The trans-Tasman Mutual Recognition of Securities Offerings scheme

In June 2008, the Australian and New Zealand Governments introduced a mutual recognition scheme which should make it easier for issuers to extend their securities offerings outside their home jurisdictions to members of the public in their trans-Tasman counterpart country. In this article Bell Gully partners, Anna Buchly and James Gibson discuss how the scheme is to operate in both jurisdictions.

On 13 June 2008, Australia and New Zealand exchanged diplomatic notes to bring into effect the trans-Tasman Mutual Recognition of Securities Offerings scheme (mutual recognition scheme).

The mutual recognition scheme permits an Australian issuer to extend an offer regulated under Australian law into New Zealand using the disclosure document required under Australian law, subject to meeting certain conditions. This means that the Australian issuer will no longer need to prepare an investment statement to wrap around the Australian disclosure document.

On the other side of the Tasman, the mutual recognition scheme permits a New Zealand issuer to extend an offer regulated under New Zealand securities laws into Australia using only the offer document required under New Zealand law, subject to meeting certain conditions. No separate Australian offer document is required.

While the current economic climate may not be conducive to securities offerings, it seems inevitable that Australian issuers will start to take advantage of the Regulations once market conditions improve. Given the relatively minimal compliance cost involved, extending an Australian offer to New Zealand investors may become routine for many Australian issuers.

Easing the path for Australian issuers to extend offerings into New Zealand

The laws implementing the mutual recognition scheme in New Zealand are set out in Part 5 of the New Zealand Securities Act and the Securities (Mutual Recognition of Securities Offerings – Australia) Regulations 2008 (New Zealand Regulations). To make an offer in New Zealand in reliance on the mutual recognition scheme, the offer and the issuer must satisfy the following requirements.

The offer must be a regulated offer in Australia

The offer of securities in Australia must require a disclosure document or Product Disclosure Statement under the Australian Corporations Act. That document must have been lodged with the ASIC and any exposure period must have expired before the offer can commence in New Zealand.

Nature of the issuer and certain prohibitions

The issuer must be incorporated under the laws of Australia or be a natural person resident in Australia. Further, the issuer or any person concerned in the management of the issuer must not be prohibited from being involved in management of the issuer under Australian or New Zealand law or previously banned by the New Zealand Securities Commission from making a regulated offer.

Type of securities

The mutual recognition scheme applies to offers in New Zealand of equity securities, debt securities, interests in collective investment schemes and any interest in, or option to acquire, such securities.

Filing of documents with NZ Registrar of Companies

Before making the offer in New Zealand, an Australian issuer must provide the New Zealand Registrar of Companies with written notice of its intention to make an offer under the New Zealand Regulations. The notice must contain certain information including:

• a statement that the Australian issuer intends to make an offer in accordance with the mutual recognition scheme;
• a description of the securities to be offered;
• the proposed offer period in New Zealand and Australia;
• details of the person authorised to accept service in New Zealand; and
• a statement that the Australian issuer submits to the New Zealand jurisdiction.

The notice must be accompanied by the Australian disclosure document or PDS, a copy of any exemptions or declarations granted by an Australian regulator which are being relied on by the issuer, and the constituent documents of the Australian issuer.

Disclosure document

The Australian disclosure document must include the relevant warning statements contained in the New Zealand Regulations. These include statements that:

• the offer is being made pursuant to the New Zealand Regulations; and
• the offer is principally regulated under Australian, rather than New Zealand law.

The disclosure document must also highlight potential currency risks and any different tax treatment for New Zealand investors.

Ongoing requirements

While the offer remains open in New Zealand, the Australian issuer must comply with certain conditions. These conditions include ensuring that the offer remains open in Australia, the offer complies with Australian securities laws, and that New Zealand investors can obtain certain documents relating to the offer and the issuer free of charge.

Notification requirements

The Australian issuer must notify the New Zealand Registrar of Companies if certain circumstances arise during the offer period. Those circumstances include:

• when a change is made to the disclosure document or PDS;
• when a supplementary or replacement disclosure document or PDS is required to be issued under Australian law;
• there is a change or revocation of a general exemption relevant to the offer or an offer specific exemption; or
• ASIC begins an enforcement action or exercises a power it has under law in relation to the offer.

Failure to comply and its consequences

If an Australian issuer breaches a term or condition of the New Zealand Regulations then the Australian issuer, the principal officers of the Australian issuer, every promoter of the securities and every director of the issuer may each be liable on summary conviction to a fine not exceeding NZ$300,000. If the offence is a continuing one, a further fine may be imposed not exceeding NZ$10,000 for every day or part of a day during which the offence continues.

In these circumstances the New Zealand Securities Commission may also make an order prohibiting the distribution of the Australian disclosure document or banning the Australian issuer from making an offer under the New Zealand Regulations.

Liability for misstatements – which law applies

The mutual recognition scheme exempts a qualifying offer of securities from civil liability for "untrue statements" (i.e., misleading statements or omissions of material particulars) under the New Zealand Securities Act.

However, the New Zealand Securities Act continues to apply to impose criminal liability on an Australian issuer and its directors for distributing an offer document in New Zealand that contains an untrue statement. That criminal liability is subject to a "reasonable grounds to believe" defence.

Although it seems contrary to the intent of the mutual recognition scheme, there remains the possibility that an Australian issuer and its directors could be sued by a New Zealand investor under the New Zealand Fair Trading Act (the New Zealand equivalent of the Australian Trade Practices Act) for losses caused by misleading or deceptive conduct or statements in relation to an offer of securities. If that liability exists, the "reasonable grounds to believe" defence will again be available.

Easing the path for New Zealand issuers to extend offerings into Australia

The laws implementing the mutual recognition scheme in Australia are set out in Chapter 8 of the Australian Corporations Act and the Corporations Amendment Regulations 2008 (no.2) (Australian Regulations). To extend an offer into Australia in reliance on the mutual recognition scheme, the following requirements, must be satisfied.

The offer must be a public offer made in New Zealand

The offer must be made to members of the public in New Zealand in accordance with the New Zealand Securities Act (which generally means that the offer will be made via a registered prospectus and investment statement). The New Zealand public offer must be open for acceptance in New Zealand at the same time as the offer made in Australia.

Nature of the issuer and certain prohibitions

• The issuer must be incorporated under the laws of New Zealand.
• The issuer or any person concerned in the management of the issuer must not be prohibited from being involved in management of the issuer under New Zealand or Australian law and must not have been previously banned by the Australian Securities and Investment Commission (ASIC) from making a regulated offer.

Type of securities

The mutual recognition scheme applies to offers made in Australia of shares, debentures and interests in managed investment schemes, and certain rights, interests and options in these financial products.

Filing of documents with ASIC

Before a New Zealand issuer makes an offer in Australia in reliance on the mutual recognition scheme it must provide ASIC with written notice of its intention to make an offer. The notice must be accompanied by:

• any offer document required by the New Zealand Securities Act (i.e., typically, a prospectus and an investment statement);
• the constituent documents of the New Zealand issuer or the scheme constitution;
• details of any exemption from the New Zealand Securities Act that applies to the offer; and
• an address for service on the issuer in Australia.

Offer document

The New Zealand offer document must include the relevant warning statements contained in the Australian Regulations. These include statements that:

• the offer is regulated under New Zealand Securities law; and
• Australian law does not apply to the offer.

The offer document must also highlight potential currency risks and any different tax treatment for Australian investors.

Ongoing requirements

While the offer remains open in Australia, the New Zealand issuer must comply with certain conditions. These conditions include ensuring that the offer remains open in New Zealand, that the offer complies with New Zealand securities laws and that Australian investors can obtain certain documents relating to the offer and the issuer free of charge.

Notification requirements

The New Zealand issuer must notify ASIC if certain circumstances arise during the offer period. Those circumstances include when:

• a change is made to the offer document;
• a replacement offer document is required to be issued under New Zealand law;
• there is a change or revocation of a general exemption relevant to the offer or to an offer specific exemption; or
• the New Zealand Securities Commission or the New Zealand Companies Office begins an enforcement action or exercises a power it has under law in relation to the offer.

Failure to comply and its consequences

If a New Zealand issuer breaches a condition of the Australian Regulations then the New Zealand offeror commits an offence and may be liable to a fine of up to A$20,000 or to imprisonment for up to five years, or both. Under Australian law, New Zealand issuers with at least 100 shareholders must also comply with the continuous disclosure rules contained in the Australian Corporations Act.

Pre-offer advertising

The New Zealand issuer must ensure that any pre-offer advertising in Australia complies with the general content rules for pre-offer advertising contained in the Australian Corporations Act.

Australian law liability for misleading or deceptive statements

Notwithstanding the Australian Regulations, under the Australian Corporations Act the New Zealand issuer (and persons involved in the relevant contravention, directors of the New Zealand issuer) remain subject to civil and criminal liability for making statements or disseminating information in respect of the offer which is likely to mislead or deceive.

For further information, please contact your usual Bell Gully adviser or:

Anna Buchly
Partner

James Gibson
Partner

Official Guide The New Zealand Securities Commission and the Australian Securities and Investments Commission have published a joint guide for the trans-Tasman mutual recognition scheme for offers of securities. To access the guide visit the Securities Commission's website at www.seccom.govt.nz.

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