Private offers of securities

Andrew Beck, Company & Securities Law Bulletin, April 2004

This article considers the Court of Appeal case of Lawrence v Registrar of Companies1, which is described as a significant milestone in the interpretation of the Securities Act 1978. The case relates to section 3 of the Securities Act 1978, and, in particular, the question of who is a member of the public for the purposes of an offer of securities.

The author suggests that the court's reasoning in the case (summarised below) is the clearest expression to date of the policy reasons behind the protections offered by the Securities Act.

Mr Lawrence was the sole director and shareholder of Canterbury Asset Management Limited (Canterbury), a company that offered investments in a residential subdivision and an apartment complex without a prospectus or an investment statement. Mr Lawrence was charged with making offers to the public and allotting securities to the public without a prospectus, in breach of section 59 of the Securities Act.

There were 106 investors, none of whom were professional investors. The investors were initially involved in the projects through an association with Mr Condliffe, a bank employee who later became an investment adviser and the investors became his clients. When Mr Condliffe was later employed by Canterbury, he introduced the investors to Canterbury.

Mr Lawrence argued that there was no offer to the public.

The Court of Appeal decided that:

• The Securities Act's general policy of protecting the public does not demand either a wide or a narrow approach to construction - it is a question of construing the section in its context - by analogy to the other exceptions.
  
  
• There is a class of investors who are able to manage their own interests, and to insist on a prospectus for such investors would be a waste of time.
  
  
• The underlying policy of the professional investors exemption in the Securities Act is that the costs of protection outweigh the benefits where the target investors are capable of looking after their own interests.

The court concluded that the fact that the investors were introduced by Mr Condliffe could not exclude them from being selected as members of the public - that is akin to being an existing client of the firm and analogous to the position of existing security holders who are not excluded by virtue of section 3(3).

1 (2003)9 NZCLC 263,277

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