The Securities Disclosure and Financial Advisers Amendment Bill (the Bill) introduced into parliament last week will undoubtedly streamline fundraising for listed issuers.
The Bill follows recommendations made by the Capital Markets Taskforce in November 2008, aimed at facilitating capital raising by listed issuers. Importantly, the Bill will enable certain listed issuers who are subject to continuous disclosure requirements to raise further capital by using only a 'simplified disclosure prospectus', rather than the full prospectus plus investment statement currently required.
While the Bill represents a good start towards faciliting access to capital by listed issuers, a clear focus will be required to ensure that the opportunity to further simplify the regime for such offers, while still retaining an appropriate level of investor protection afforded by the Securities Act, is maximised.
The exact contents required for a simplified disclosure prospectus is not yet known, although it need not be accompanied by financial statements or refer to a registered prospectus.
An alternative approach, which was considered and discounted, required listed issuers to use only an investment statement and not a prospectus. This approach could equally have achieved the same objective, with some relatively high level amendments to the Securities Act and additional investment statement content requirements.
Either method presents a great opportunity to promote effective disclosure to investors in a streamlined form that is already well understood by the market and by issuers.
We will track the Bill as it progresses through Parliament and keep you updated of any significant developments.
The key elements of the Bill are summarised below.
SIMPLIFIED DISCLOSURE PROSPECTUS
Listed issuers with continuous disclosure obligations will be able to offer securities to the public using a simplified disclosure prospectus without an investment statement. This is allowed on the basis that information already disclosed by them to the market needn't be duplicated in a securities offering.
- While the content of the simplified disclosure prospectus is yet to be determined (and will be set out by subsequent regulations) it needn't be accompanied by the financial statements referred to within it.
- Listed issuers with continuous disclosure obligations permitted to use the simplified disclosure prospectus will be specified in subsequent regulations.
- As the simplified disclosure is based on compliance with the continuous disclosure regime, if the Securities Commission believes disclosure has not been made, it will have powers to:
- make orders extending the proposed allotment date under a simplified disclosure prospectus to ensure disclosure is made to the market, and
- prohibit issuers who have not complied with continuous disclosure obligations from using the simplified process for a period of up to 24-months.
ELIGIBLE PERSONS AND NON-PUBLIC OFFERS
- For non-public offers, the Bill permits an offer of securities to be made both to persons who are wealthy, experienced in investing money or experienced in the industry or business to which the security offered relates (eligible persons) and to persons such as habitual investors, to whom the offer does not constitute a public offer. At present, these non-public offers cannot be combined and must be made separately.
- Currently, an investor is 'wealthy' and therefore an 'eligible person' if a chartered accountant has certified that the person has net assets of at least $2 million or had annual gross income of at least $200,000 for the last two financial years. The Bill clarifies that the 'person' will include trusts, and in addition, the certification can be made within 12 months rather than six months of the offer.
- At present an offer to persons who are required to pay a minimum subscription price of at least $500,000 for securities does not constitute an offer of securities to the public. The Bill will amend this to provide that where those persons have, in a single transaction, previously paid a minimum subscription price of at least $500,000, then an offer of further securities may be made to those same persons within a 12 month period. This is on the basis that the issuer of the initial securities, and the subsequent securities offered, are the same.
As noted in its title the Bill also amends the Financial Advisers Act but these amendments are minor, including clarifying that the advice provided by overseas persons in New Zealand is regulated under the Act.
COMPARISON WITH THE TASKFORCE RECOMENDATIONS
At this stage the following recommendations of the Taskforce relating to the Securities Act have not been reflected in the Bill:
- Raising the threshold for subsequent equity issuers by listed companies before a prospectus disclosure and shareholder approval is required. Currently the limit is $5,000 and the Taskforce proposed that this be increased to $25,000.
- The Taskforce also referred to provisions to allow remuneration of employees and directors by issuing shares. While they looked at this in the context of the NZX listing rules, it seems that in the current environment, greater exemptions enabling a wider class of employees to be remunerated by taking an equity interest in employers under a more simple disclosure regime may be warranted, particularly for smaller ventures.
- Introducing the ability for the Securities Commission to issue 'no action letters' where Securities Act breaches are considered arguable or immaterial. Coupled with this, the Taskforce recommended that the Securities Commission be given the power to exempt issuers and associated persons retrospectively where the law has been breached.
- Introducing an equivalent to the Australian 20:12 rule whereby offers to up to 20 people in 12 months for an aggregate of $2 million may be made without a prospectus to facilitate capital-raising, particularly for smaller companies.
- Amending the Securities Act to define investments in limited partnerships under the Limited Partnerships Act as equity rather than participatory, removing the need for a statutory supervisor.
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