The Securities Act (Short Form Prospectus) Exemption Notice 2009 (2009 Notice), which replaces the Securities Act (Short Form Prospectus) Exemption Notice 2002 (2002 Notice), came into force on Monday. The 2009 Notice retains the existing exemptions in the 2002 Notice, and adds new exemptions that have the effect of reducing securities law compliance for companies that are eligible to use a short form prospectus when issuing securities to their existing security holders.
Under the Securities Regulations 1983 (Regulations), it is recognised that a reduced level of information (in the form of a short form prospectus) is appropriate if a company offers equity, convertible or certain types of debt securities to existing investors (as those investors would generally be familiar with the company). Regulation 4 of the Regulations allows this reduced level of information on the basis that recent financial information has been provided to those security holders.
CHANGES MADE BY THE 2009 NOTICE
The changes made by the 2009 Notice allow the following:
Interim financial statements compliant with NZ IAS 34 sufficient for short form prospectuses
Previously, if an issuer wanted to include interim financial statements in a short form prospectus they would have to prepare full form interim financial statements that comply with all of the requirements of New Zealand generally accepted accounting practice (GAAP). This created a situation where a company that may have previously prepared interim financial information in accordance with the relevant accounting standards would have to spend more to make that information meet the further requirements for interim financial information under the Regulations.
Now, issuers can use interim financial statements that comply with NZ Equivalent to International Accounting Standard 34 (Interim Financial Reporting) (NZ IAS 34) for the purposes of short form prospectuses (these are condensed interim financial statements). This exemption removes the barrier created under NZ IAS 34, as generally, this accounting standard does not apply to interim financial statements included in, or accompanying, a registered prospectus.
The Securities Commission has indicated that interim financial statements that are compliant with NZ IAS 34 provide sufficient information for prospective investors who already hold securities in the issuer.
Financial statements for guaranteed convertible securities to comply with GAAP
Financial statements that are disclosed in respect of guaranteed convertible securities (ie debt securities that will be converted, or are or will become convertible at the option of the security holder, into equity securities of the issuer of the debt and that are guaranteed by guaranteeing subsidiaries of the issuer) must comply with GAAP, which is a slightly different requirement from the 2002 Notice.
Consistency with section 209 of the Companies Act 1993
Companies that rely on the notice provisions in section 209 of the Companies Act 1993 (which allows companies to make their annual report available to shareholders by notifying shareholders of their right to receive an annual report rather than sending a physical copy of the annual report itself) can now use the short form prospectus exemption. The exemption allows companies that use section 209 notices to include section 209 wording in the short form prospectus rather than having to send financial statements to its shareholders or attach them to the prospectus before those companies are eligible to use a short form prospectus under the Regulations.
CONCLUSION
The changes made by the 2009 Notice will be welcomed by companies wanting to raise capital from existing security holders by making the process for preparing a short form prospectus more cost effective, efficient and easier.
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