Trans-Tasman Mutual Recognition Offers of Securities: As Part of an Initiative to Encourage Greater Coordination of Business Law between the Two Countries, the Australian and New Zealand Governments Recently Released a Discussion Paper on a Mutual Recognition Regime. What Will the Implications Be for Issuers of Securities?

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Securities offerings in New Zealand

The principal legislation governing the offering of securities to the public in New Zealand is the Securities Act 1978. Broadly speaking, the Act divides securities into equity securities (shares), debt securities (such as notes, bonds and debenture stock) and participatory securities (in general terms, securities that are not debt or equity securities).

Under the Act, no security can be offered to the public unless, in general terms:

* A prospectus for the securities has been registered with the Registrar of Companies. (The prospectus is the offering document that contains technical information about the offer. It must be provided to prospective investors by the issuer on request.

* Each subscriber receives an investment statement (a less technical offering document) before subscribing for the securities.

In the case of an offer of debt securities, the issuer must also:

* Appoint a trustee for the holders of the debt securities.

* Enter into a trust deed relating to the debt securities with the trustee and registered with the Registrar of Companies.

In the case of an offer of a participatory security, the issuer must appoint a statutory supervisor (who has a similar role to the trustee in the case of a debt security) and enter into a deed of participation (equivalent to the trust deed for a debt security) with the statutory supervisor.

The content of prospectuses, investment statements, trust deeds and deeds of participation is regulated by the Securities Regulations 1983.

Exemptions for Australian issuers

The New Zealand Securities Commission can grant exemptions from the application of the securities offering regime. In the case of issues by Australian issuers, two classes of exemptions are relevant.

The Securities Act (Australian Issuers) Exemption Notice 2002 provides relief from the prospectus requirements of the New Zealand regime by allowing Australian issuers of equity or debt securities to use an Australian prospectus, trustee and trust deed for an offer in New Zealand. These exemptions require:

* There to be an Australian prospectus relating to the securities at the time that offers of those securities are made or are open for acceptance in New Zealand.

* In the case of debt securities, a trustee to have been appointed under Australian law.

* The Australian prospectus and other documents relating to the schemes, and any amendments, to be deposited with the Registrar of Companies.

However, an issuer who relies on this exemption notice is still required to prepare a New Zealand investment statement to accompany its New Zealand offers.

The Securities Act (Australian Registered Managed Investment Schemes) Exemption Notice 2003 allows Australian registered managed investment schemes (participatory securities) to be offered to the New Zealand public without a New Zealand registered prospectus, as long as the conditions of the notice are complied with. Those conditions include:

* There being an Australian Product Disclosure Statement relating to the interests in the scheme at the time that offers of those interests are made or are open for acceptance in New Zealand.

* The Australian Product Disclosure Statement and other documents relating to the scheme (and amendments to these documents) being deposited with the Registrar of Companies.

An issuer relying on this exemption notice does not need to prepare an investment statement if the offer is made using an Australian Product Disclosure Statement.

It is critical that there is strict compliance with the conditions of the relevant exemption notice. Failure to do so may result in the issue in New Zealand being void, and subscriptions being repayable with interest at 10 per cent per annum, even if the condition breached is merely procedural. …