Many growth-stage companies – particularly in the technology and resources sectors – have contemplated changing their jurisdiction of incorporation from Australia to elsewhere. Usually the strategy arises in the context of a step-up in the company’s scale of operations and/or funding requirements, or when a significant opportunity to expand the business offshore presents itself (for example through an acquisition).
Outbound redomiciling – that is, changing from a company incorporated in Australia to one incorporated overseas – is sometimes viewed as complicated, but can be a fairly smooth process, particularly where there is a sound business case for it that resonates well with shareholders. Redomiciling often accompanies a decision to list (or dual-list with ASX) on an overseas exchange, but there can be reasons to consider it pre-float. We have recently noticed that more clients are coming to us with an interest in exploring it.
There are a range of reasons why an Australian company might want to redomicile. Four stand out. The first is where the company’s operations have moved offshore (or will need to if the company is to continue to grow) and an ongoing connection with Australia no longer makes sense. The second is the perception that redomiciling can help with access to deeper capital markets or markets where the company’s valuation and prospects are better understood, particularly in industries such as healthcare and tech. The third is that it can facilitate transactions or assist with attracting staff in the destination jurisdiction where equity is offered as part of the consideration, from scrip-for-scrip takeover offers to employee incentive schemes. The fourth, which can be more controversial, is where the destination jurisdiction’s taxation, regulatory, corporate, or securities laws are more favourable to the company’s business.
Some jurisdictions have special rules allowing a company to change its country of incorporation while maintaining its legal identity. These include Canada, Singapore, New Zealand, Switzerland, Luxembourg, Jersey and some US states. In 2021-22, the UK Government consulted on a proposal to introduce a similar regime for redomiciliation, but has not progressed it. Australia does not.
Australian public companies looking to redomicile do so via a transaction known as a ‘top hat’ scheme of arrangement. This transaction involves incorporating a new corporation in the destination jurisdiction, which will acquire the Australian company from its current shareholders. The scheme can only go ahead with the approval of the Court and the Australian company’s shareholders. On completion, as consideration for the acquisition, the Australian company’s shareholders receive shares in the new foreign corporation.
Members’ schemes of arrangement are a well-established procedure for corporate reorganisations in Australia, but they can be complicated to implement and require the assistance of specialist corporate lawyers and tax advisers. Once the company’s board decides to pursue a redomiciliation, the first task is to prepare a scheme implementation agreement which documents the scheme process and then put together detailed disclosure for shareholders in the form of a ‘scheme booklet’ that includes an independent expert’s report and is reviewed by ASIC.
The next step is an application to either the Federal Court or a State Supreme Court for orders convening a general meeting to vote on the scheme. If the scheme is approved by 75 per cent of the votes cast at the general meeting and more than 50 per cent in number of the company’s shareholders voting on the resolution (in person or by proxy), it comes back to the Court for a second hearing. If the Court also approves the scheme, the scheme binds all shareholders, even those who voted against it.
Tax class rulings for existing shareholders who are exchanging their shares and to amend options and existing employee awards will often be required. It is also recommended to obtain advice to ensure the new corporation is no longer considered a resident of Australia for tax purposes.
Once the scheme is implemented, the new corporation will operate subject to the laws of the destination jurisdiction and, if the new company is migrating to a foreign securities exchange (or the group will be dual-listed on ASX and a foreign exchange), the listing rules of the foreign exchange. This will affect shareholder rights and protections (including in any future change of control transactions), officers’ duties and liabilities, corporate governance arrangements and norms, and corporate reporting and disclosure obligations. The company’s board, management and shareholders need to be clear about how their position will change.
Large redomiciliation transactions like James Hardie (to the Netherlands and subsequently to Ireland) and Amcor (to Jersey) are relatively rare. But a steady stream of smaller listed entities have recently made the trip. Over the last five years, these include Surf Lake Holdings, Tamboran Resources, Incannex Healthcare, Controlled Thermal Resources, American Pacific Borates, Piedmont Lithium and Avita Medical (all to the US), Pensana Metals and Tronox (to the UK), Boart Longyear and GetSwift (to Canada) and Petronor E&P Ltd (to Norway). Of those, Piedmont Lithium, Tamboran Resources, Avita Medical and Boart Longyear maintained their ASX listing with CDIs still on issue. While harder to track, there have also been a number of recent redomiciles of Australian proprietary companies including Saluda Medical and SEA Electric.
Redomiciling is a significant decision, but for the right company it can unlock important opportunities for growth.
We can assist clients on equity capital market transactions, including redomiciles. Our Tech M&A practice was named Technology, Media and Telecom M&A Legal Adviser of the Year for 2023 by Mergermarket.
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