Trading halts and voluntary suspensions in a capital raising: which one, for how long, and the cost of getting it wrong

The choice between a trading halt and a voluntary suspension looks like a scheduling decision. It is not. A halt costs you two trading days. A voluntary suspension can cost you the ability to raise capital without a prospectus for the next twelve months. Boards make the choice under time pressure, on a broker’s advice, and often without anyone articulating the difference.

The mechanics

Listing Rule 17.1 allows an entity to request a trading halt, and ASX will normally grant it. The halt ends at the earliest of the announcement of the information, the time specified in the request, or the commencement of normal trading on the second trading day after the halt is imposed. Two trading days is the ceiling.

Listing Rule 17.2 allows an entity to request a voluntary suspension. ASX applies Guidance Note 16 and is deliberately reluctant. ASX’s starting position is that the market should stay open, that a halt should be used first, and that a suspension should only follow where the entity can explain why a halt is not enough. An entity that asks for a suspension at the outset should expect to be asked why.

Both requests must give ASX the information Guidance Note 16 identifies: the reason, the event the entity is waiting for, how long it is expected to take, that the entity is not aware of any reason why the request should not be granted, and any other information necessary to inform the market.

Why the difference matters more than the two days

Section 708A(5) of the Corporations Act 2001 (Cth) permits a listed company to cleanse placement securities for on-sale only where trading in the class was not suspended for more than a total of five days during the shorter of the period the class was quoted and the twelve months before the issue. Trading halts are not suspensions and do not count. Voluntary suspensions do.

The consequence is severe and delayed. A company that sits suspended for two weeks while a transaction is negotiated cannot give a cleansing notice for the next twelve months. Every placement in that period needs a cleansing prospectus, a twelve month hold, or ASIC relief. None of those is attractive, and none of them was in anyone’s mind when the board agreed to the suspension. Our article on cleansing notices under sections 708A and 708AA sets out the fallbacks in detail.

The rule for a board is simple. Manage sensitive periods with halts wherever it is possible to do so, and treat a request for a voluntary suspension as a decision with a twelve month consequence attached to it.

A halt is not a substitute for disclosure

Listing Rule 3.1 requires immediate disclosure of information a reasonable person would expect to have a material effect on price or value. Listing Rule 3.1A switches that off only where all three limbs hold at once: one or more of the listed situations applies, being an incomplete proposal or negotiation, information that is insufficiently definite or a matter of supposition, information generated for internal management purposes, or a trade secret; the information is confidential and ASX has not formed the view it has ceased to be confidential; and a reasonable person would not expect the information to be disclosed.

A halt gives the entity time to prepare an announcement it is already obliged to make. It does not create a window in which the obligation is suspended. ASX will not grant a halt to manage the share price, to defer bad news, or to preserve a negotiating position where confidentiality has already gone.

The standard placement sequence

• Request the halt before market open on day one, with the Listing Rule 17.1 information, pending an announcement regarding a capital raising.
• Wall-cross and run the bookbuild during the halt, under confidentiality, with participants restricted from trading.
• Announce the raising, together with any excluded information, before market open, and lift the halt.
• Allot, and lodge the cleansing notice within five business days of issue.

Two trading days is enough for this. If a raise needs more than that, the problem is usually not the timetable.

When the book does not cover

This is the scenario worth thinking about before the halt goes on, because the options are all worse once it is on.

• The entity must still announce. A terminated or scaled raising is itself information the market may be entitled to. Lifting the halt in silence is not a strategy.
• Extending into suspension buys days at the price described above. Where the total suspension in the trailing twelve months would exceed five days, the entity is trading its cleansing capacity for a delay. Sometimes that is the right call. It should be a call the board makes with the consequence in front of it, not one an adviser makes on the phone.
• Scale the raise to the book. Announcing a smaller completed raising is almost always better than announcing a failed one, and it preserves the ability to come back.
• Have the fallback announcement drafted before the halt starts. The half hour before market open is not the time to write it.

Practical points

• Request the halt in writing to ASX, and specify the event that will end it. A halt pending an announcement, without more, invites a question.
• Suspension days count in aggregate across the twelve months. Track them. A company that has already used four days has almost no room left and should know that before the next negotiation starts.
• A halt does not stop the clock on periodic reporting obligations.
• If the entity is already suspended, a raising needs a different structure from the outset. Do not design it and then discover the cleansing problem.

How Luma Legal can help

We advise ASX-listed entities on halt and suspension requests, the Listing Rule 3.1 and 3.1A analysis behind them, and the raising structures that follow. The halt or suspension decision is the point at which a twelve month constraint is either avoided or accepted, and it is worth ten minutes of thought before the request goes in.