EXPLANATORY
STATEMENT
Select Legislative
Instrument 2008 No. 94
Issued
by the authority of the Minister for Superannuation and Corporate Law
Corporations
Act 2001
Corporations
Amendment Regulations 2008 (No. 2)
Subsection 1364(1)
of the Corporations Act
2001 (the Act) provides that the Governor‑General may make
regulations prescribing matters required or permitted by the Act to be
prescribed by regulations, or necessary or convenient to be prescribed by such
regulations for carrying out or giving effect to the Act.
The amendments to the Corporations Regulations 2001 (the Principal
Regulations) give effect to the trans-Tasman mutual recognition of securities
offerings regime.
The Regulations support
Chapter 8 of the Act which sets in place a mutual recognition regime for the
offering of securities and interests in managed investment schemes. While Chapter
8 was developed in response to a Treaty agreed with New Zealand in
2006, the Act is drafted in general terms to enable the possibility of future
extension to individual countries. The Regulations include the specific
details of the regime as it applies to New Zealand.
The trans‑Tasman
mutual recognition regime allows an issuer to extend an offer that is being
lawfully made in one country (the home jurisdiction) to investors in the other
country (the host jurisdiction) without being required to comply with most of
the substantive requirements of the host jurisdiction’s fundraising laws that
apply to domestic offers. The regime applies to offers of securities
and interests in managed investment schemes, but does not apply to the
provision of financial advice.
The mutual recognition regime is underpinned by the Agreement between the Government of Australia and the
Government of New Zealand in relation to the Mutual Recognition of Securities
Offerings (the Treaty), which was signed on
22 February 2006 by the former Treasurer, the Hon Peter Costello MP,
and the Hon Lianne Dalziel, the New Zealand Minister of Commerce. The
mutual recognition regime is part of a work program to further coordinate the
business law of the two countries.
Details of the
Regulations are outlined in the Attachment.
The regulation impact
statement (RIS) requirements for the Regulations were met by the RIS included
with the Explanatory Memorandum for the Corporations (NZ Closer Economic
Relations) and Other Legislation Amendment Bill 2007 (the Bill).
In January 2008, the
Regulations were the subject of targeted consulation with 15 organisations,
including industry, investor groups and interested legal practitioners. Three
submissions were received. One industry group noted that the Regulations
appear to comprehensively implement the framework established by Chapter 8.
Another submitter made mostly technical comments on the Regulations, which have
been addressed. Finally, one submission made no comment on the Regulations but
made general comments on mutual recognition going forward.
Targeted consultation was
adopted given the technical nature of the Regulations. Stakeholder
consultation targeted those substantially affected by the changes (offerors and
investors through industry groups, and legal firms who advise on such offer
documents). Those who had previously provided comments on the Bill, the
Australian Securities and Investments Commission (ASIC) and the New Zealand
Ministry of Economic Development were also consulted. The earlier 2006
consultation on the Bill was open to the public but only six submissions were
received from industry, business, legal practitioners and the legal industry
association.
Under the Corporations
Agreement 2002, the Commonwealth must consult with the Ministerial
Council for Corporations before making amendments to certain provisions of the
Principal Regulations. The Council were consulted about these amendments, and
were notified of the Minister’s decision to dispense with the period of public
exposure given the Regulations were the subject of targeted consultation in
January 2008.
The Regulations are a
legislative instrument for the purposes of the Legislative
Instruments Act 2003. The Regulations commence on the day on which
the Agreement between the Government of
Australia and the Government of New Zealand in relation to Mutual Recognition
of Securities Offerings [2006] ATNIF enters into force for
Australia.
ATTACHMENT
Details
of the Corporations Amendment Regulations 2008 (No. 2)
Regulation 1 – Name of
Regulations
This regulation
provides that the title of the Regulations is the Corporations Amendment Regulations 2008 (No. 2).
Regulation 2 –
Commencement
This regulation provides
for the Regulations to commence on the day on which the Agreement between the Government of Australia and the
Government of New Zealand in relation to Mutual Recognition of Securities
Offerings [2006] ATNIF enters into force for Australia.
Regulation 3 – Amendment
of Corporations Regulations 2001
This regulation provides
that the Corporations Regulations 2001 (the Principal
Regulations) are amended as set out in Schedule 1.
Schedule 1 – Amendments
Item 1 inserts a new
Chapter 8 dealing with mutual recognition of securities offers.
Chapter
8 Mutual recognition of securities offers
Part
8.1: Preliminary
Regulation 8.1.01
Part 8.3 of the Act deals
with offers made under foreign recognition schemes. As the Act is generic, allowing
for the possible extension of these arrangements to individual countries, it is
necessary to prescribe a foreign
recognition scheme in relation to New Zealand.
Subsection 1200A(1) of
the Act allows the regulations to prescribe a foreign recognition scheme that is the
provision of a law of a recognised
jurisdiction for the purposes of Chapter 8.
Under New Zealand law, the authority for offers of securities by an
Australian offeror to New
Zealand investors
is contained in Part 5 of the Securities Act 1978 and the Securities (Mutual
Recognition of Securities Offerings – Australia) Regulations 2008. That Act and regulations are
prescribed as a foreign
recognition scheme for the purposes of Chapter 8.
Regulation 8.1.02
Regulation 8.1.02 prescribes the offeror for New
Zealand Managed Investment Schemes.
Under subsection 1200A(1) of the Act, the
offeror is:
·
the
person who has the capacity, or who agrees, to issue or transfer the securities
if the offer is accepted; or
·
a
person of a kind prescribed by the regulations in relation to a particular
offer.
For
New Zealand
managed investment schemes, while the manager is normally the issuer of
interests in management investment schemes, there is a possibility that the
trustee could also issue those interests. Under New
Zealand law, the manager is the
‘issuer’ (section 2 of the Securities Act 1978). It is appropriate for the
manager to be the offeror for this purpose, as they are generally responsible
for meeting the legislative requirements of the offer.
For the avoidance of doubt, regulation 8.1.02 defines
the manager of a New Zealand
managed investment scheme (under the Unit Trusts Act 1960 or a scheme within
the meaning of the Securities Act 1978 of New
Zealand) as the offeror for the
purposes of the mutual recognition regime.
Regulation 8.1.03
Part 8.2 of the Act deals
with foreign offers that are recognised in this jurisdiction. As the Act is
drafted in general terms to accommodate the possibility of extension to individual
countries, the details of foreign countries that the regime will apply to must
be set out in the Regulations.
As the scheme implements
a Treaty between Australia and New Zealand, regulation 8.1.03 prescribes New Zealand as a recognised jurisdiction. This means the
regime only applies, and is available, to offers of securities made by New Zealand offerors to Australian investors, where they meet the
criteria in the Act.
Regulation 8.2.01
Regulation 8.2.01 states the kind of offer that
is allowed as a recognised offer from a recognised jurisdiction, which is New
Zealand. Section 1200C of
the Act sets the conditions that must be met for a recognised offer (see
section 1200B for details of a recognised offer). One of the conditions for a
recognised offer includes that the offer must be of a kind prescribed by the
regulations in relation to the recognised jurisdiction.
The mutual recognition regime is only relevant
if both New Zealand
and Australian laws require offer documents. Regulation 8.2.01 provides that
an offer may also be recognised in Australia,
if the offer in New Zealand
requires disclosure. Part Two of the Securities Act 1978 (New
Zealand) set in place
restrictions on offering securities to the public without disclosure. The
regulations therefore prescribe offers of securities to which Part Two of the
Securities Act 1978 of New Zealand
applies.
The note to the regulation assists readers to
understand that the definition of security in the Securities Act 1978 (New
Zealand) is wider than the
Chapter 8 definition. For example a security under the Chapter 8 definition
does not include an interest in a superannuation scheme or a life insurance
policy. Securities may only be offered into Australia
if they meet the Chapter 8 definition. Securities under Chapter 8 are offers
of shares, debentures, interests in managed investments schemes and certain
derivatives over those securities.
Regulations 8.2.02 and 8.2.03
Regulations 8.2.02 and 8.2.03 include the
statements and details that must be included in the warning statement. Under
section 1200D of the Act, the warning statement must be included with an offer
document issued under a recognised offer in Australia.
The warning statement must also comply with any regulations made under section
1200E of the Act.
The warning statement is intended as notice to
potential investors that the offer of securities is primarily subject to
foreign laws.
Subparagraphs 8.2.02(1)(a) to (g) include
statements that must be included in any warning statement. Here potential
investors are informed that the offer is primarily governed by New
Zealand law. The statement
also provides general information to investors on possible regulatory differences,
compensation and tax risks. The warning statement is in general terms and also
encourages investors to seek financial advice from an appropriately qualified
advisor.
Subregulations 8.2.02(2) and (3) include
statements that are only required if they are relevant to the offer. These
include where proceeds from the offer will not be paid in Australian dollars
and general information about trading on a foreign financial market.
Under paragraph 1200E(b) of the Act, the
regulations may prescribe details that must be given in statements to be
provided with New Zealand
offer documents. Under regulation 8.2.03 the warning statement must include
the following details if relevant:
·
if
there is an obligation to provide a dispute resolution process (see section
1200J of the Act) for managed investment schemes, details of the dispute
resolution process available for that offer;
·
if the
offer is subject to continuous disclosure obligations (see section 1200K,
section 674 and Part 1.2 of the Act), details of the availability of those
continuous disclosure notices that relate to the offer; and
·
if the
product is listed (or will be) on a financial market, the details of the
financial market the product is (or will be) listed on.
While the offer is primarily regulated under New
Zealand law, Australia
continues to require a dispute resolution process and compliance with
continuous disclosure obligations under the Act. Therefore these details are
intended to assist Australian investors with this information. The information
regarding the listing on financial markets supplements the general information
about trading on foreign financial markets (subregulation 8.2.03(3)).
Regulation 8.2.04
Regulation 8.2.04 lists the relevant New
Zealand home regulator for the
purposes of subsections 1200G(13) and (14) of the Act. Under subsection
1200G(13) of the Act, the home regulator is prescribed in the regulations for
that jurisdiction. Subsection 1200G(14) of the Act recognises that some
jurisdictions may have more than one regulator. The need for a prescribed home
regulator is necessary to comply with the offering conditions specified in
subsection 1200G(9) and for subsection 1200N(1), item 4.
In New
Zealand, both the New Zealand
Securities Commission and the New Zealand Registrar of Companies have relevant
responsibilities. The table in Regulation 8.2.04 specifies which regulator may
be regarded as the home regulator for the purposes of the provisions:
·
The New
Zealand Registrar of Companies is responsible for matters specified in items 1
to 4 of the table at subsection 1200G(9) and item 4 of the table at subsection
1200N(1). This includes changes to offer documents, warning statements,
supplementary/replacement offer documents and changes to constitution or
constituent documents.
·
The New
Zealand Securities Commission is responsible for matters specified in items 5
to 7 of the table at subsection 1200G(9). This includes changes to general or
specific exemptions, and enforcement action, in relation to the offer or offeror.
Regulation
8.4.01
Part 7.9 of the Act deals
with disclosure for financial products but does not apply to securities. In
the context of the mutual recognition regime, this means Part 7.9 of the Act applies to interests
in managed investment schemes.
Sections 1012A-1012C of
the Act place obligations on regulated persons to provide a Product Disclosure
Statement (PDS) when giving personal advice that recommends a particular
product, and in situations relating to the issue and sale of financial
products. Section 1012D of the Act sets out situations in which a PDS is not
required.
Regulation 8.4.01 modified Part 7.9 of the Act
as set out in Part 18 of Schedule 10A. Item 3 inserted Part 18 in Schedule 10A
of the Principal Regulations.
Under Part 18.1 of the Principal Regulations,
subsection 1012D(9E) allows regulated persons, in a recommendation, sale or
issue situation, to provide the New
Zealand offer documents and
warning statement for interests in New
Zealand managed investment
schemes where they reasonably
believe there is a Chapter 8 recognised offer. The regulated person must provide
the New Zealand
offer documents and warning statement in the same way that they would provide a
PDS (in accordance with section 1015C of the Act).
The use of the section 1020G regulation making
power to modify Part 7.9 of the Act for this purpose was outlined at paragraph
5.32 of the Explanatory Memorandum to the Corporations (NZ Closer Economic
Relations) and Other Legislation Amendment Bill 2007 (the Bill).
Item 2 replaced the heading of Schedule 10A to
add regulation 8.4.01 to the list of regulations that supplement Part 7.9 of
the Act.
Regulation 8.4.02
Regulation 8.4.02 modified Parts 6D.2 and 7.9 of
the Act using the regulation making power in section 1200M of the Act, so that
certain disclosure obligations do not apply because disclosure has already
occurred under a recognised offer. Item 4 inserted Schedule 10AA, Parts 1 and
2 in the Principal Regulations.
Parts 1, 2.1 and 2.2 of Schedule 10AA included
changes to:
·
sales
amounting to indirect issue/indirect off-market sales by a controller; and
·
options
and convertible securities.
Sales amounting to indirect
issue/indirect off-market sales by a controller
Subsections 707(3) and (4) for securities, and
subsections 1012C(6) and (7) for non-securities (managed investment schemes),
regulate the on-sale of financial products within 12 months of their issue.
The provisions seek to ensure that retail clients receive adequate disclosure
regardless of whether the financial products are issued directly or
indirectly.
The amendments mean that subsections 707(3) and
1012C(6) do not apply if the body issued the securities or non securities as
part of a recognised offer under Chapter 8 (subsections 707(3A) and
1012C(6A)). This is because
disclosure has already occurred as part of a recognised offer.
The on-sale of financial products within 12
months of their issue is also regulated in the case of an indirect off-market
sale by a controller (see subsections 707(5) and 1012C(8)).
Subsections 707(5A) and 1012C(8A) mean that subsections 707(5) and 1012C(8) do
not apply if the controller sold the securities or non securities as part of a
recognised offer under Chapter 8. This is because disclosure has already
occurred as part of a recognised offer.
Options
and convertible securities
ASIC Class Order 04/671 under Schedule D,
category 3 broadly provides relief from disclosure for the underlying
securities or managed investment products if a regulated disclosure has been
made of the option or convertible or converting security or convertible or converting
managed investment product.
Subsections 707(3B) and 1012C(6B) provide New
Zealand recognised offers the same treatment as would apply for securities or
managed investment products underlying options or converting or convertible
securities when disclosure has been given under Part 6D.2 or for options
or converting or convertible securities that are financial products, for which
a PDS has been given under Part 7.9 of the Act. For the definition of
convertible securities and by implication converting securities, securities
include interests in a managed investments scheme.
Part 2.3 of Schedule 10AA made changes to
custodial arrangements.
Custodial arrangements
Subsection 1012IA(2) of the Act requires
providers to give a client a PDS in certain circumstances.
Similar to Part 18.1 of Schedule 10A to the
Principal Regulations, the modifications to subsection 1012IA(3) allow
providers to provide the New Zealand offer documents and warning statement for
interests in New Zealand managed investment schemes where they reasonably
believe there is a Chapter 8 recognised offer for the financial product. The provider must provide the offer
documents and warning statement in the same way that they would provide a PDS
(in accordance with section 1015C of the Act).
Use of section 1200M in modifying Parts 6D2 and
7.9 of the Act.
Paragraph 5.41 of the Explanatory Memorandum to
the Bill outlines the use of section 1200M, which allows the regulations to
modify the Act. The modification power is included principally to address the
possible application of the regime to foreign countries other than New
Zealand, and to make minor
alterations to fit the requirements of any recognised jurisdiction.
The
amendments in regulation 8.4.02 are minor alterations to address largely
technical issues that arise as a result of New
Zealand offerors making
recognised offers in Australia.