International employee share schemes

Mark Todd, Partner | December 2002

New Zealand law changes affect international employee share schemes

A recent change to New Zealand securities laws will affect multinational companies that offer their global employee share schemes to New Zealand-based employees.

Many multinational companies have operations in New Zealand and extend their global employee share schemes to New Zealand-based employees. These companies need to be aware of recent law changes that may affect them.

The basic New Zealand securities law position

Generally, the disclosure requirements of the New Zealand Securities Act 1978 apply to employee share offers. Under the Act, the offering company must produce a Prospectus and a key-features document (called an Investment Statement).

However, the New Zealand Securities Commission has a policy of exempting various classes of company from these requirements, including companies listed in certain overseas jurisdictions. The Commission has recently made some important changes to this policy.

The exemption regime

Up until 1 October 2002, the exemption regime for overseas employee share schemes consisted of a series of jurisdiction-specific exemptions which exempted companies listed in certain jurisdictions from the Prospectus/Investment Statement requirements of the Act. The jurisdictions covered were Australia, Canada, France, Germany, The Netherlands, Norway, Singapore, Sweden, the United Kingdom and the United States.

While the exemption terms and conditions for each jurisdiction were broadly similar, a number of inconsistencies did arise. To remove these inconsistencies, the Securities Commission has now established a single standardised exemption regime applicable to employee share schemes offered by companies incorporated and listed in any of the jurisdictions above, plus Denmark, Finland and South Africa.

New conditions apply

A key feature of this new exemption regime is that to rely on the exemptions an overseas company must comply with certain new conditions. These conditions include:

1. The employee share scheme must be established under the laws of the jurisdiction in which the overseas company is incorporated or listed (or be a regional variation of such a scheme). Previously, the exemptions could apply to a scheme established in New Zealand so long as that scheme offered shares in an overseas company listed in a relevant jurisdiction.
2. An offer must be made under the employee share scheme in the jurisdiction in which the scheme is established at the same time as, or prior to, the offer in New Zealand.
3. In many cases, the overseas company will need to file an annual report with the Securities Commission giving details of the schemes offered in New Zealand, the number of shares issued, and whether the overseas company intends to continue making issues in New Zealand.
4. The overseas company will need to file a copy of the scheme rules and its most recent annual report and financial statements with the New Zealand Companies Office.

As well as imposing these general conditions on overseas companies, the new regime has removed certain conditions that applied to specific individual jurisdictions - particularly relevant to overseas companies incorporated and listed in Australia and the United States.

Transition period

For a short period until 31 March 2003, the old and new exemption regimes will run in parallel. This will enable overseas companies to rely on either regime.

Action required

Any overseas companies intending to make share offers to their New Zealand-based employees after 31 March 2003 will need to understand the implications of the new regime and, if appropriate, comply with the new conditions. Failure to do so could lead to a breach of the Securities Act, with potential criminal and civil penalties.

Bell Gully can help

Our dedicated employee share scheme specialists have been closely involved with these developments and are well placed to advise you.