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Summary of

Securities Act (Grey Water Limited) Exemption Notice 2004

2004/374

Gazetted on 28 October 2004
Expires on 31 October 2009

Effects of the exemption
Residential property within a specified land development is able to be sold by Livewell Limited in conjunction with shares in Grey Water Limited, without the need for a registered prospectus and investment statement for the shares. The companies are also exempt from requirements regarding statements made by an expert in advertisements for the shares, and do not have to provide certain information on request.

Background
Livewell Limited is developing a residential subdivision known as Mangawhai Stage 1 and Mangawhai Stage 2 at Mangawhai Heads, North Auckland. A public sewerage system for the area is not yet available. The developer has consent to install and operate a water drainage, treatment and disposal system for sewerage and waste water for the subdivision. Grey Water Limited has been established by Livewell Limited to operate this system. The offer of shares in Grey Water Limited is intended to result in owners of the lots paying for and effectively owning the sewerage system managed by Grey Water Limited.

The exemption
Grey Water Limited and Livewell Limited are exempted from sections 33, 37, 37A, 38A, and 54B(3) of the Securities Act 1978.

Conditions
The exemptions are subject to the following conditions:

• each subscriber for the shares receives copies of the following documents before subscription:
  • the constitution of Grey Water Limited;
  • the deed of encumbrance between Grey Water Limited and the subscriber;
  • the sale and purchase agreement dated 29 September 2004 between the developer and Grey Water Limited;
  • the lease;
  • the proposed sale agreement relating to that subscriber; and
• the shares are subscribed for by entering into a sale agreement for residential property;
• deposit money paid by a subscriber is paid into a trust account until the sale agreement becomes unconditional;
• no settlement of a sale agreement is completed unless:
  • the equipment for the communal sewerage system is owned legally and beneficially by Grey Water Limited; and
  • if any right or interest in land is included in the communal sewerage system, Grey Water Limited's interest in that land is registered on the certificate of title or computer register for that land; and
• all money paid to Grey Water Limited by its shareholders under the constitution of the company is used only for either or both of the following purposes:
  • owning, administering and maintaining the communal sewerage system; or
  • administering and enforcing a scheme for the regulation and control of sewerage related matters; and
• the constitution of Grey Water Limited provides that:
  • the shareholders of the company have the right to use the communal facilities;
  • the shareholders have the right to vote at shareholders' meetings;
  • levies, fees or subscriptions payable to the company by shareholders are determined by the shareholders at a shareholders' meeting;
  • the company cannot carry on trading activities or a business for a profit;
  • the company can only carry out activities related to the sewerage system; and
• it is a term of the share contract that the shares can only be obtained on the purchase of residential property and, on resale, must be sold with that residential property; and
• it is a term of the share offer that:
  • a prospective investor receives a copy of the most recent audited financial statements of the company within 5 days of making a request; and
  • the audited annual financial statements of the company are distributed to shareholders as soon as possible after the audit, and in any event no later than 5 months after the end of the company's financial year.

Reasons
The exemptions are consistent with the policy of previous exemptions the Commission has granted in relation to residential property developments, including a class notice (the Securities Act (Residential Property Developments) Exemption Notice 1999).

The securities involved in these developments are not intended for purposes of investment, but rather to confer ownership rights and rights to use the communal facilities in a residential development. The conditions of exemption require that the entity offering the securities does not have as its objects the carrying on of trading activities or a business for profit. Rather, the purpose of the Issuer is to allow the owners of residential lots to participate in the control of the communal facilities.