ASIC Commences Proceedings Against ISX and JK, page-76

Shares on issue is just an excuse, not the reason ASX is keeping ISX from trading. If the shares were escrowed, they would still be "issued shares" until/if found to be invalid. An announcement to the market so that it is informed of the risk is enough to allow ISX to trade. The buyer can make their own decision based on the information supplied.
but..

I think you are right to say that since ASIC is not claiming the performance shares are illegal and since it is ASIC who is responsible for determining this, ASX is pretty much toast on this issue.