• About
• Publications
• Exemptions
• Notices
• What's new?
• International
• Speeches
• Information for investors
• Contact us
• Site map
• Home

Summary of

Securities Act (Carlin Enterprises Limited and The Styx Mill Country Club Incorporated) Exemption Notice 2005

2005/2

Gazetted on 25 January 2005
Expires on 31 January 2005

Effects of the exemption
Carlin Enterprises Limited and The Styx Mill Country Club do not require a statutory supervisor, investment statement or registered prospectus for their offer of participatory securities. In addition, advertisements relating to the securities do not have to comply with the advertising requirements of the Securities Regulations 1983, except regulation 8, which concerns misleading information. Certificates evidencing the securities do not need to be issued.

Background
Carlin Enterprises Limited is the developer of a residential property subdivision in Christchurch. Purchasers of properties in the development become members of an incorporated society, The Styx Mill Country Club Incorporated. The society manages communal facilities, and is responsible for the bylaws of the development. Membership of the society confers a right to participate in the ownership and use of the communal facilities, and falls within the scope of securities legislation.

The communal facilities will include a tennis court situated on land that has yet to be subdivided. Ownership of this tennis court will be transferred to the society after subdivision in March 2005. Because this part of the communal facilities is not yet owned by the incorporated society, the offer is not covered by the class exemption for residential property development, Securities Act (Residential Property Developments) Exemption Notice 1999.

Before this exemption notice came into force, some securities for this development had already been offered and allotted. The Commission accepted an enforceable undertaking from Carlin Enterprises Limited on 22 December 2004. Transitional provisions in the conditions of exemption refer to securities already allotted.

The exemption
Carlin Enterprises Limited and The Styx Mill Country Club are exempt, subject to conditions, from sections 33(3), 37, 37A, 38A, and 54 of the Securities Act 1978 and from the Securities Regulations 1983 (except regulation 8) in respect of specified securities of which the developer or the society is an issuer.

Conditions
The exemptions are subject to the following conditions:

• before subscription, the developer has supplied copies of the following documents to each subscriber:
  • the rules (including a copy of any agreement for the management of the society's affairs);
  • a specimen of any deed or agreement providing for the transfer of communal facilities from the developer to the society;
  • a specimen of the sale agreement;
  • a specimen of any lease agreement for communal facilities;
• each subscriber entering into a sale agreement with the developer also subscribes to membership of the society;
• deposits paid for membership of the society are held in a trust account operated under the Law Practitioners Act 1982, the Real Estate Agents Act 1976, or the Trustee Companies Act 1967 until the sale agreement becomes unconditional;
• no settlement of a sale agreement is completed until, -
  • if the developer represents or agrees that communal facilities will be held by the society, the communal facilities are owned or leased by the society; and
  • if land is included in the communal facilities, the society's interest in the land is registered on a certificate of title, or computer register, under the Land Transfer Act 1952 or the society holds a certificate of title for a stratum estate under the Unit titles Act 1972 for the land;
• if communal facilities are leased, or to be leased, by the society, -
  • the communal facilities are owned, or to be owned, by members of the society;
  • interests in the communal facilities can only be purchased with a purchase of residential property;
• in respect of the tennis court, -
  • the developer has executed a deed of transfer in favour of the society;
  • it is a term of the offer that the deed of transfer is registered immediately after the subdivision of the undeveloped land and the issue of a separate certificate of title, or the creation of a computer register, for an estate in fee simple in respect of the land on which the tennis court is to be situated; and
  • it is a term of the offer that the developer provides the deed of transfer to the society;
• it is a term of the offer that the developer provides a copy of the society's most recent financial statements to a member or prospective member, within 5 working days of a request for this information;
• it is a term of the offer that the financial statements of the society are audited each year and distributed to members of the society as soon as reasonably practicable after each audit and in any event, no later than 5 months after the end of each accounting period of the society (except for the first financial statement of the society, which must be audited and distributed to members of the society by 31 July 2005);
• it is a term of the offer that all money paid to the society by members is only used for -
  • administering the communal facilities, including members' licences to use the facilities; or
  • administering bylaws for the development;
• the rules provide that
  • members have the right to enjoy the communal facilities according the rules, and have the right to vote at meetings of the society;
  • if the society is wound up, any interest of the society in communal facilities becomes the property of the members of the society as tenants in common;
  • levies, fees, or subscriptions for the society are set by a committee of members;
  • the society is not intended to carry on trading activities or to carry on business for profit.

• Where a sale agreement, whether settled or unsettled, was entered into before 26 January 2005, the following condition does not apply:
  • each subscriber entering into a sale agreement with the developer also subscribes to membership of the society.
• Where a sale agreement was settled before 26 January 2005, and where before the securities are allotted, -
  • if the developer represents or agrees that communal facilities will be held by the society, the communal facilities are owned or leased by the society; and
  • if land is included in the communal facilities, the society's interest in the land is registered on a certificate of title, or computer register, under the Land Transfer Act 1952 or the society holds a certificate of title for a stratum estate under the Unit Titles Act 1972 for the land,

the following conditions do not apply:

• no settlement of a sale agreement is completed until, -
  • if the developer represents or agrees that communal facilities will be held by the society, the communal facilities are owned or leased by the society;
  • if land is included in the communal facilities, the society's interest in the land is registered on a certificate of title, or computer register, under the Land Transfer Act 1952 or the society holds a certificate of title for a stratum estate under the Unit titles Act 1972 for the land;
• if communal facilities are leased, or to be leased, by the society, -
  • the communal facilities are owned, or to be owned, by members of the society;
  • interests in the communal facilities can only be purchased with a purchase of residential property.

Reasons
Real estate developments often include communal facilities for the use of residents. Where these facilities are offered in the form of membership of an incorporated society, the interests offered are participatory securities under the Securities Act 1978. The Securities Commission has granted a class notice to allow these offers to be made without the need for a statutory supervisor, registered prospectus, and investment statement. Membership of the society is secondary to the purchase of the real estate interest. In these circumstances, the Securities Commission considers that full compliance with the provisions of the Securities Act 1978 would not provide additional benefits to purchasers that would offset the costs of compliance. The Securities Commission considers that adequate protection could be secured for these purchasers by compliance with the conditions of exemption.

The offer by Carlin Enterprises Limited cannot strictly comply with the terms of a condition of the class notice in that a part of the communal facilities will not be owned by the incorporated society at the time of settlement. As this affects only a small part of the communal facilities, the Securities Commission is satisfied that adequate protection can be secured by compliance with additional conditions requiring representations that the additional facilities will be transferred to the incorporated society as soon as this is possible. In other respects the Securities Commission is satisfied that the offer falls within the policy of the class notice.