The companies had been granted an exemption, for offshore-based funds, from the Securities Act provisions which requires a prospectus be issued in New Zealand. The terms of the exemption include requirements that equivalent information be lodged with the Companies Office within a certain timeframe.
The companies affected either did not lodge the information or did not file it in the required time, and under the existing law the only remedy is to refund the investments plus pay a 10% penalty per annum.
The companies argued that the penalty far outweighs the crime, and the government passed patch-up law allowing those companies to apply to the High Court to have the offerings validated.
However officials told ministers that process is wasteful, because it is “almost unheard of” for investors to look for those documents which were supposed to be lodged with the Companies Office.
That means it is almost a foregone conclusion that the offerings will be validated by the court, officials say.
”It is very difficult to see how any prejudice could have been caused to investors,” a paper from the ministry to Securities Commission chief executive Jane Diplock argued in August lat year. The law change should make the ‘default’ position that the allotments were valid, and put the onus on investors to show otherwise.
This is in line with other countries’ securities law – inlcuding that of Australia and Canada, the same paper points out.
“It seems pointless to require the issuers affected to incur the cost and delay associated with an application to the court for validation, when all or virtually all of those applications are expected to succeed.”
Instead, a more practical solution would be to change the law so as to make the offerings valid, and allow the investors the right to apply to the court for compensation or an order setting the allotment aside – if the investors could show they were prejudiced.
It would be more efficient and practical to provide for a default rule of validity. This seems likely to avoid wasted costs and promote certainty. There is not much point in requiring BT Funds and others in similar circumstances to apply to the court for validation orders, if the outcome is a foregone conclusion.”
That is, however, what the government opted for.
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