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New Zealand Securities Commission |
Last Updated: 19 April 2014
Ref: 500-080 / #22086
OFFICE OF PO BOX 1179
SECURITIES COMMISSION TELEPHONE 729-830
LEVEL 6 GREENOCK HOUSE 102-112 LAMBTON QUAY –39 THE
TERRACE WELLINGTON 1 NZ
1 March, 1984
SECURITIES COMMISSION BULLETIN NO.1
Since the full measures of the Securities Act and Regulations were brought
into force on 1 September 1983, the Securities Commission
has received many
requests for its views upon the interpretation and application of various
provisions of those enactments. In many
cases, the questions have been ones of
general application. They have given rise to more basic questions as to whether
and how the
Commission should deal with these enquiries.
Except on appeal under section 69 of the Act from certain kinds of decisions by the Registrar, the Commission does not have jurisdiction to give binding decisions upon the interpretation and application of the Act or Regulations. The Commission expects that there will be very few appeals, because the processes of consultation amongst the Registrars and
the Commission should ensure a uniform approach to the questions that might
otherwise arise under section 69. So we do not see this
procedure being used to
settle many of the questions that will arise under this new legislation.
Only the Courts have the jurisdiction to give authoritative rulings on the interpretation and application of the law. The Act does provide a machinery enabling the Commission to state a case for the opinion of the High Court (s. 25), and such a case may be removed into
the Court of Appeal, but so far whenever the Commission has suggested that such a step
might conveniently be taken, the parties involved have not been willing to
proceed. In the result, the procedure has not yet been
utilised.
Section 10(d) of the Act provides that it is one of the functions of the
Commission to promote public understanding of the law and
practice relating to
securities. It is with particular reference to this function that the Commission
has decided to publish a series
of bulletins which will contain the views of the
Commission on questions arising as to the application of the Act and the
Regulations
which have been considered by the Commission. In this way, it is
thought that the Commission can assist legal advisers to form their
own
opinions. The development of good practice will be promoted by a consensus of
opinion. The bulletins will be issued as a guide
only (which cannot bind the
Commission, the Department, the Registrars, the parties, or any other person
concerned) to assist in
the development of settled practices under this new
legislation.
The frequency of publication will, of course, depend upon the number and
general applicability of questions as they arise. In preparing
the bulletins,
the Commission will consult with the Department of Justice and the Registrars.
It is expected that by these means,
the procedures of registration under the Act
will be established on a uniform basis.
This first bulletin uses a question and answer format to deal with some of
the questions commonly raised with staff of the Commission
and Department of
Justice.
EXEMPTIONS
Q.1. When an issuer has been granted an exemption by the Commission pursuant
to section 5(5) of the Act, must that fact be referred
to in the registered
prospectus relating to the securities which are the subject of the
notice?
A.1. If the terms of the exemption notice excuse the issuer from including a
statement in the prospectus that would otherwise be
required, then that is a
material matter which must be disclosed pursuant to clause 40 of the First
Schedule, clause 34 of the Second
Schedule, or clause 36 of the Third Schedule.
Similarly, if the exemption relates to the substantive requirements of the Act,
such
as the provisions of section 37A relating to the allotment of securities,
then the fact of the exemption should be disclosed in the
registered prospectus.
The Commission considers that the power to prescribe terms and conditions of
exemption enables it to dispense
with a reference to an exemption in a
prospectus, but no case has so far arisen in which that has been done. Care
should be taken
in framing a disclosure statement not to give the impression
that in granting the particular exemption the Commission has, in any
sense,
approved the offer referred to in the registered prospectus.
Q.2. Must an exemption notice be filed with the Registrar?
A.2. No. Exemptions granted by the Commission are notified in the
Gazette pursuant to section 5(5) of the Act. In addition, they are
published in the Statutory Regulation series. However, as a matter of
practice
when presenting a prospectus to the Registrar for registration it is preferable
to include a copy of the exemption notice
as it will avoid delays inherent in
requiring the Registrar to confirm the existence and terms of the
notice.
Q.3 Should exemptions be referred to in advertisements?
A.3. No. In most cases such a reference could be misleading
insofar as it suggests that the Commission has, by granting
the exemption,
considered or approved the offer referred to in the advertisement.
REGISTRATION OF PROSPECTUSES
Q.4 Will the Commission approve prospectuses prior to registration?
A.4. No. The Commission has no jurisdiction to approve prospectuses for
registration. The staff of the Commission will, on occasion,
discuss particular
prospectuses with issuers but the decision whether or not to register a
prospectus is the Registrar’s subject
to appeal under section 69 of the
Act.
Section 42(4)(a) of the Act empowers the Registrar to give prior
approval to a draft prospectus but the decision whether or not to give such
approval is entirely with the Registrar.
Q.5 May an issuer register more than one prospectus relating to offers of
debt securities which will be made simultaneously?
A.5. Yes. There is nothing in the Act which prevents an issuer from making two or more offers of securities at the same time. However, each prospectus must refer to the other offers in order to avoid giving offerees a misleading picture of the issuer’s debt structure. If the prospectuses are not issued at the same time, the first prospectus should be carefully reviewed to see whether
any amendment is necessary.
Q.6 Does registration of a prospectus mean that either the Securities
Commission or the Registrar has approved the contents of the
prospectus?
A.6 No. The Commission does not approve prospectuses. The Registrar checks
to see whether, on its face, the prospectus meets the
requirements for
registration. While the Registrar has the power to refuse to register a
prospectus if, in his opinion, it contains
a statement that is false or
misleading on a material particular, the Registrar does not, as a general rule,
investigate the truth
of the statements. Responsibility for the statements
rests with the promoters, directors and issuers in accordance with the
Act.
CONTENTS OF A REGISTERED PROSPECTUS
Q.7 Must the index required by regulation 5(6) of the Regulations be in the
same order as it appears in the Schedules?
A.7 No – although putting the index in that order will facilitate the Registrar’s task of checking the prospectus which will, in turn, shorten the registration process for issuers.
Q.8 May a registered prospectus relate to more than one offer of securities? A.8 Yes. There is nothing in the Act or the Regulations which requires that
there be a separate prospectus for each offer. However, if the registered
prospectus refers to two or more different types of securities,
it must comply
with all the relevant schedules.
Q.9 May a registered prospectus relate to both listed and unlisted
securities?
A.9 Yes. Regulation 23, however, requires that every prospectus must contain either one of the two statements prescribed by subsections (2) and (3) with respect to listing, or a statement to the effect that listing of the securities is not being sought. Where a registered prospectus refers to both listed and
unlisted securities, the language of subsections (2) and (3) is sufficiently
broad to allow an issuer to identify the securities referred
to in the statement
required by those subsections.
Q.10 Must interest rates be stated in a registered prospectus relating to
debt securities?
A.10 That depends upon the terms of the offer. If the interest rate is set
by the issuer at the time of the offer, then that rate
is a term of the offer.
That is the case, even though the rates may be varied during the currency of the
registered prospectus. If
it is desired, the rates may be contained either in
the application form or a removable insert so long as those forms or inserts
are
registered as part of the prospectus. Any variation of the rates would require
an amendment to the registered prospectus, but
this could be readily
accomplished by simply filing the new application form or insert as a memorandum
of amendments pursuant to
section 43 of the Act.
Q.11 Where the Schedules require certain information to be contained in a
registered prospectus and the answer would be in the negative
or non-
applicable, must the registered prospectus contain a statement to that
effect?
A.11 Generally, the answer is No. Regulation 3 provides that a registered
prospectus must contain the information, statements, certificates
and other
matters specified in the First, Second or Third Schedules “that are
applicable”. Thus, for example, if there are no material contracts or
pending proceedings, the registered prospectus may be silent on
those points.
Silence will, however, constitute a representation to the public that the
response is negative. In some few cases,
however, the Schedules require a
“yes or no” answer which responses are indicated by a requirement
that a registered
prospectus contains “a statement as to whether or
not” a particular state of facts exist. Cf. First Schedule, Clauses
6(2)
and 8(4), Second Schedule, Clause 7(4) and Third Schedule, Clause 6(4).
Q.12 In the case of a rights issue, should the registered prospectus relate
to the rights or the underlying shares?
A.12 In the ordinary case, the prospectus should relate to the underlying shares. Various provisions of the Act – particularly sections 33, 37 and 37A – place statutory requirements upon offers of securities to the public. The definition of “equity security” in s.2 includes rights, but in the usual case
rights – even renounceable rights – are not “offered”. As the name implies, the rights are entitlements which belong to the registered holder of the qualifying shares as at the record date. The rights attach as an incident of his qualifying shares. So a prospectus is not required for the rights because they are not offered. It is the offer of the shares to which holders of the rights may, if they choose, subscribe, that requires the issue of a prospectus. (In passing, it may be noted that Regulation 23 does not inhibit any statement in the
registered prospectus concerning the trading of “rights”, such as is required in
the case of listed public companies by the New Zealand Stock Exchange Listing
Agreement. The Regulation applies to any statement
about the quotation of the
shares.)
The position is different where options or share warrants are offered either
separately or as an incident of an original share issue,
especially where there
is a separate consideration for the options or warrants. In these cases the
options or warrants, being themselves
“equity securities” which are
offered to
the public for subscription, must be offered by means of a registered
prospectus relating to the options or warrants.
Q.13 Under the prospectus provisions of the Companies Act 1955, debt securities were frequently issued on the basis that the amount of the issue was a certain sum but the issuer reserved the right to accept oversubscriptions.
Can this practice be continued under the Securities Act 1978?
A.13 No. Section 37A(1) of the Act provides that an allotment of a security offered to the public is voidable at the instance of the security holder if, “after the allotment, the total amount of securities allotted under the registered prospectus relating to the security would exceed the amount specified in the registered prospectus as the maximum amount that will be so allotted”.
Clause 1(3) of the Second Schedule (which relates to offers of debt securities)
requires the registered prospectus to contain a statement of “the
maximum amount of the securities being offered”.
Q.14 Is the “maximum amount” referred to in section 37A(1)(f) and clause
1(3) of the Second Schedule a net figure or a gross figure?
A.14 It is a net figure. Both the Act and the Regulations allow the issuer,
in calculating the “maximum amount” to deduct
securities of the
class offered that are redeemed after the specified date whenever they were
allotted. To take an example: suppose
an issuer with no previous public
borrowings registers a prospectus for $10 million in short term notes. The terms
of the offer may
be drafted to allow the issuer actually to allot notes
aggregating more than $10 million so long as no more than $10 million in notes
is outstanding at any one point in time during the currency of the registered
prospectus.
Q.15 If a registered prospectus contains interim accounts for the purposes
of section 37A(1)(e) of the Act, must it also contain
comparative figures for
the previous corresponding interim period?
A.15 No. Pursuant to section 37A(1)(e) of the Act, and clauses 23(2) and
34(2) of the First Schedule, clauses 16(2) and 27(2) of the Second Schedule
and clauses 21(2) and 31(2) of the Third Schedule, a registered prospectus may, in addition to the audited balance sheet and the profit and loss account for the issuer’s most recently completed accounting period, contain an interim balance sheet and profit and loss account which need not be audited. In the First Schedule, for example, clauses 37(a) and (b) require that the financial statements included in the registered prospectus must include comparative
figures for the “preceding accounting period”. “Accounting
period” is defined in regulation 2(1) as “a
year in respect of which
the accounts [of the issuing group] have been made up”. Clause 37 requires
that the comparative figures
relate to “the financial statements specified
in clauses 23 to 36 of the Schedule” – i.e. the audited annual
accounts.
Although it is not required, there is no objection to including the
figures for the period corresponding with the interim period
from the preceding
accounting period. In many cases it will be
desirable to do so to avoid giving a misleading impression, especially in the
case of seasonal operations.
SHORT TERM PROSPECTUS
Q.16 Must the accounts referred to in, or attached to, a short form
prospectus have been laid before the members of the issuer in
general meeting
before the prospectus is registered?
A.16 Yes. Regulation 4(1)(c) specifically refers to the “most recent balance sheet of the issuer laid before members of the issuer in general meeting in accordance with section 152 of the Companies Act 1955”. There are two limited exceptions to the general rule. The first applies to private companies where the accounts have been entered in its minute book and signed by at least three-fourths of the members pursuant to section 362 of the Companies Act
1955. The second relates to certain companies named in the Schedule to The
Securities Act (Short Form Prospectus) Exemption Notice (No. 2) 1983 (S.R.
1983/224) and relates only to offers made by those companies before the dates
specified in that notice.
Q.17 Must the accounts referred to in, or attached to, a short form
prospectus comply with the Schedules to the Regulations?
A.17 No. The accounts referred to in clause 4(1)(c) of the Regulations are
accounts that comply with the Companies Act 1955. Note, however, that in the
case of an offer of debt securities guaranteed by guaranteeing subsidiaries (see
regulation 2(1) for
the definition of “guaranteeing subsidiaries”),
the accounts which are given or sent in respect of the offer must include
group
accounts which comply with the Companies Act 1955 but which relate to the
borrowing group – i.e. the issuer and all guaranteeing subsidiaries at the
specified date. Where there
are non-guaranteeing subsidiaries special accounts
are therefore required, excluding their figures.
ALLOTMENTS VOID?
Q.18 If securities are allotted pursuant to a prospectus which has been
registered but which, as a matter of fact, does not comply
with the Act and the
Regulations, is the allotment void?
A.18 Not in all cases. The fact that a registered prospectus does not comply with the Act does not mean that it is not a registered prospectus (see definition of “registered prospectus”, section 2 of the Act). However the allotment may be void or voidable under sections 37(2), 37A(1)(d) or 37A(1)(f) of the Act.
In addition, under section 59(1) of the Act, the issuer, its directors, principal
officers and promoters may be guilty of an offence.
ADVERTISING
Q.19 Where debt securities are not secured by a charge on assets but are
guaranteed by a person other than the issuer, is it permissible
to state that
the securities are “secured” for the purposes of regulation
14(1)?
A.19 No. Unless the issuer of the debt securities is the Crown, every advertisement relating to those securities must contain either one of two statements. It must state that the securities are unsecured, or that they are secured, and describe the nature and ranking in point of security of the securities. A statement that the securities are guaranteed does neither. The only exception is that issuers of debt securities which are unconditionally guaranteed by the Crown need not comply with Regulation 14(1) pursuant to The Securities Act (Crown Guaranteed Debt Securities) Exemption Notice
1983 (S.R. 1983/248).
TRUSTEE AND STATUTORY SUPERVISOR
Q.20 Who may act as a trustee or statutory supervisor?
A.20 Pursuant to section 48 of the Act, any trustee corporation (as defined
by the Trustee Companies Act 1967) or any person approved
by the Commission may
act as a trustee or statutory supervisor. Each application from persons wishing
to act as trustees or statutory
supervisors is considered on its merits. In
addition, the Commission has developed the following general criteria:-
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