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Binding Rulings on Securities Law
A Discussion Paper

CHAPTER 5    PROCEDURAL MATTERS

5.1

The rulings regime envisaged in this discussion paper is one where rulings would be available generally in respect of complex or important compliance questions. Prospective applicants would need to weigh up whether the expense involved in obtaining a ruling (especially as the Commission would be likely to seek expert advice from senior members of the legal profession in many cases) was warranted.

Disclosure Requirements in Application

5.2

Applicants for a binding ruling would be required to provide full disclosure, on the basis of which the Commission would make its ruling. Any safe harbour provisions that might be available to directors and others who might otherwise be liable for breach of the securities law would ultimately only be available if there had been no misstatement or material omission in respect of the facts represented to the Commission at the time of the application.

5.3

The types of information that the Commission would require to enable it to make a considered and responsible ruling would be similar to the kind of information that should be provided when requesting an exemption. On that basis, an application for a ruling would include information regarding:

1. the nature of the proposed transaction;

2. the parties involved;

3. the securities proposed to be involved, or reasons to support the proposition that the offer is not one of securities;

4. the reasons why the applicant is seeking a binding ruling, i.e., the legal and other concerns that the applicant has about the current transaction, or the question of interpretation of the law that concerns the applicant and the context in which the concern arises;

5. the provisions of the securities law applicable or possibly applicable to the transaction, in relation to which a ruling is sought;

6. the applicant's opinion as to the interpretation of the applicable provisions of the legislation with the applicant's reasons for reaching that opinion;

7. supporting documentation such as the prospectus and investment statement (or mature drafts), trust deed or deed of participation (or mature drafts), or other offer documents (if the offer would not require a prospectus or investment statement) and any other relevant documentation;

8. any other material information; and

9. a draft ruling. This might describe the material facts surrounding the transaction, rule on the applicable provision(s) of the securities law and include any terms or definitions that will limit the ruling strictly to the problem the ruling is sought to remedy, ensuring adherence to the policy of the securities law.

Consultation

5.4

The Commission could be free to publish its rulings whether they favour the applicant or not, as the law may be clarified just as effectively through affirming as well as declining to affirm the applicant's view.

5.5

The Commission would consult with applicants of a binding ruling, particularly in relation to the wording of the ruling and any terms or special definitions attaching to it. If the Commission declined to make the ruling sought, the applicant would be informed of the reasons for the decision to decline.

5.6

Consideration needs to be given to the extent to which consultation with third parties should be undertaken. As binding interpretations of the law, rulings may affect many people. The question arises as to whether some if not all applications for a ruling should be published for public consultation.

Offer Documents

5.7

The offer documents in relation to a securities transaction that is made in reliance on a ruling would be required to explain the nature and consequences of the ruling to the extent these were material to the offer. Investors, therefore, would be informed prior to subscribing for securities of the existence of the ruling and its materiality to the terms of the contract they will enter upon subscription.

5.8

If a ruling declared that the securities law or some part of securities law did not apply to the offer, the Commission would have no further jurisdiction in respect of the offer or relevant part of the offer while the ruling remained in force. It seems important, however, that the promoter of the scheme to which the ruling related should disclose the ruling, if it wished to rely on it. Consideration needs to be given to how, and the circumstances in which, an offeror who obtained a ruling that the securities law did not apply should provide disclosure of the nature and effect of the ruling.

Fees

5.9

Binding rulings would be subject to full cost recovery by the Commission. There would, we suggest, be arrangements for this which were modelled on the Securities (Fees) Regulations 1998.

5.10

The Commission would most likely seek expert advice from senior members of the legal profession in respect of many, if not all, of the questions involved in rulings applications. The cost of this would be recoverable.

5.11

The Commission would make or decline to make a ruling at a formal meeting of Members. The time of Commission Members and professional staff would be charged at a rate set from time to time in the Securities (Fees) Regulations.

5.12

Should the Commission, after consideration, decide not to make a ruling, the costs already incurred would be nevertheless recoverable. So too if, after initiating a request, the applicant subsequently withdrew the request.

5.13

Consideration might be given to the establishment of a panel of suitable expert advisers.

12. Should the Commission have a panel of expert legal advisers from whom to seek advice in respect of rulings?

13. Should offerors who have obtained a ruling to the effect that the securities law does not apply to their offer, be required to disclose to prospective investors the nature and effect of such a ruling? How would such a requirement be enforced?

14. Should consultation on rulings extend to potential investors? Should the Commission be free to publish rulings applications for public comment?