The nuts and bolts of the Securities Amendment Act 2004

Dean Seymour, Anderson Lloyd Caudwell, "Securities Amendment Act 2004", Lawlink, Autumn 2004

The Securities Amendment Act 2004 came into force on 15 April 2004. It introduced several significant changes including the addition of two additional categories of private offers, a new eligible persons exception and new rules regarding pre-prospectus advertising. This article provides an overview of the changes.

Additional categories of private offer

The Securities Amendment Act 2004 (the Act) provides for two new categories of private offer:

1. offers to relatives or close business associates of a director of the issuer; and



2. offers to persons who are each required to pay a minimum subscription price of at least $500,000.

In relation to private offers, Mr Seymour also discusses the recent case of Lawrence1. In that case, the Court of Appeal held that, in order to be a private offer, the persons selected must have a relationship with the issuer that is similar to the people provided in the exempted categories. That is, they must be in a position to look after themselves either because of knowledge of investment matters or because of their relationship with the issuer.

Eligible persons exemption

An offer will be exempt from the disclosure obligations of the Securities Act 1978 and Securities Regulations 1983 where it is made to a person who is:

1. wealthy (a chartered accountant has certified that the person has net assets of at least $2million or an annual gross income of at least $200,000 for the previous two years); or



2. experienced in investing money or in the business to which the security relates. Experienced is defined by reference to the person's ability to assess a number of factors, including the merits of the offer, the value of the security, the risks involved, and the adequacy of the information provided by the person making the offer

Such a person must be given written notice of the reason for the application of the exemption, which the eligible person must acknowledge in writing before the security is allotted.

Pre-prospectus advertising

The Act provides that issuers may now seek non-binding expressions of interest from the public. There are, however, a number of protections for the public. For example, the information that can be contained in an advertisement is restricted, and the advertisement must state that no money is being sought and that no applications will be accepted or money received unless the offeree has received an investment statement.

1 [2004] 3 NZLR 37

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