• Genuine disposal restrictions

    For a restriction to be a genuine disposal restriction it must be in the conditions of the ESS when the employee acquires the ESS interest. For a share that an employee acquires on exercise of a right that is an ESS interest, the disposal restriction must have been in place when the employee acquired the right.

    The conditions may be contained in:

    • the plan rules
    • the offer document
    • other governing documents of the scheme
    • documented company policies that the employee is required to comply with
    • the employee's employment contract.

    A genuine disposal restriction can be:

    • a condition of the scheme that prohibits the employee from disposing of a share for a fixed period of time, where the disposal restriction is enforced by a holding lock or by the shares being held in a trust
    • a condition of the scheme (including documented company policy) that prohibits disposal of the shares or rights or the exercise of the rights, where that disposal would be in breach of the insider trading prohibitions in the Corporations Law 2001
    • a contractual condition of the scheme that prohibits the employee from disposing of the ESS interests, provided that there are serious and enforced consequences for breaching the condition.

    A company may have an internal share trading policy prohibiting disposal of ESS interests. We consider such an internal policy to be a genuine disposal restriction only if there are serious and enforced consequences for breaching the policy.

    We will consider a disposal restriction that can be lifted in special circumstances or in cases of financial hardship to be a genuine disposal restriction if it otherwise meets the conditions to be a genuine disposal restriction.

    We consider that a scheme does not genuinely restrict disposal of an ESS interest if the employee can take action to dispose of the ESS interest.

    Under some schemes, before employees can dispose of their ESS interests, they must make a request for approval to the board of directors of the company or a delegate. The need to make a request is not a genuine disposal restriction if such requests are routinely approved.

      Last modified: 01 Jul 2015QC 27241