Regime for the mutual recognition of securities offerings across Australian and New Zealand finally takes effect

On 13 June 2008, the New Zealand Commerce Minister Lianne Dalziel and the Hon Nick Sherry, Australian Minister for Superannuation and Corporate Law, launched the new Trans-Tasman regime for the mutual recognition of securities offerings.  Under the new regime, issuers of securities in Australia will be able to offer those securities in New Zealand using the same offering documents given to Australian investors, and will not be required to prepare separate offering documents under New Zealand law, as had previously been the case.  Reciprocal rules apply to offers in Australia by New Zealand issuers.

The mutual recognition regime has been a long time coming.  A treaty between Australia and New Zealand governing the mutual recognition of securities offerings was signed in February 2006.  The Australian legislation to implement the Australian recognition of New Zealand securities offerings came into force in December 2007.  While the New Zealand Parliament also passed its own implementing legislation, regulations were required to be promulgated in both countries before the regime could take effect.  These regulations have now been issued.

The provisions governing the mutual recognition regime are contained in the following:

• for New Zealand issuers that also want to offer their securities in Australia, a new Chapter 8 has been added to the Corporations Act 2001 (Cth) (Australian Act), and the corresponding regulations are contained in the Corporations Amendment Regulations 2008(No 2); and  
  
  
• for Australian issuers that also want to offer their securities in New Zealand, the relevant rules are in Part 5 of the Securities Act 1978 (NZ) (New Zealand Act) and the Securities (Mutual Recognition of Securities Offerings-Australia) Regulations 2008 (NZ) (NZ Regulations).

The Australian Securities and Investments Commission (ASIC) and the New Zealand Securities Commission (NZSC) have issued a joint guide, “Offering securities in New Zealand and Australia under mutual recognition”¹, that provides an overview of the operation of the mutual recognition regime in both Australia and New Zealand.  While the rules governing respective offerings in the two jurisdictions are, in general, very similar, they are not exactly the same.  This may lead to some interesting anomalies in the application of the rules in each jurisdiction.

Who is eligible?

Under the new Chapter 8 (section 1200C of the Australian Act), only issuers incorporated in New Zealand, natural persons resident in New Zealand or other legal persons established under the laws of New Zealand are covered by the new regime.  In contrast, the NZ Regulations, in addition to covering the corresponding types of Australian persons, also extend the benefits of the regime to foreign companies that are registered under the Australian Act.

As a result, companies that are foreign to Australia but are registered in Australia will be able to offer securities in both Australia and New Zealand using Australian offering documents, but companies that are foreign to New Zealand but registered in New Zealand will not be able to do the same from New Zealand.  This difference in the application of the two systems may eventually be fixed, however, as ASIC is given the authority under section 1200C of the Australian Act to extend the coverage of the section to additional persons by regulation.

Under both sets of rules, the regime is not available to an issuer (or an issuer where a person concerned in the management of the issuer):

• who is disqualified or prohibited from being concerned in the management of an Australian or New Zealand company;
  
  
• who has previously been banned by the NZSC or ASIC (as applicable) from making an offer under the mutual recognition regime; or
  
  
• in the case of a New Zealand issuer, who has been banned by ASIC from providing financial services.

What types of offers are covered?

The mutual recognition scheme covers Australian equity or debt securities, interests in managed investment schemes and any interest in or option to acquire any such securities or interests.  (The New Zealand securities and interests covered by the Australian Act are similar to the scope of the New Zealand coverage.)

An offer of such securities or interests from New Zealand into Australia that satisfies the requirements of the mutual recognition scheme is called a ‘recognised offer’, while an offer in the other direction is called a ‘regulated offer’.  In each case, the offer in the home jurisdiction must require disclosure under the relevant home legislation (whether by way of a prospectus, product disclosure statement, prospectus and investment statement or other offering document).  In the case of an Australian offer into New Zealand, the Australian disclosure document or product disclosure statement must have been lodged with ASIC and the exposure period must have expired.

Offers that are exempt from disclosure under section 708 of the Australian Act will not benefit from the mutual recognition scheme.  Exempt offers under section 708 include the following:

• offers to sophisticated or professional investors;
  
  
• offers where the minimum amount payable for the securities is at least A$500,000;
  
  
• offers made through a financial services licensee (where various requirements set out in the Australian Act are satisfied);
  
  
• offers that are made under a scheme of arrangement covered by Part 5.1 of the Australian Act; and
  
  
• offers of securities that are to be issued as consideration in a takeover bid under Chapter 6 of the Australian Act.

Other requirements

Australian issuers must lodge a notice of intention with the New Zealand Companies Office before the offer is made in New Zealand.  Among other matters, the notice must:

• state that the Australian issuer intends to make an offer under the mutual recognition regime;
  
  
• specify the securities to be offered and the proposed offer periods in New Zealand and Australia; and
  
  
• state that the Australian issuer submits to the jurisdiction of the courts of New Zealand, and give the name and address of a person in New Zealand who is authorised to accept service of documents on behalf of the Australian issuer.

A requirement corresponding to the requirement to expressly submit to the jurisdiction of New Zealand is not included in the Australian Act or regulations, although it might be argued that the obligation is implicit, as section 1200D of the Australian Act does require a New Zealand issuer to include an address for service in Australia in its notice to ASIC.

Under both the Australian and New Zealand regimes, various warning statements must be included in the offer document, and there are also ongoing conditions that must be met while the offer is open, relating to maintaining the status of the offer and of the issuer in Australia or New Zealand (as applicable), giving prospective investors, upon request, a copy of the issuer’s constitution, and notifying the New Zealand Companies Office or ASIC (as the case may be) of various changes.

Status of laws relating to misleading or deceptive conduct

While most of the laws relating to offers of securities to the public in the companion jurisdiction are displaced by the mutual recognition regime, both Australia and New Zealand have legislation covering misleading or deceptive conduct or similar offences that will not be displaced.

In the case of New Zealand, the Australian offer documents will be considered to be advertisements under the New Zealand Act.  The NZSC has broad powers to prohibit the distribution of advertisements that are likely to deceive, mislead or confuse in a material regard.  An Australian issuer also may have criminal liability in New Zealand for untrue or misleading statements or omissions in offer documents.
In the case of Australia, the prohibitions on hawking and short selling will still apply to offers by New Zealand issuers into Australia, and the prohibitions in the Australian Act in sections 1041E (false or misleading statements) and 1041H (misleading or deceptive conduct) also will apply.

Further Enquiries