Parties wishing to submit on the Bill will need to be quick as the select committee is working to a tight deadline. In Chapman Tripp's view, the Bill as drafted is too timid so it is important that business uses the submissions process to achieve change.
This Brief Counsel suggests some potential directions for reform.
The Commerce Select Committee (the Committee) announced yesterday that submissions on the Securities Disclosure and Financial Advisers Amendment Bill (the Bill) will close on 20 March 2009.
The short deadline reflects the fact that the Committee is due to report back to the House on 30 April. The Government has indicated it wishes the Bill to be effective in June 2009. The tight timeframe is encouraging as it indicates a sense of urgency on the Government's part but it does mean that parties with an interest in the Bill will have to move quickly.
The Bill is the Government's response to the interim recommendations the Capital Market Development (CMD) Taskforce brought out in November last year, to help equip the New Zealand economy to weather the developing catastrophe on world financial markets.
The changes the Bill introduces are useful, but they are also limited in scope.
Changes in the Bill
The most significant change is the provision of a simplified disclosure prospectus option under which listed issuers will be able to offer certain debt and equity securities to the public without having to duplicate information that is already publicly available through the NZX continuous disclosure regime. The Bill is not as bold as the CMD proposal which would have allowed use of a simple 'term sheet offering document'. Particularly for issues of existing classes of securities, it should not be necessary for investors to receive the simplified disclosure prospectus as long as it has been published to the market and is freely available on request.
The Bill also makes a number of small and largely technical amendments to the categories of exemption from the full disclosure requirements. These changes will apply to both listed and non-listed issuers but will mainly benefit private companies who tend to raise capital by approaching directly investors well-known to them.
We particularly welcome the removal of the anomaly in the current law that prevents offers being made both to wealthy/experienced investors and to persons deemed not to be members of the public under the safe harbours provision of section 3(2) of the Securities Act.
While an improvement on the status quo, the changes to the exceptions in the Bill are too modest to significantly assist small business capital raising.
Changes which we believe would strengthen the Bill include the following recommendations:
- Investors, particularly for further issues of existing listed securities, should not need to receive the simplified disclosure prospectus before choosing to subscribe.
- The Government should adopt an equivalent to the Australian 20:12 rule which allows unrestricted offers for up to 20 people in 12 months for an aggregate of A$2 million.
- While it is useful to clarify that trustees subscribing do not need to be 'wealthy' persons in their own right, the Bill would be enhanced if we picked up on the Australian approach that allows an offer to be made to a company or trust that is controlled by a person who is wealthy or experienced.
- The conditions of the 'incremental' investment exception are too restrictive to provide much benefit. Once someone has subscribed $500,000 they should be free to make any further investment they wish, without the company having to prepare a prospectus.
If the Bill is allowed to pass in its present form, it will be an opportunity squandered – especially as the CMD is not due to issue its final report until September. There is the potential to improve this Bill in the select committee. Businesses with an interest in these issues should seriously consider making submissions.
For further information, or assistance with drafting your submission, please contact your usual Chapman Tripp adviser or Roger Wallis.