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New Zealand Securities Commission |
Last Updated: 12 November 2014
SECURITIES COMMISSION REVIEW OF CLASS EXEMPTION NOTICES - UPDATE OF PROJECT REPORT
SECURITIES COMMISSION REVIEW OF CLASS EXEMPTION NOTICES - UPDATE OF PROJECT REPORT
1.
This report updates our project report dated 13 August 2007. In that
project report we outlined the Commission's decisions on a number
of class
exemption notices. Amendment notices to give effect to the renewals and
amendments to those exemption notices were, at that
stage, still being drafted.
Further, we noted that substantive amendments to four exemption notices were in
the process of being
considered and settled by the Commission.
2.
This report provides details of the exemption notices which
have been notified in the Gazette, and updates progress in respect of
amendments to three remaining exemption notices which are currently in the final
stages of drafting.
Exemptions notified in the Gazette
3.
Several notices have now
been notified in the Gazette. These are:
(a)
the Securities Act
(Building Societies) Exemption Amendment Notice 2007 (2007/279);
(b)
the Securities Act (Contributory Mortgage Brokers) Exemption Amendment
Notice 2007 (2007/266);
(c)
the Securities Act (Equity Warrant
Issuers) Exemption Amendment Notice 2007 (2007/278);
(d)
the
Securities Act (Extension of Term, Amendment, and Revocation of Certain
Exemptions) Exemption Notice 2007 (2007/277). This exemption
notice renews
and/or amends the class exemption notices listed in Appendix A of this report,
in addition to renewing and/or amending,
or revoking certain individual
exemption notices;
(e)
the Securities Act (Group Investment
Index Funds) Exemption Amendment Notice 2007 (2007/301);
(f)
the
Securities Act (NZX Issuers) Exemption Notice 2007 (2007/272);
(g)
the Securities Act (Real Property Proportionate Ownership Schemes) Exemption
Amendment Notice 2007 (2007/289). This exemption notice
renews the class
exemption notice. Further amendments to the principal notice, discussed below,
are in the process of being drafted;
and
(h)
the Securities Act
(Rights, Options, and Convertible Securities) Exemption Amendment Notice 2007
(2007/288). This exemption notice
renews the class exemption notice. Further
amendments to the principal notice, discussed below, are in the process of being
drafted.
4.
We recommend that before you or your clients
rely on any of these class exemption notices, you consider how any amendments
affect
you or your clients' position.
5.
Please note that the
amendments described below in relation to the Securities Act (Real Property
Proportionate Ownership Schemes)
Exemption Notice 2002, the Securities Act
(Residential Property Developments) Exemption Notice 1999, and the Securities
Act (Rights,
Options, and Convertible Securities) Exemption Notice 2002 have not
yet been settled. We encourage any person seeking to rely on
these exemption
notices to check that relevant exemption amendment notices have been notified in
the Gazette and consider the effect of the amendments.
The Securities Act (Real Property Proportionate Ownership Schemes) Exemption
Notice 2002
6.
As noted above, the Securities Act (Real Property
Proportionate Ownership Schemes) Exemption Notice 2002 was renewed on the same
terms
for a period of five years pending the drafting of substantive amendments
agreed to by the Commission. An amendment notice is in
the process of being
drafted and, accordingly, its terms have not yet been settled. The following
explanation of the proposed amendments
is necessarily of a general nature.
Exemptions
7.
The exemption notice will continue to contain
exemptions from sections 33(3), 37, 37A and 51 to 54 of the Act.
Application of exemptions
8.
It is anticipated that the class of
persons who may rely on the exemptions contained in the principal notice will be
extended. The
Notice defines the term "offeror" and only provides exemptions for
persons who fit within that definition. The definition of "offeror"
will be
extended to apply to lawyers or conveyancing practitioners within the meaning of
the Lawyers and Conveyancers Act 2006 ("LCA"). Currently the definition only
applies to trustee companies and real estate agents. The extension reflects
changes made by
the LCA that regulate lawyers and conveyancers acting as real
estate agents. The amendment to the notice will come into force upon
the
enactment of the relevant provisions of the LCA.
9.
It is
anticipated that the principal notice will be extended to cover a broader range
of contributory schemes. Previously the principal
notice did not apply to unit
title schemes. The types of scheme structures to which the principal notice will
apply are:
(a)
schemes whereby each investor obtains an undivided
interest in common (either freehold or leasehold) in the same real property as
other investors. These schemes are covered by the Securities Act 1978
("Securities Act") because the interest in land obtained by
each investor falls
outside the scope of the statutory exemption in section 5(1)(b) of the
Securities Act, and because the investor
has a right to participate in the
earnings of the whole property.
(b)
unit title schemes which
involve an income pooling scheme, whereby investors who each own individual unit
titles obtain a right to
participate in the earnings of the development as a
whole. These schemes are covered by the Securities Act only because they involve
income-pooling arrangements; and
(c)
schemes whereby each
investor invests in a contributory scheme and obtains an interest in common in a
unit in a development, and a
right to participate in the earnings of that unit.
Returns are affected by the individual unit's share of the costs of the whole
development. These schemes are covered by the Securities Act because the
interest in land obtained by each investor falls outside
the scope of the
statutory exemption in section 5(1)(b) of the Securities Act, and because the
investor obtains a right to participate
in the earnings of their unit.
Conditions
10.
It is anticipated that the conditions of
exemption will be amended:
(a)
to allow for the release of a subscribers
subscription money held on trust (in the case of undivided property schemes and
undivided
unit title schemes) upon the offeror taking all steps necessary to
allow title to the real property to pass to each subscriber, and
(in the case of
unit title pooled schemes) upon the offeror taking all steps necessary to allow
title to the real property to pass
to the particular subscriber whose
subscription money is to be released. Currently the principal notice only allows
for the release
of subscriptions out of the trust account once registrable title
to the real property had been transferred;
(b)
to require funds
be held on trust until registrable title is obtainable by the subscriber, and
that if registrable title is not obtained
by the subscriber within 36 months of
that subscribers subscription (in the case of unit title pooled schemes and
undivided unit
title schemes) or within 36 months of the opening of the offer
(in the case of undivided property schemes) then the funds must be
returned to
the investor;
(c)
to require all advertisements for
proportionate ownership schemes to refer to the offeror's statement for that
scheme and to require
that all prospective financial information that is
contained in an advertisement for a proportionate ownership scheme is also
contained
in the offeror's statement for that scheme. This mirrors the usual
requirement for prospective financial information in advertisements
in cases
where there is a registered prospectus; and
(d)
to require that
if prospective financial information is included in the offeror's statement for
a scheme that prospective financial
information must comply with FRS 42.
Transitional provision
11.
It is also anticipated that the
amendment notice will contain a transitional provision that allows issuers who
offer interests in
a scheme to the public in reliance on the principal notice
before the commencement of these amendments to choose to rely on the principal
notice as it was immediately before amendment.
The Securities Act (Residential Property Developments) Exemption Notice
1999
12.
The Commission has decided to make substantive amendments to the
Securities Act (Residential Property Developments) Exemption Notice
1999. Due to
the number and complexity of the proposed amendments, it is anticipated that a
new notice, the Securities Act (Property
Developments) Exemption Notice 2007,
will replace the current notice. The new notice is in the process of being
drafted and, accordingly,
its terms have not yet been settled. However, we set
out below an explanation of the general nature of the proposed amendments.
Exemptions
13.
It is anticipated that the new notice will
provide exemptions from sections 33(3), 37, 37A, 38A and 54 of the Securities
Act and from
the Securities Regulations 1983 (except regulation 8) to developers
and certain other persons who offer securities in the form of
membership of a
society or a shareholding in a company that confer rights to participate in
ownership and use of communal facilities
in a property development. There will
no longer be exemptions from section 33 in its entirety or sections 53E(2) and
54B(3). This
is consistent with current Commission policy and recent individual
exemption notices.
Application of exemptions
14.
It is anticipated that the new
notice will expand upon the scope of the current notice by extending the
application of the new notice
to property developments which do not fall within
the terms of the current notice, accommodating certain arrangements for holding
communal facilities not currently included under the current notice, and
allowing a wider range of communal facilities to be included
in a property
development.
15.
Many of these amendments reflect the nature of,
or arrangements applying to, property developments in respect of which
individual
exemption notices have been granted.
16.
The new
notice will extend the scope of the current notice to apply to:
(a)
property developments which include both residential properties and
commercial properties; and
(b)
property developments in which
purchasers acquire a leasehold interest in their property under the Land
Transfer Act 1952.
17.
It is also intended that the new
notice will extend the scope of the current notice to apply to the following
arrangements:
(a)
arrangements whereby a company or an incorporated
society ("relevant entity") holds, administers and/or maintains the communal
facilities;
(b)
arrangements whereby communal facilities will be
completed and transferred to the relevant entity at a future date subsequent to
the
settlement of sale agreements for individual properties in a property
development. This is often required where the property development
will be
completed in stages;
(c)
arrangements whereby the developer will
retain control of the relevant entity until the completion of the property
development. Again,
this is often required where the property development will
be completed in stages;
(d)
arrangements whereby the relevant
entity is required to maintain an area of land outside the property development
under the terms
of a resource consent for that property development.
18.
As noted above, it is intended that the definition of
communal facilities in the new notice will be more expansive than that currently
contained in the current notice. For instance, the new notice will not require
that amenities be used in connection with the use
of communal land by owners.
Conditions
19.
As a result of the above amendments, it is
anticipated that the conditions of exemption will be substantively amended. The
Commission
has decided to amend some of the conditions carried forward from the
current notice, and introduce additional conditions.
20.
The
general nature of these amendments include:
(a)
additional upfront, and
ongoing, disclosure requirements;
(b)
additional requirements
concerning the provisions to be contained in the rules of the relevant entity;
(c)
additional requirements which will apply to staged property
developments and/or property developments where there is a controlling
entity.
In most cases, conditions similar to the new conditions have previously
been required in individual exemption notices.
Expiry date
21.
The Commission has also decided to
include an expiry date in the new notice. In accordance with Commission policy
the new notice will
expire, and will need to be reviewed and renewed, in five
years.
Transitional provisions
22.
It is anticipated that the new
notice will contain a transitional provision to the effect that if, before the
commencement of the
new notice, persons have offered securities in reliance on
the current notice, the offer and allotment of securities may continue
to be
made in accordance with the new notice or the current notice.
The Securities Act (Rights, Options, and Convertible Securities) Exemption
Notice 2002
23.
As noted above, the Securities Act (Rights, Options, and
Convertible Securities) Exemption Notice 2002 was renewed on the same terms
for
a period of five years pending drafting of substantive amendments agreed by the
Commission. An amendment notice is in the process
of being drafted and,
accordingly, its terms have not yet been settled. However, we set out below an
explanation of the proposed
amendments, which is necessarily general in nature.
New exemption
24.
The Commission has agreed to grant a further
exemption from section 37A(1)(b) of the Securities Act, in respect of investment
statements
for the allotment of new securities.
25.
It is
anticipated that this exemption will be subject to conditions requiring the
securities to be listed, on terms similar to those
terms currently contained in
clause 11 of the principal notice (which will be further amended as noted
below), and a number of additional
conditions including:
(a)
a
requirement that immediately prior to conversion the issuer must notify material
information in accordance with the continuous disclosure
provisions of the
listing rules of NZX or the ASX (as the case may be). The notification will be
required to include certain statements
which will be set out in the amended
notice;
(b)
a condition that no allotment of a new security
shall be made if at the time of the allotment of the new security, any
notification
relating to the security, or any document referred to in such
notification, is known by the issuer or any director of the issuer,
to be false
or misleading in a material particular;
(c)
a requirement that
an investment statement that relates to both the convertible security and the
new security includes certain statements
(which will be set out in the amended
notice).
Application of exemptions
26.
It is also anticipated that the
application of certain exemptions will be extended. The following amendments to
conditions currently
contained in the principal notice are anticipated:
(a)
amending the requirements of the principal notice relating to the exemption
from section 37A(1)(a) of the Securities Act (contained
in clause 11 of the
principal notice) in respect of the allotment of new securities to the effect
that securities issued by the issuer
of a new security of the same class as the
new security must be:
(i)
quoted on New Zealand Exchange Limited ("NZX")
or the Australian Stock Exchange ("ASX") at the time of the offer and allotment
of
the convertible security; or
(ii)
quoted on NZX or the ASX at
the time of or after the allotment of the convertible security (as the case may
be) where an application
for quotation on NZX or the ASX of the securities of
the same class as the new security has been made at the time of the offer of
the
convertible security;
(b)
amending the requirements of
the principal notice relating to the exemption from section 37A(1)(a) of the
Securities Act (contained
in clause 11 of the principal notice) in respect of
the allotment of a new security, to allow securities to be quoted on the NZX
or
ASX. Currently the securities must be quoted on NZX;
(c)
amending the requirements of the principal notice relating to the exemptions
from section 37 of the Securities Act (and the transitional
exemption from
section 37A of the Act), in respect of the allotment of new securities, where
the issuer of the new security is a
wholly-owned subsidiary of the issuer of the
convertible security (contained in clause 8(1)(b) of the principal notice), to
allow
securities to be quoted on NZX or the ASX. Currently the securities must
be quoted on NZX.
27.
References to "New Zealand Stock
Exchange" will also be substituted for references to "New Zealand
Exchange Limited".
Appendix A
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