Securities Commission grants class exemption for share and unit purchase plans

Garry Downs, Partner and Annie Cho, Solicitor | December 2005

The Securities Act (NZX Share and Unit Purchase Plans) Exemption Notice 2005 removes the restrictions imposed on NZX issuers by the Securities Act 1978 when raising funds from existing security holders.

The Securities Act currently places certain restrictions on the allotment of securities which, if not complied with, render an allotment void or voidable.  The Act normally requires that a listed issuer provide a registered prospectus and investment statement relating to the security to potential investors. 

The exemption effectively removes the need for issuers to provide these documents.  Issuers can now offer shares or units under a share or unit purchase plan by way of a disclosure document setting out the terms of the purchase plan, thus removing the requirement for a prospectus or investment statement. 

The aim of the exemption is to assist NZX issuers when raising limited funds from existing security holders by way of share or unit purchase plans.  The Commission has previously granted individual exemptions for such schemes, namely the Securities Act (Property for Industry Limited) Exemption Notice 2004, the Securities Act (Nuplex Industries Limited) Exemption Notice 2004 and the Securities Act (AMP Multiplex Management Limited) Exemption Notice 2005.  The exemption is now available as a class exemption.

It applies to purchase plans that give every shareholder or unit holder the opportunity to subscribe for securities worth not more than $5,000 in any given 12-month period.  Other key requirements for a share or unit purchase plan include:

• The offer of specified securities must be made to all security holders holding securities of the same class as the specified securities (except a security holder in a jurisdiction outside of New Zealand who is excluded by the NZX issuer to avoid a risk of breaching the law in that jurisdiction);
  
  
• The offer must be on the same terms and conditions to all security holders to whom the offer is made;
  
  
• The right to subscribe for the specified securities must not be renounceable;
  
  
• The security holders of the specified securities must enjoy the same rights as each other, and as the securities that qualify him or her to subscribe for the specified securities in the first place;
  
  
• The subscription price must be at a discount on market price of the securities of the same class as the specified securities during a period specified in the share or unit purchase plan and;
  
  
• The subscription price must be fixed before allotment of the specified securities.

Participation in these plans extends also to beneficial owners of shares or units. 

In its discussion paper, the Commission noted that the class exemption was appropriate given the relatively small amounts involved and the fact that the specified securities were available only to existing security holders.  Accordingly, full disclosure of material information about securities and the issuer was not necessary as this would have already been made at the time of the initial offer. 

A disclosure document ensuring investors receive all important information about the share or unit purchase plan will suffice to ensure appropriate levels of control and protection for investors.  The discussion paper is available online at www.sec-com.govt.nz. 

The exemption came into force on 3 November 2005 and expires on 10 October 2010.

For further information, please contact your usual Bell Gully corporate advisor.