Australia: ASX Targets Dilutive Acquisitions in Major Governance Shake–Up

The Australian Securities Exchange (‘ASX’) released a Consultation Paper on 20 October 2025, proposing sweeping amendments to the ASX Listing Rules (‘Listing Rules’) that would dramatically expand shareholder approval requirements for equity-funded acquisitions and reshape the governance framework for dual listed entities. Based on initial representations, the ASX has identified four potential areas for change. The proposals respond to mounting institutional investor pressure over dilutive transactions, particularly following fierce criticism of James Hardie Industries plc's acquisition of The Azek Company Inc (see our article on the ASX's new waiver regime, here). 

The ASX is seeking submissions by 15 December 2025.

Proposal One: Shareholder approval for changes to ASX Foreign Exempt Listing status

The first proposal tackles a quiet but significant governance gap: dual listed entities currently being able to transition to lighter regulatory oversight of a foreign exchange without shareholder consent. The ASX is seeking feedback on a potential proposal to require shareholder approval by ordinary resolution before dual listed entities can shift from standard ASX listing to ASX Foreign Exempt Listing status. Currently, such transitions require only ASX consent (see Listing Rule 18.9).

The ASX Foreign Exempt Listing offers significantly reduced compliance obligations, with entities primarily governed by their overseas home exchange requirements. Given the more demanding admission requirements to be listed as an ASX Foreign Exempt Listing —including $200 million in profits for each of the last three financial years and $2 billion in net tangible assets or market capitalisation—such transitions remain unusual, with only three occurring in the past three years. 

Whilst shareholders retain trading access on both exchanges following transition, the regulatory landscape changes dramatically. Comprehensive ASX oversight gives way to foreign exchange rules—a shift that materially alters investor protections, particularly for Australian retail shareholders who may face practical difficulties monitoring compliance with unfamiliar overseas regulatory regimes.

The ordinary resolution threshold provides meaningful shareholder protection without creating unreasonable barriers to legitimate restructuring. If public consultation supports the concept of requiring shareholder approval for a change of listing status, ASX proposes a change to the listing rules to enact this change.

Proposal Two: Shareholder approval for voluntary delisting by dual listed companies

The second proposal seeks public feedback on potential changes to the shareholder approval requirements for voluntary delisting by dual listed entities. 

Currently, the ASX listing rules allow a listed entity to apply for delisting, subject only to ASX consent.  While ASX notes that delisting is a significant decision that might be put to shareholders (as a special resolution) as a matter of good governance, ASX’s current practice is to generally only impose a condition that requires shareholder approval if the entity seeking de-listing is an ASX listing with ordinary securities that will not remain readily tradeable elsewhere. Where a listed entity will maintain a listing elsewhere, ASX will currently generally not require shareholder approval of the delisting.

ASX is seeking public feedback on potentially requiring some form of shareholder approval for voluntary delisting by dual listed entities, irrespective of whether or not the entity will maintain a listing elsewhere.  The proposal being put forward includes the potential to impose a significant distinction between Australian-origin and foreign-origin dual listed entities.  In an attempt to ensure that a secondary listing on ASX by a foreign entity remains a viable option for boards, ASX is seeking feedback on whether entities (especially foreign entities) that were first listed overseas should still be entitled to discontinue their ASX listing without shareholder approval.

International practice offers no clear guidance; Singapore requires approval for all voluntary delistings, the HKEx requires shareholder approval for dual listed entities with a primary listing on the HKEx (but not those with a secondary listing on HKEx) whilst New York and NASDAQ require none. We expect this proposal to attract considerable debate during the consultation period.

Proposal Three: Shareholder approval for share issues in regulated takeovers and mergers

The third proposal represents a significant change for public M&A practice. Under the Listing Rules, entities are subject to certain limitations in the number of equity securities they may issue without obtaining shareholder approval. Listing Rule 7.1 limits issues of equity securities without shareholder approval to 15% of an entity’s share capital over a 12-month period. Entities outside of the S&P/ASX300 and with a market capitalisation of no more than $300 million have the ability under Listing Rule 7.1A to issue an additional 10% of their share capital over a 12-month period (subject to certain limitations including obtaining shareholder approval to rely on Listing Rule 7.1A).

In the context of public M&A, Listing Rule 7.2 provides the following exceptions to these limitations and allows bidders to issue equity securities without shareholder approval, provided that the issue does not constitute a reverse takeover, i.e. the issue is less than 100% of existing ordinary securities:  

• (Exception 6) the issue of securities is made under a takeover bid or under a merger by way of scheme of arrangement; or

• (Exception 7) the issue of securities is made to fund the cash consideration payable under a takeover bid or under a merger by way of scheme of arrangement and the terms of the issue are disclosed in the takeover or scheme documents.

The ASX proposes modifying these exceptions to reduce the size of a permitted issue of ordinary securities to only 25% of existing ordinary securities for entities in the S&P/ASX300 or that have a market capitalisation greater than $300 million (“Large Entities”). 

The impact of ASX’s proposal would be significant. Of 55 regulated takeovers and mergers by Large Entities between FY21 and FY25, 19 involved share issues exceeding 25%. These transactions would now require shareholder approval, fundamentally changing how major acquisitions are structured. 

Whilst the consultation paper presents four options for stakeholder consideration, the ASX appears to be leaning towards this size-based differentiation as its preferred approach.

Proposal Four: Shareholder approval for changes to nature or scale of activities

The last issue for consultation addresses stakeholder calls for changes to Listing Rule 11.1 to require shareholder approval for any significant acquisition whether or not it involves an issue of securities, or potentially any significant transaction whether it is an acquisition or disposal. 

Currently under the Listing Rules, there is no general requirement for an entity to obtain shareholder approval to undertake a significant transaction. Listing Rule 11.1 only requires entities to provide details to ASX as soon as practicable of any proposed significant change to the nature or scale of its activities and only seek shareholder approval if required by ASX. 

As the ASX’s initial view is that changing Listing Rule 11.1 would not be the best way to address issues raised about shareholder approval rights, it has not put forward any proposals to amend Listing Rule 11.1. 

Conclusion

The ASX's consultation paper represents a pivotal shift in the governance framework for listed entities, balancing shareholder protection against the imperative to maintain Australia's attractiveness as a listing destination. The proposals adopt a targeted approach, focusing on situations where shareholder interests are most directly affected whilst preserving flexibility for smaller entities and foreign issuers.

The consultation period will likely reveal competing perspectives between institutional investors seeking stronger protections and corporate Australia concerned about competitive disadvantage. The debate will be heightened given the backdrop of ASIC’s review of Australian public markets and concern to ensure that they remain competitive and attractive to investors in a global environment where comparable jurisdictions are also seeking to improve the health of their public markets. Stakeholders should carefully consider the proposals and provide feedback by 15 December 2025, including alternative approaches that might better achieve these opposing objectives. We will continue to monitor developments as these proposals progress towards final Listing Rule amendments.

Our expert team at Bird & Bird is happy to assist with any questions relating to listed entities or submissions in response to this consultation paper. For queries, please contact Chris Clarke, Aaron Chan, Carl Ritchie or Chloe Corne.