The Financial Markets Authority (FMA) has provided guidance on what issuers may say in the public arena in the run-up to a securities offer.
This has become problematic as the Securities Act, which in this area has been little changed since it commenced in 1983, has not kept up with new technology and practices.
The note, although helpful is something of a stop gap measure pending the enactment of the Financial Markets Conduct Bill next year.
The intention of current law is that investors should make investment decisions based on the formal offer documents – generally the prospectus and the investment statement or a single document incorporating the information in both.
This is achieved by restricting other issuer communications that could influence investors in the period before the formal offer documents are issued. A limited number of exceptions are provided.
An issuer may state that it is considering making an offer provided no money is currently being sought and may provide information as to how expressions of interest can be made and certain other specified details about the offer.
Also allowed are:
- announcements required to comply with continuous disclosure, and
- statements or reports made to shareholders meetings (e.g. to approve the offer).
The FMA has confirmed that, in its view, analyst research reports can be distributed on a confidential basis before registration of the offer documents to institutional investors and the financial advisers to the lead managers and brokers. This is consistent in our experience with market practice for IPOs but the confirmation is useful as this has been a grey area.
The guidance note clarifies that issuers can continue with their usual brand advertising in the lead up to a regulated offer but states that the advertisements cannot refer to the potential offer or occur in association with another advertisement that refers to the offer.
In addition, the FMA has signalled that a radical change in advertising content or intensity before the registration of the formal offer documentation will invite regulator scrutiny and may put the issuer in breach.
Financial Markets Conduct Bill
The Bill introduces a more relaxed approach toward pre-offer communications. These will be allowed to go beyond simple advice on how expressions of interest can be made to include additional information regarding the issuer’s business and prospects.
Any such statements, however, will have to include a disclaimer that no money is currently being sought, that financial products cannot be applied for, and that any offer will be in accordance with the Act.
Although the content restrictions will be pared back under the Bill, there will be a greater emphasis on the general “fair dealing” prohibitions against conduct that is misleading or deceptive or likely to mislead or deceive in relation to financial products.
The FMA will have a range of enforcement powers, which build on current powers, including:
- a “stop order” to prohibit the distribution of a false or misleading communication
- an “interim stop order” (generally up to 15 working days) while the FMA decides whether to issue a permanent stop order
- a “direction order” requiring the issuer to comply with the fair dealing regime and to publish corrective statements or take other specified corrective actions.
Another important change in the Bill is that advertisements outside the formal product disclosure statement will generally not attract criminal liability for directors. This recognises that it is unrealistic to expect directors to have the same oversight of advertisements (which can include a broad range of communications) than of the formal offer documentation.
The modern reality is that investors will have access to significant information concerning an offer before the formal documents are registered. Given this, we consider that it makes sense to enable those who know the most about a potential offer, and who have accountability for their statements, to discuss that offer along with market commentators and media.
Thanks to Adrien Hunter for writing this Brief Counsel. For further information, please contact the lawyers featured.