Dated at Wellington this 25th day of March 2013.
Head of Primary Regulatory Operations.
Statement of reasons
This notice, which comes into force on 1 April 2013 and is revoked on 30 September 2017, replaces the Securities Act (Co-operative Companies) Exemption Notice 2011 (the 2011 notice).
The exemptions granted by the notice apply only in respect of securities allotted to transacting shareholders of co-operative companies. The notice continues exemptions from the Securities Act 1978 (the Act) and the Securities Regulations 2009 (the Regulations) previously provided in the 2011 notice and includes exemptions from the following provisions of the Act and the Regulations:
section 37A(1)(a) of the Act in respect of equity securities (which requires subscribers to receive an investment statement before subscription):
section 37A(1)(c) of the Act (which restricts the time of allotment):
section 54 of the Act (which relates to the issue of certificates evidencing securities):
various requirements of the Regulations relating to the content of a registered prospectus.
This notice is on substantially the same terms as the 2011 notice and, in effect, entitles co-operative companies to use an evergreen short-form prospectus. However, additional disclosure is required by a co-operative company in its investment statement or an accompanying directors’ statement if—
the offer is an initial public offering of equity securities or debt securities and acquisitions have been undertaken by the co-operative company or any of its subsidiaries since the last balance date or agreed to be undertaken by it or any of its subsidiaries, being acquisitions where the consideration exceeds 20% of the co-operative company’s total tangible assets. In addition, the investment statement or an accompanying directors’ statement will now be required to disclose particulars of material matters relating to the offer that are not otherwise set out in the investment statement:
the co-operative company (or any of its subsidiaries) has agreed to enter into a major transaction (as defined in the Companies Act 1993) or a transaction or series of related transactions that would change the essential nature of the co-operative company’s business.
If the offer is an initial public offer of equity securities, the investment statement or an accompanying directors' statement will also be required to disclose information regarding plans of the directors for the year following registration of the prospectus, the purpose for which the proceeds of the offer may be used, and the minimum amount that must be raised by the offer to meet the purchase price of property, to pay preliminary expenses and commissions, to meet working capital requirements, and to repay any borrowings. This must be accompanied by prospective financial statements for the year following registration of the prospectus.
The Financial Markets Authority, after satisfying itself as to the matters set out in section 70B(2) of the Act, considers it appropriate to grant the exemptions because—
co-operative companies have traditionally been accorded different legal status and treatment from ordinary companies. Further, co-operative companies are owned or substantially owned by suppliers (or members) using the company’s services and their principal business is the provision of services to members. It is often compulsory for suppliers to apply for shares. Accordingly, shareholders generally have significant knowledge about the business and tend to treat shareholding as an incident of doing business with the co-operative, or the means by which they can access the benefits of membership. Co-operative shares are often issued at nominal value, which precludes the possibility of capital gain:
there is still, however, an investment decision to be made and securities law policy requires that investors receive material information in a timely manner. The reduced-content prospectus, flexibility relating to the provision of the investment statement, and the securities certificate exemption allow co-operative companies to meet the requirements of the law in a cost-effective manner that is appropriate to the nature of their business:
the transitional provisions reduce the compliance costs resulting from the regulatory changes for issuers that have previously relied on the 2011 notice or earlier corresponding exemption notices. These issuers may continue to rely on the 2011 notice or an earlier corresponding notice in respect of securities offered under an existing registered prospectus in reliance on that notice unless the prospectus needs to be amended to prevent it from being false or misleading in a material particular (see section 37A(1)(b) of the Act). In addition, the transitional provisions can be relied on in the case of an offer of debt securities only if the prospectus contains (if applicable) the information specified in clause 4 of Schedule 2 of the Regulations (which relates to guarantors and requires more information than the equivalent provision in the Securities Regulations 1983):
the conditions of the exemptions provide for alternative supplementary information to be made available to investors, including directors’ statements about any material adverse changes to trading and profitability, asset value, and ability to pay liabilities, information regarding proposed major transactions or proposed changes to the essential nature of the co-operative company’s business, and, in the case of an initial public offering of securities, information regarding any recent or proposed significant acquisitions and other material information:
the reduced-content evergreen prospectus, with provision for that alternative supplementary information, and the provision of updated financial statements with any prospectus requested provide sufficient information disclosure in a cost-effective manner that is appropriate for the prospective investors. The Financial Markets Authority is satisfied that this information is sufficient to avoid any significant detriment to those prospective investors:
the Financial Markets Authority is also satisfied that the extent of the exemptions is not broader than what is reasonably necessary to address the matters that gave rise to the exemptions, because the exemptions only apply to shares of a co-operative company offered to persons who are, or immediately after allotment will be, transacting with the co-operative company and only provide exemptions to the extent appropriate to reduce regulatory compliance costs while requiring the provision of relevant information in an appropriate alternative manner.
Date of notification in Gazette: 28 March 2013.
This notice is administered by the Financial Markets Authority.