Most Read Contributor in New Zealand, September 2016
Bernard Whimp has provided the Financial Markets Authority
(FMA) with an easy first scalp in Financial
Markets Authority v Carrington Securities LP1 and
in the exercise of its new powers to deal with predatory low ball
This is a good result for the FMA as it seeks to win public
confidence in the new regulatory regime.
The litigation related only to the most recent offers made by
Whimp. These offered a price higher than the current share price
but with payment spread over ten years in equal annual instalments.
During that time, any dividends would go to Whimp.
The offered price was headlined at the front of the offer
together with a favourable comparison to the recent market price on
NZX and emphasis on the 'first in first served' limited
period for the offer. Other important terms (including the spread
payments) were set out in much smaller print on the reverse side of
An earlier interim court order had required Whimp to send
notices to all accepting shareholders requesting that they affirm
their agreement to sell. Seventeen affirmations were received by
the FMA and 132 by Whimp (notwithstanding that the order required
that they be sent to the FMA).
In addition to the court proceedings, the FMA also
used its new power under section 49 of the Financial Markets
Act to require Whimp to disclose to potential 'investors'
specific warning notices issued by the FMA in any future
The FMA's second cause of action in relation to misleading
aspects of low-ball offers sent by Whimp before Christmas has been
adjourned for later determination.
The FMA argued that the deferred payment offers breached section
13 of the Securities Markets Act 1988. Section 13 prohibits
conduct, in relation to any dealings in securities, that is
misleading or deceptive or is likely to mislead or deceive.
It is not necessary to prove either that the deception was
deliberate or that anyone was actually deceived by it (although the
Court was clear that both were manifestly present in this
The Judge, Gendall J, found that the offers were misleading
because they created the impression that full payment would be made
immediately or promptly and that the offer price exceeded the
current share trading price. Further, the offer document did not
"that the consideration for
the acquisition of the shares was, to the extent of 9/10ths an
unsecured loan to Limited Partnerships about which no information
The Judge drew heavily on the Australian decision in
National Exchange Pty Ltd (ACN 006 079 974) v Australian
Securities & Investments Commission2, noting
that Whimp must have based his strategy on the offers at issue
there (from David Tweed, Whimp's Australian equivalent) so
similar were they in structure.
Orders were granted against Whimp and those limited partnerships
he used in the offers restraining them from making any like offers
in the future. In relation to the offers already made, and except
where the shareholders had affirmed their intention to proceed, the
Court voided the sales by:
cancelling the contracts
directing the return of any shares that had been transferred,
restraining the registration of any shares acquired.
The defendants were also required to produce copies of the
affirmations they had received so that the FMA could make further
inquiries to confirm their validity.
The FMA's new powers
Although the Government has decided against introducing a
"proper purpose" test for access to share registers for
the moment, recent changes to the Securities Markets Act should
inhibit future unsolicited offers. These include:
the FMA's power to require that offerors include a warning
statement from the FMA at the beginning of unsolicited offer
documents. Such statements will typically suggest questions which
investors should consider (How much will you receive per share?
When will you get paid? Who is making the offer?) and will warn
them that, if they accept the offer, they may receive less than if
they sold the shares through a sharebroker, and
the power to make regulations. The Government has not yet used
this regulation-making ability but could use it to set rules such
as requiring that the market price be quoted in the offer document,
or a fair estimate of value for an unlisted security, and requiring
a 'pause period' before acceptances can take effect.
Whimp's announcement of his "retirement" within
days of these new provisions being passed into law suggests that
the FMA has the tools to put him and others like him out of
Our thanks to Luke Fitzgibbon for writing this Brief
Counsel. For further information, please contact the lawyers
1. Financial Markets Authority (formerly Securities
Commission) v Carrington Securities LP (unreported) 9 May
2011, Christchurch High Court CIV-2011-409-000435.
2.  FCAFC 90
The information in this article is for informative purposes
only and should not be relied on as legal advice. Please contact
Chapman Tripp for advice tailored to your situation.
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