing notice (rather than a traditional disclosure document) to satisfy the continuous quotation requirement for convertible note conversion relief.

Convertible note. The instrument expands the existing definition in section 9 (which references the Income Tax Assessment Act 1936) to provide that, in sections 708A and 1012DA, the term includes a converting note. This broadens the scope of the relief to cover converting notes, which are instruments that automatically convert into equity upon a trigger event, as distinct from traditional convertible notes where the holder elects to convert.

Cleansing notice. The central concept is the notice given to the market operator under new subsections 708A(12C)(e) and 1012DA(12C)(e). For securities, the notice must contain the information required by subsection 713(2) for the convertible notes and by subsections 713(2) to (5) for the underlying class of securities, as if the notice were a prospectus. For financial products, the notice must contain all information that investors and advisers would reasonably require to assess the effect of the offer and the rights attaching to the notes and underlying products, plus the information required for a PDS for continuously quoted securities. The notice must be worded and presented in a clear, concise and effective manner. Any statement attributed to a person requires that person's consent, which must be stated in the notice and not withdrawn before the notice is given.

Five-day suspension test. An issuer cannot rely on the relief if trading in the class of securities or products was suspended for more than five days in total during the shorter of: the period since quotation, and the 12 months before the first day the convertible notes were issued. This ensures the market for the underlying securities has been reasonably continuous.

No further offer on conversion. The conversion itself must not involve any further offer. This prevents the relief from being used where the conversion requires the holder to pay additional consideration or take some additional positive step that itself constitutes an offer for disclosure purposes.

Ongoing reporting. New paragraphs 708A(12E) and 1012DA(12E) require annual financial report disclosure of the status of the convertible notes, including average conversion prices, numbers unconverted, and other matters relevant to an informed assessment. The reasonable prejudice carve-out in subsection (12F) allows omission of particularly sensitive information, but the report must note the omission.

Issuers of convertible notes. The primary class affected are bodies (companies) and other entities (such as registered schemes or CCIVs) that issue convertible notes where the underlying securities are continuously quoted. These issuers must decide whether to rely on the relief and, if so, prepare and lodge the cleansing notice in the required timeframe. They also bear the ongoing compliance burden of the annual reporting requirements. For entities that frequently use convertible note financing, the instrument reduces the need for repeated prospectus preparation at each conversion tranche. For one-off issuers, the fixed cost of producing a cleansing notice that meets prospectus standards may be comparable to a short-form prospectus, so the net benefit may be marginal.

Regulated persons. Under section 1011B of the Act, regulated persons include issuers of financial products and persons who provide advice or deal in financial products. Part 7.9 of the Act applies to them when recommending or arranging the sale of financial products. The instrument modifies Part 7.9 so that a regulated person (such as a broker or adviser) does not have to give a PDS to a client when arranging the transfer or sale of underlying products issued on conversion, provided the issuer gave the cleansing notice. This affects the compliance obligations of intermediaries in the secondary market for converted securities.

Holders of convertible notes. Noteholders benefit indirectly because the streamlined disclosure regime can reduce the issuer's cost of capital and speed up the conversion process. However, they lose the protection of a prospectus or PDS at the point of conversion and must rely on the cleansing notice given at the time the notes were first issued. Since the cleansing notice is given before the notes are issued, its information may become stale by the time conversion occurs. The ongoing reporting in financial statements provides some post-issuance information, but only annually.

Market operators. The relevant market operator (such as ASX) receives the cleansing notice and must make it available to the market. The operator's obligations are not expanded by the instrument, but it must process and publish the notice. The operator also performs the function of monitoring whether the suspension condition is satisfied.

Investors in the underlying securities. Existing shareholders and prospective purchasers of the underlying securities after conversion rely on the cleansing notice and the issuer's continuous disclosure obligations under Listing Rules and the Act. They do not receive a new disclosure document at the moment of sale. This is consistent with the policy rationale that continuously quoted securities already have an efficient market price and ample public information.

Duty to give cleansing notice on time. The issuer must give the notice to the relevant market operator on the same day as, or within two business days before, the first day on which the convertible notes are issued. This is a strict timing requirement. If the notice is late, the relief for subsequent sales of the conversion securities is lost. There is no grace period or cure. The duty arises under the notional subsections 708A(12C)(e) and 1012DA(12C)(e). The instrument does not prescribe a form but the notice must be given to the operator.

Duty to include prescribed content. The notice must contain the information specified in subsections (12D) of both new sections. For securities, this means information equivalent to a prospectus under section 713 for both the convertible notes and the underlying securities. For financial products, the notice must contain all information investors and advisors would reasonably require to assess the effect on the issuer and the rights attaching, plus the information required for a PDS for continuously quoted securities. The notice must be clear, concise and effective.

Duty to obtain and state consents. If the notice includes a statement by a person or a statement said to be based on a person's statement, that person must have consented to inclusion in the form and context used. The notice must state that the person has given consent. The person must not have withdrawn consent before the notice is given to the market operator. This mirrors the prospectus consent regime.

Duty to include ongoing disclosures in financial reports. For each financial year during which the convertible notes were on issue, the financial report and directors' report must include the seven categories of information listed in subsection (12E): number of unconverted notes, number of underlying securities into which they convert, conversion price, circumstances of conversion, remaining liability, average conversion price and number of securities for notes converted during the year, and any other matters reasonably required for an informed assessment. The issuer has a right to omit material under (12F) if disclosure would cause unreasonable prejudice, but must state that material has been omitted.

Right to rely on the relief. If all conditions are satisfied, the issuer (and in Part 7.9, the regulated person) has a right to sell the underlying securities without a prospectus or PDS. This is not an exemption from liability for misleading or deceptive conduct; the general law and other provisions of the Act still apply.

Right to omit prejudicial material. The issuer has a discretion to omit information from the annual report that would otherwise be required under paragraph (12E)(g) if disclosure would result in unreasonable prejudice. The burden is on the issuer to justify the omission, and the report must note it. This is a narrow carve-out; it does not apply to the specific items in (12E)(a) to (f).

The instrument does not create its own civil or criminal penalties. Instead, it modifies the operation of existing provisions of the Corporations Act. If an issuer or regulated person fails to satisfy any condition of the relief, the consequence is that the exemption does not apply. The failure results in the full disclosure obligations under Chapter 6D or Part 7.9 applying to the sale of the underlying securities. That may give rise to liabilities for offering securities without disclosure under sections 727 or 1016E of the Act, which carry penalties including imprisonment for individuals and fines for bodies corporate.

Offering without disclosure. If an issuer sells underlying securities on conversion without a prospectus or PDS and the cleansing notice conditions are not met, the issuer may be in breach of section 727 (which prohibits offering securities under a disclosure document that does not satisfy the requirements) or section 1016E (which prohibits regulated persons from selling financial products without a PDS). The maximum penalty for an individual under section 727 is 200 penalty units or imprisonment for five years, or both. For a body corporate, the maximum is 1,000 penalty units. Penalty unit amounts are indexed; as of 2025 the general federal penalty unit is $313, so 1,000 units equals $313,000.

Misleading or deceptive conduct in the cleansing notice. The cleansing notice, although not a disclosure document for relief purposes, may still be subject to the misleading or deceptive conduct provisions in section 1041H of the Act (relating to financial products and services) and the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010). ASIC may take administrative action, seek civil penalties, or apply for injunctions. If the notice contains a false or misleading statement, the issuer and directors may be exposed to liability for damages.

Breach of consent requirements. If a cleansing notice includes a statement by a person without that person's consent, or if the consent is withdrawn before the notice is given, the issuer may be in breach of the Act generally and the condition for relief is not met. The person whose statement is used without consent may have rights to seek compensation or an injunction.

Ongoing reporting failures. Failure to include the mandatory information in financial reports under paragraph (12E) may constitute a breach of the continuous disclosure or financial reporting requirements of the Act. Directors may face personal liability for defective reports. ASIC can issue infringement notices, seek civil penalties, or refer matters for criminal prosecution in serious cases.

In enforcement terms, ASIC's approach is likely to focus on whether the conditions for relief were genuinely satisfied, particularly the timing of the cleansing notice and the ten-day suspension test. The instrument's conditional nature shifts the burden of compliance onto the issuer; there is no approval or prior clearance from ASIC.

Corporations Act 2001. The instrument modifies sections 9, 708A and 1012DA of the Act. It operates as a legislative variation of those provisions for all persons (for Chapter 6D) and for regulated persons (for Part 7.9). The modifications are notational; the instrument deems the Act to read as if the new subsections were inserted. The effect is that the instrument is read together with the Act, but does not amend the Act itself. It is a form of delegated legislation that expands the relief available under the Act beyond the statutory exemptions.

ASIC Corporations (Non-Traditional Rights Issues) Instrument 2026/98. The instrument expressly notes that it inserts new subsections after subsection (12B) as notionally inserted by the Non-Traditional Rights Issues instrument. The two instruments are designed to work together, with the convertible note relief coming after the rights issue relief. The note to section 8 of the instrument flags that subsection 708A(1) is notionally modified by that other instrument. Users must read both instruments to understand the full picture of relief under section 708A.

Chapter 6D and Part 7.9 of the Act. The instrument provides an alternative pathway to disclosure. It does not override the existing exemptions in the Act (such as the small issue exemption or the sophisticated investor exemption). It sits alongside them. An issuer that does not satisfy the cleansing notice conditions may still rely on another exemption if available.

Section 713 of the Act. For the cleansing notice content, the instrument cross-references the prospectus content requirements of section 713 for continuously quoted securities. That section requires information that investors would reasonably expect for an informed assessment, plus any new information not already disclosed to the market. The issuer must ensure the notice updates any material changes since the last prospectus or continuous disclosure announcement.

Section 713(6) determinations. The instrument conditions relief on there being no determination under subsection 713(6) in force in respect of the body. That subsection allows ASIC to determine that securities are not continuously quoted if certain events have occurred. If such a determination exists, the relief is not available.

Section 1013FA(3) determinations. Similarly, for Part 7.9 relief, there must be no determination in force under subsection 1013FA(3) in respect of the relevant product. This is ASIC's power to declare that a financial product is not continuously quoted.

Section 298 financial reports. The ongoing reporting obligations under the new subsections override the general financial reporting requirements to the extent they require the additional convertible note disclosures. However, the instrument does not affect the existing reporting requirements under accounting standards; they are cumulative.

Corporations Regulations 2001. The note to paragraph (12C)(c) references former regulation 1.0.02A of the Corporations Regulations, which prescribed financial markets. The instrument clarifies that until a declaration is made under new section 9D, those markets are taken to be declared financial markets. This transitional provision ensures continuity during the transition to the new definition.

The instrument replaces the earlier ASIC Corporations (Sale Offers: Securities Issued on Conversion of Convertible Notes) Instrument 2016/82 in its entirety. Schedule 1 of the new instrument expressly repeals the 2016 instrument. The 2016 instrument had provided similar relief but the new instrument updates and streamlines the conditions. The new instrument also integrates with the Non-Traditional Rights Issues instrument 2026/98 by inserting after subsection (12B) as notionally added by that instrument.

The instrument itself has a sunset provision: it is repealed at the start of 1 April 2031 (section 10). This means it has a five-year life from its expected commencement on 1 April 2026. This is consistent with ASIC's practice of reviewing legislative instruments periodically to ensure they remain appropriate. If the exemption is still needed at that point, ASIC will need to remake or extend it.

The legislative history of convertible note disclosure relief in Australia began with ASIC class orders and then the 2016 instrument. The 2016 instrument itself superseded earlier class orders (such as CO 13/520) which had provided interim relief. The new 2026 instrument reflects ASIC's ongoing view that cleansing notice relief is appropriate for continuously quoted securities issued on conversion.

Interestingly, the instrument does not modify the definition of "continuously quoted securities" in the Act directly; it modifies it "as if section 9 were modified" for the purposes of applying Chapter 6D and Part 7.9. This indirect technique avoids creating a separate statutory definition for all purposes. It means the modified definition applies only within the context of the relief provisions, not for other parts of the Act.

The instrument also does not amend any other ASIC instruments, but note the cross reference to the Non-Traditional Rights Issues instrument 2026/98. That instrument notionally inserts subsections 708A(12B) and 1012DA(12B). The new instrument inserts after those subsections. The order of insertion suggests ASIC envisages a layered relief structure: rights issues first, then convertible notes second. Users must check the order of insertion in case there are conflicts.

The instrument itself has no litigation history because it was made on 23 March 2026 and commences on 1 April 2026. No cases have been litigated under the new provisions. However, its predecessor instrument (the 2016/82 instrument) may have been the subject of administrative decisions or private disputes. The instrument's legal effect depends on its validity as a legislative instrument under the Legislation Act 2003 and on the proper interpretation of its conditions.

Given the instrument modifies provisions of the Corporations Act, any litigation would likely involve the interpretation of the conditions for relief, such as what constitutes a "further offer" under paragraph (12C)(d), or what qualifies as "clear, concise and effective" wording in the cleansing notice under subsection (12D)(b). The phrase "no further offer" is likely to be contentious if conversion involves any payment or election by the noteholder beyond the initial note terms. Courts may look to analogous case law on prospectus disclosure and "offer" under section 700 of the Act.

The reasonable prejudice carve-out under subsection (12F) is another potential source of dispute. The term "unreasonable prejudice" appears in other contexts in the Act (e.g., section 299A) but its meaning in the convertible note reporting context may be litigated if a shareholder claims that material was improperly omitted.

The suspension test under paragraph (12C)(c) may also generate interpretive issues: what counts as a "suspension" (e.g., does a trading halt count?), how to calculate the total of five days, and which market's trading is relevant if the securities are quoted on multiple markets.

Because the instrument is a legislative instrument, it is subject to judicial review under the Administrative Decisions (Judicial Review) Act 1977 or the High Court's original jurisdiction. A party could challenge the instrument if it exceeds the powers in subsections 741(1) and 1020F(1) of the Act. Those subsections allow ASIC to declare that provisions of the Act apply with modifications. The instrument must be within the scope of the power. To date, no successful challenge to similar ASIC instruments has occurred.

ASIC may also issue guidance or no-action letters in relation to the instrument, which could be considered in litigation but are not binding on a court.

Timing trap. The cleansing notice must be given on the same day as or within two business days before the first day on which the convertible notes are issued. This appears straightforward but several traps exist. The "first day on which the convertible notes are issued" could be the date of the first issue under a program or series of issues. If notes are issued on multiple dates, the notice must be given in relation to the first issue date. A subsequent issue of notes under the same program may not be covered if a new notice is not given. The two business day window means the issuer cannot give the notice too early; if it is given more than two business days before the first issue, the condition is not met. This creates a narrow compliance window that requires precise coordination between legal, finance, and market operator teams.

Conversion without further offer. Paragraph (12C)(d) requires that the conversion did not involve any further offer. If the conversion requires the noteholder to pay a conversion price, does that constitute a further offer? The instrument states the condition in the negative: the conversion "did not involve any further offer". If the conversion requires payment (i.e., the noteholder pays a strike price), that is likely a further offer because the noteholder is making a decision to pay money, not merely receiving shares automatically. Automatic conversion without any action or payment by the holder is clearly within the relief. But cashless conversion mechanisms or mandatory conversion features may raise issues.

No determination under s713(6) or s1013FA(3). The issuer must check that ASIC has not made a determination that the securities or products are not continuously quoted. This is a condition at the time the cleansing notice is given. If ASIC makes a determination later (after the notice is given but before conversion), the instrument does not specify whether the relief is lost. The wording of (12C)(b) says "on the day on which a notice ... was given ... there was no determination". This suggests the condition is tested only at the date of the cleansing notice. But a subsequent determination could affect the continuous quotation status after conversion, potentially creating liability if the issuer sells without disclosure.

Suspension calculation. The five-day suspension test in paragraph (12C)(c) looks at the shorter of the period of quotation and the 12 months before the first issue of the notes. If the securities have been quoted for only two months, the suspension count is over that two months only. A five-day suspension is a high threshold for recent listings. Also, what constitutes a "suspension for more than a total of 5 days"? Does a one-hour trading halt count as a day? The instrument says "total of 5 days", implying calendar days. But a trading halt for one day would count as one day. If there are multiple halts, they are aggregated. Continuous trading suspensions over a period would also aggregate.

Consent withdrawal timing. The consent condition requires that the person has not withdrawn consent before the notice is given to the market operator. But what if a person withdraws consent after the notice is given but before the conversion? The instrument does not say the consent must continue in effect. However, a court may imply that the issuer must not use a statement if consent is later withdrawn. Prudent issuers should ensure consents are durable.

Ongoing reporting for multiple series. If the issuer has multiple convertible note programs using the relief, each program requires separate disclosure in the financial report. The annual report must describe the terms of each class of notes outstanding as at the end of the financial year. This can become voluminous.

Sunset risk. The instrument is repealed on 1 April 2031. If an issuer has convertible notes issued before that date that convert after the repeal, the relief may cease to apply for post-repeal conversions unless a savings provision applies. The instrument does not contain a savings clause. Issuers with long-dated convertible notes should monitor the regulatory status.

Interaction with Non-Traditional Rights Issues instrument. The new subsections are inserted after subsection (12B) as notionally inserted by that instrument. If the Non-Traditional Rights Issues instrument is amended or repealed, the numbering in the convertible note instrument may become orphaned. The instrument is a free-standing legislative instrument, but its intended location in the Act depends on that other instrument.

Step 1: Confirm eligibility. Before issuing convertible notes, the issuer must check that the underlying securities are continuously quoted on a declared financial market. The issuer must verify that no determination under subsection 713(6) or 1013FA(3) is in force. It must also verify that trading in the class has not been suspended for more than five days in total during the relevant lookback period.

Step 2: Prepare the cleansing notice. The notice must contain prospectus-level information for both the convertible notes and the underlying securities. For Chapter 6D, this means the information required by section 713(2) for continuously quoted securities (i.e., information that investors would reasonably expect and any new information not already disclosed). For Part 7.9, the notice must contain all information investors would reasonably require to assess the effect on the issuer and the rights attaching. The notice must be clear, concise and effective. Any statements attributed to a person must be based on that person's consent, which must be stated.

The issuer should draft the notice as if it were a short-form prospectus or PDS, including risk factors specific to the convertible notes and the underlying securities. The notice must be dated and include the issuer's name and ACN. It is prudent to include a summary of the key terms.

Step 3: Obtain consents. Obtain written consents from any experts, directors, or other persons whose statements are included in the notice. The consent must be in writing and must state that the person has not withdrawn it. The issuer should maintain a register of consents.

Step 4: Give the notice to the market operator. The notice must be given on the same day as or within two business days before the first day of issue of the convertible notes. For ASX-listed entities, this means lodging the notice with ASX Market Announcements. The issuer should ensure it has the operator's contact details and understands its requirements for acceptance. The notice should be provided in a format acceptable to the operator.

Step 5: Record the issue date. The issuer must record the first issue date of the convertible notes to confirm the timing of the cleansing notice. If notes are issued in tranches, consider giving a separate cleansing notice for each tranche if the timing window may not cover later issues.

Step 6: Ensure conversion does not involve a further offer. For the relief to apply, conversion must be automatic or at the holder's option without additional payment or consideration. If conversion involves a cash payment or exchange for other securities, the relief may be lost. The issuer should structure the conversion mechanics to avoid a "further offer".

Step 7: Ongoing annual reporting. For each financial year during which the convertible notes are on issue, the issuer must include the required information in its financial report and directors' report. The seven items under subsections (12E)(a) to (g) must be addressed. Where the issuer relies on the prejudice carve-out for paragraph (12E)(g) information, it must note that material has been omitted. The financial report must also comply with accounting standards and other legal requirements.

Step 8: Maintain records. The issuer should keep records of the cleansing notice, the consents, the timing of issue and conversion, and the suspension history of the underlying securities. These records may be needed to demonstrate compliance if ASIC or a court queries the relief.

Step 9: Monitor for changes. If ASIC makes a determination under subsection 713(6) or 1013FA(3) after the cleansing notice is given, the issuer should assess whether the relief remains available. If in doubt, consider disclosing via a supplementary notice or obtaining legal advice.

Step 10: Review before the sunset. Issuers with long-dated convertible notes should plan for the instrument's repeal on 1 April 2031. Consider whether to include a covenant in the note terms allowing the issuer to maintain the relief through alternative means if the instrument is not extended.