Australian Securities and Investments Commission, Class Order 94/ 1289 : How To Organise The Information In Documents - Part 3

The Australian law regulating the structure and activities of companies is called the Corporations Law. It is administered by the Australian Securities and Investments Commission (ASIC). The Commission has the power to issue "Class Orders" to modify the law as it applies to certain persons or classes of persons. [Section 1084(2) Corporations Law]

The example we are going to look at is Class Order 94/1289. It runs for a little less than five pages. It deals with Employee Share Schemes — that is, offers of shares that a company makes to its employees and directors. The offer is made separately from any general offers to the public or to institutional investors.

The Class Order exempts employee share schemes (that satisfy various criteria set out in the Class Order) from complying with several divisions of the Corporations Law. The exemption makes producing an employee prospectus a much simpler and cheaper task than producing a prospectus for a public offer.

This Class Order has a number of structural problems. I want to look at just a few of them.

* What is the class order about? Employee share schemes — we are told that in the heading. But after the heading, the first time that the phrase "employee share scheme" is used (or even hinted at!) is two-thirds of the way down the second page in section 4(b), under a heading "Further requirements". This information should be in the opening paragraph. After all, for the exemption to apply, it's crucial that the scheme be an employee share scheme. There are many other important requirements, but they are all subordinate to that one.

* What sort of employee share schemes are covered? Well, there are all sorts of restrictions. But a key restriction is this one — from 4(b), which you'll remember is the first time the phrase "employee share scheme" is used:

The offer or invitation must be made pursuant to an employee share scheme extended only to persons who at the time of the offer or invitation are full or part-time employees or directors of the issuer or of associated bodies corporate of the issuer. [My italics.]

That makes sense. And it should have been explained early on in the order — if not in the opening paragraph.

* But wait, there’s more! There's a qualification of the meaning of the phrase "extended only to" (the phrase I put in italics in the last quotation). The qualification has a big impact. And it is located two pages later in the section headed "6 Interpretation":

A scheme shall not be regarded as extended to a person, other than an employee or director of the issuer or an associated body corporate of the issuer, merely because such an employee or director may renounce an offer of shares made to him or her under the scheme in favour of his or her nominee. [My italics.]

That qualification is important. It means that if you have a friendly director, friendly employee, or friendly body corporate (or one that's prepared to accept your price), they can renounce the shares in your favour. In those cases, the qualification effectively negates the requirement about the persons to whom the scheme can be extended.

This qualification should be with the information it qualifies — that is, the information about to whom the scheme can be extended.

The only possible reason for separating the message from the qualification could be to save space. If the main message about "extended only to" is used so many times that to repeat the qualification each time would be a burden, waste words and paper, etc, then it might be worth separating the ideas. But, lo and behold, the phrase "extended only to" is not used anywhere else in the whole Class Order.

The decision to separate the qualification from the main message reflects confused logic and the (ill-founded and rarely acknowledged) desire to create concepts, name them, define them, and place the definition somewhere far away from the main message. That desire must be repressed, suppressed, oppressed, and destroyed.