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CORPORATIONS AMENDMENT REGULATIONS 2008 (NO. 2) (SLI NO 94 OF 2008)
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  ATNIF enters into force for Australia.
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  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 8.3 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 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.
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 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 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.
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 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.
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.