Tough regulations to protect the public against unsolicited offers for securities were signed off by the Governor General this week and will come into force on 1 December 2012.
They have been a long time in the making as they originated in response to a series of low ball offers made by Bernard Whimp in December 2010 and were provided for under the Securities Markets Amendment Act which was passed back in April 2011.
But they are a welcome addition to the statute books and should give offerees clearer disclosure and reasonable time to consider the offer and to take independent advice.
The Securities Markets (Unsolicited Offers) Regulations 2012 apply where the offeror or an associate has made or intends to make unsolicited offers on the same or substantially similar terms to 20 or more other people in the six month period following the first offer.
If a subsequent offer is made, it will be presumed that the intention was to make that offer at the time the first offer was made unless the offeror can prove the contrary.
The offeror must give written notice to the issuer at least five and not more than ten working days before the offer is made.
This notice must be accompanied by a copy of the standard disclosure document that will be given to the offerees and a list of the names and addresses of every person to whom the offer will be sent.
If the disclosure document is accompanied by other documents, it must be prominently identified and placed to ensure that it will come to the offeree’s attention.
The document must include the following information:
- the price the offeror is offering for each security
- the current market price (for listed securities) and a fair estimate of the value where the security is unlisted
- what the total offer will deliver to the offeree and what the market price/fair estimate would deliver
- the website of the registered exchange where the offeree may check the market price or (for unlisted securities) the basis for making the value estimates and whether they have been reviewed by an independent and qualified third party
- how and when the payments will be made (and, if by instalment, the amount of each instalment)
- the date by which payment will have been made in full.
The offer period
- must be no shorter than 30 days and no longer than 12 months
- offers can be withdrawn only with the consent of the Financial Markets Authority (FMA) and the terms of the offer cannot be varied, and
- an offeree can cancel an agreement to sell by giving notice within ten working days of the acceptance, and by repaying any monies received.
Offerors will no longer be able to put investors under time pressure by urging them to “act now” as "first in first served" offer terms are not permitted. All offerees must have at least 30 days to consider the offer.
The FMA has the power to order a correction or to seek civil remedies or penalties from the Court. This is in addition to the powers it was given under section 49 of the Financial Markets Act to require low ball offerors to attach a warning disclosure statement to any offer documents.
The FMA used these powers successfully against Whimp last year (see FMA sinks teeth into Whimp).
Chapman Tripp comments
We have been pushing hard to have this gap in the law closed and have submitted and written extensively on the issue. Our submissions and earlier commentaries are available here, here and here.
The Regulations should provide offerees with clearer disclosure, and a reasonable time period for offerees to consider the offer. Issuers will have sufficient time to also contact investors, and investors will have the opportunity to reconsider hasty decisions.
In addition to the Regulations, provisions in the Financial Markets Conduct Bill will make it a strict liability offence to use data from an issuer’s securities register to contact people or send them direct marketing material unrelated to the financial product or to disclose investor details to third parties knowing that the disclosure is likely to be abused.