Three issuers failed to provide substantial security holder information to their shareholders. Two other issuers provided incorrect substantial security holder information to their shareholders due to omissions on the part of the issuer, or in some instances, the substantial security holders.

The annual reports of three public issuers did not include information on substantial security holders and on enquiry the three issuers confirmed that they had not sent a note to shareholders with the required substantial security holder information. These are instances of breaches of section 26(1) of the Securities Markets Act 1988. In all three cases, the appropriate disclosures were made by the substantial security holder to the registered exchanges and the issuers concerned.

Section 26(1) of the Securities Markets Act requires the public issuer to provide a note stating the substantial security holder's name, number of voting securities in which the holder has a relevant interest and the total number of issued voting securities of the public issuer. This note is to be sent to each of its shareholders with the annual report sent under section 209 of the Companies Act or the financial statements or summary financial statements sent under section 210 of the Companies Act.

Section 26(4) of the Securities Markets Act states that "a public issuer who fails to comply with a requirement of this section commits an offence and is liable on summary conviction to a fine not exceeding $10,000".

Issuers are reminded to take their obligations under section 26(1) of the Securities Markets Act seriously, notwithstanding that the primary obligation for such disclosures is on the substantial security holders. The Commission will review these disclosures more closely in future.

Substantial security holder information on the number of shares held and/or percentage of holding disclosed in the annual reports of two issuers did not agree with information disclosed in the Substantial Security Holder Notice filed with NZX for the same period.

In one instance the error was due to the substantial security holder sending an incorrect notice. This matter was brought to the attention of the substantial security holder to ensure a corrected notice was filed with NZX.

The Securities Markets Act imposes certain obligations on a person who is a substantial security holder in a public issuer⁵ . A substantial security holder is a person who has a relevant interest in listed voting securities that comprise 5% or more of a class of listed voting securities of the public issuer (section 21(2)). The substantial security holder is required to disclose changes in that relevant interest (in number or nature) to the issuer and to every registered exchange on which the securities of the issuer are listed (sections 23 and 24).

The primary obligation is on the substantial security holder to file such notices to ensure that the market is kept informed at all times, but the Securities Markets Act also imposes obligations on the public issuer of the securities. Section 25 of the Securities Markets Act requires the issuer to maintain a file of substantial security holder notices received.

In a separate instance the issuer omitted certain substantial security holders from the annual report disclosures.

The two issuers, referred to in paragraphs 135 and 138, confirmed that their annual reports contained errors. Issuers should ensure their annual report disclosures are accurate and comply with the Securities Markets Act.

The Securities Markets Act provisions relating to substantial security holder disclosures were amended by regulations approved by the Cabinet on 3 December 2007. These regulations come into force on 29 February 2008 and are explained on the Commission's website www.newsecuritieslaw.govt.nz.

In future, failure to comply with substantial security holder obligations will be a criminal offence, subject to a fine of up to $30,000. Civil penalties of up to $1 million can be imposed by the Court, which can also make a range of orders relating to any holding of securities, including orders to forfeit or dispose of securities.

Three issuers did not disclose director share dealings during the year in their annual reports as required by the Companies Act, the Securities Markets Act and NZX Listing Rule 10.5.3(c).

The Companies Act (section 211(1)(e)) requires the annual report of a company to state the particulars of entries in the interests register made during the accounting period. Section 148 of the same Act requires a director to disclose their share dealings to the Board and ensure that that disclosure has been entered into the company's interests register. The Securities Markets Act (section 19U) also requires the directors of the issuer to disclose their relevant interests, and acquisitions or disposals in the interests register.

NZX Listing Rule 10.5.3(c) requires the annual report of a company to contain the information required by section 211 of the Companies Act.

In disclosing the particulars of the interests register, as required by the Companies Act, the issuer is required to state the following (section 148(2)):

One issuer failed to disclose material information, related to a restriction on the timing of any future acquisition of a business, in its annual report in accordance with the NZX Listing Rules.

NZX Listing Rule 10.5.1(d) requires the annual report of the issuer to contain all information required in a preliminary announcement. Appendix 1(j) states that this includes any significant information needed by an investor to make an informed assessment of the entity's financial performance and financial position.

This matter has been referred to the NZX.

The Commission will continue to review issuers' financial reporting as part of the Financial Reporting Surveillance Programme and to take any appropriate steps to encourage compliance with Financial Reporting Standards and other aspects of NZ GAAP.