Property developers must comply with securities law Property developers and their advisers need to consider securities law issues when planning developments. "We have seen several recent examples of developers who have not complied with the Securities Act and Regulations when offering and allotting securities in property developments," Chairman Jane Diplock said. The Commission has recently accepted enforceable undertakings from the following property developers: Monaco Village Holdings Limited and its directors - the company unintentionally breached securities law when raising funds for a tourist development in Nelson; Alpine Pacific Development Limited and its directors - the company was under a misapprehension that securities law did not apply when raising funds for a tourist accommodation lodge in Kaikoura; and Braemar Lodge (2004) Limited and its directors - the company was under a misapprehension that securities law did not apply when raising funds for a luxury accommodation lodge in Hanmer Springs. All three companies came to the Commission once they realised the law had been breached. All three companies are offering units in developments together with rights to join an income pooling scheme. These rights give owners a proportionate share in the income from all or some of the units in the development. The rights are participatory securities under the law, and their offer and allotment must comply with the law. The consequences of non-compliance can be severe. When securities are offered and allotted in breach of the law, subscribers have a statutory right to have their money refunded. The recent enforceable undertakings accepted by the Commission have all required the developers to re-offer the interests, in compliance with the law. If subscribers decide not to take up the re-offer, the enforceable undertakings require the companies to allow investors to withdraw from the income pooling schemes (and in the case of Monaco, to have their units administered on an individual basis instead). These are the fourth, fifth and sixth enforceable undertakings the Commission has accepted in connection with property developers. "Developers offering unit ownership together with company or other incorporated structures or with income pooling schemes must comply with securities law," Jane Diplock said. "They should seek specialist legal advice for offers of this type." In some cases developers may use a class exemption to reduce compliance costs. Alternatively, the Commission will consider exemption applications on a case by case basis. The full texts of the signed undertakings are published on www.seccom.govt.nz
		Focus on disclosure of changes to large shareholdings The Commission may take action against people with large shareholdings who fail to disclose changes to their holdings or who do not make timely disclosure of changes to their holdings. "The aim of the disclosure is to keep the market fully informed of changes in the ownership and potential control of public companies," Jane Diplock said. The disclosure rule applies to shareholders holding 5% or more of the shares in a listed company. They must immediately disclose any increase or decrease in their holding of 1% or more. Under the Securities Markets Act 1988 these substantial security holders must notify both the company and NZX of such changes. Disclosure is required "as soon as the person knows or ought to know" that their holding has changed. "This means that the market must be informed immediately the interest arises. It is not acceptable to delay this disclosure," Chairman Jane Diplock said. This is particularly important in a takeover or a stand in the market where delayed filing may result in material information being withheld from the market. There will rarely be any justification for the delayed filing of SSH notices where parties involved in stands and takeovers are already substantial security holders. These parties should be well aware that further transactions in the security may trigger the disclosure rule.

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THE BULLETIN July 2005

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