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SECURITIES COMMISSION REVIEW OF CLASS EXEMPTION NOTICES - UPDATE OF PROJECT REPORT

Transitional provision

11.
It is also anticipated that the amendment notice will contain a transitional provision that allows issuers who offer interests in a scheme to the public in reliance on the principal notice before the commencement of these amendments to choose to rely on the principal notice as it was immediately before amendment.

The Securities Act (Residential Property Developments) Exemption Notice 1999

12.
The Commission has decided to make substantive amendments to the Securities Act (Residential Property Developments) Exemption Notice 1999. Due to the number and complexity of the proposed amendments, it is anticipated that a new notice, the Securities Act (Property Developments) Exemption Notice 2007, will replace the current notice. The new notice is in the process of being drafted and, accordingly, its terms have not yet been settled. However, we set out below an explanation of the general nature of the proposed amendments.

Exemptions

13.
It is anticipated that the new notice will provide exemptions from sections 33(3), 37, 37A, 38A and 54 of the Securities Act and from the Securities Regulations 1983 (except regulation 8) to developers and certain other persons who offer securities in the form of membership of a society or a shareholding in a company that confer rights to participate in ownership and use of communal facilities in a property development. There will no longer be exemptions from section 33 in its entirety or sections 53E(2) and 54B(3). This is consistent with current Commission policy and recent individual exemption notices.

Application of exemptions

14.
It is anticipated that the new notice will expand upon the scope of the current notice by extending the application of the new notice to property developments which do not fall within the terms of the current notice, accommodating certain arrangements for holding communal facilities not currently included under the current notice, and allowing a wider range of communal facilities to be included in a property development.

15.
Many of these amendments reflect the nature of, or arrangements applying to, property developments in respect of which individual exemption notices have been granted.

16.
The new notice will extend the scope of the current notice to apply to:
(a)
property developments which include both residential properties and commercial properties; and

(b)
property developments in which purchasers acquire a leasehold interest in their property under the Land Transfer Act 1952.


17.
It is also intended that the new notice will extend the scope of the current notice to apply to the following arrangements:
(a)
arrangements whereby a company or an incorporated society ("relevant entity") holds, administers and/or maintains the communal facilities;

(b)
arrangements whereby communal facilities will be completed and transferred to the relevant entity at a future date subsequent to the settlement of sale agreements for individual properties in a property development. This is often required where the property development will be completed in stages;

(c)
arrangements whereby the developer will retain control of the relevant entity until the completion of the property development. Again, this is often required where the property development will be completed in stages;

(d)
arrangements whereby the relevant entity is required to maintain an area of land outside the property development under the terms of a resource consent for that property development.


18.
As noted above, it is intended that the definition of communal facilities in the new notice will be more expansive than that currently contained in the current notice. For instance, the new notice will not require that amenities be used in connection with the use of communal land by owners.

Conditions

19.
As a result of the above amendments, it is anticipated that the conditions of exemption will be substantively amended. The Commission has decided to amend some of the conditions carried forward from the current notice, and introduce additional conditions.

20.
The general nature of these amendments include:
(a)
additional upfront, and ongoing, disclosure requirements;

(b)
additional requirements concerning the provisions to be contained in the rules of the relevant entity;

(c)
additional requirements which will apply to staged property developments and/or property developments where there is a controlling entity.

In most cases, conditions similar to the new conditions have previously been required in individual exemption notices.

Expiry date


21.
The Commission has also decided to include an expiry date in the new notice. In accordance with Commission policy the new notice will expire, and will need to be reviewed and renewed, in five years.

Transitional provisions

22.
It is anticipated that the new notice will contain a transitional provision to the effect that if, before the commencement of the new notice, persons have offered securities in reliance on the current notice, the offer and allotment of securities may continue to be made in accordance with the new notice or the current notice.

The Securities Act (Rights, Options, and Convertible Securities) Exemption Notice 2002

23.
As noted above, the Securities Act (Rights, Options, and Convertible Securities) Exemption Notice 2002 was renewed on the same terms for a period of five years pending drafting of substantive amendments agreed by the Commission. An amendment notice is in the process of being drafted and, accordingly, its terms have not yet been settled. However, we set out below an explanation of the proposed amendments, which is necessarily general in nature.

New exemption

24.
The Commission has agreed to grant a further exemption from section 37A(1)(b) of the Securities Act, in respect of investment statements for the allotment of new securities.

25.
It is anticipated that this exemption will be subject to conditions requiring the securities to be listed, on terms similar to those terms currently contained in clause 11 of the principal notice (which will be further amended as noted below), and a number of additional conditions including:
(a)
a requirement that immediately prior to conversion the issuer must notify material information in accordance with the continuous disclosure provisions of the listing rules of NZX or the ASX (as the case may be). The notification will be required to include certain statements which will be set out in the amended notice;

(b)
a condition that no allotment of a new security shall be made if at the time of the allotment of the new security, any notification relating to the security, or any document referred to in such notification, is known by the issuer or any director of the issuer, to be false or misleading in a material particular;

(c)
a requirement that an investment statement that relates to both the convertible security and the new security includes certain statements (which will be set out in the amended notice).


Application of exemptions

26.
It is also anticipated that the application of certain exemptions will be extended. The following amendments to conditions currently contained in the principal notice are anticipated:
(a)
amending the requirements of the principal notice relating to the exemption from section 37A(1)(a) of the Securities Act (contained in clause 11 of the principal notice) in respect of the allotment of new securities to the effect that securities issued by the issuer of a new security of the same class as the new security must be:
(i)
quoted on New Zealand Exchange Limited ("NZX") or the Australian Stock Exchange ("ASX") at the time of the offer and allotment of the convertible security; or

(ii)
quoted on NZX or the ASX at the time of or after the allotment of the convertible security (as the case may be) where an application for quotation on NZX or the ASX of the securities of the same class as the new security has been made at the time of the offer of the convertible security;


(b)
amending the requirements of the principal notice relating to the exemption from section 37A(1)(a) of the Securities Act (contained in clause 11 of the principal notice) in respect of the allotment of a new security, to allow securities to be quoted on the NZX or ASX. Currently the securities must be quoted on NZX;

(c)
amending the requirements of the principal notice relating to the exemptions from section 37 of the Securities Act (and the transitional exemption from section 37A of the Act), in respect of the allotment of new securities, where the issuer of the convertible security is a wholly-owned subsidiary of the issuer of the new security (contained in clause 8(1)(b) of the principal notice), to allow securities to be quoted on NZX or the ASX. Currently the securities must be quoted on NZX.


27.
References to "New Zealand Stock Exchange" will also be substituted for references to "New Zealand Exchange Limited".

Appendix A



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