Property developers warned to comply with securities law
The Securities Commission is warning that property developers and their advisers need to consider securities law issues when planning developments.
Friday, July 8th 2005, 4:01PM
“We have seen several recent examples of developers who have not complied with the Securities Act and Regulations when offering and allotting securities in property developments,” commission chair Jane Diplock said.
The commission has recently accepted enforceable undertakings from the following property developers:
Monaco Village Holdings Limited, and its directors - the company unintentionally breached securities law when raising funds for a tourist development in Nelson.
Alpine Pacific Development Limited and its directors – the company was under a misapprehension that securities law did not apply when raising funds for a tourist accommodation lodge in Kaikoura.
Braemar Lodge (2004) Limited and its directors – the company was under a misapprehension that securities law did not apply when raising funds for a luxury accommodation lodge in Hanmer Springs.
The three companies had come to the commission when they realised the law had been breached. All three companies are offering units in developments together with rights to join an income pooling scheme. These rights give owners a proportionate share in the income from all or some of the units in the development. The rights are participatory securities under the law, and their offer and allotment must comply with the law.
The consequences of non-compliance can be severe. When securities are offered and allotted in breach of the law, subscribers have a statutory right to have their money refunded. The recent enforceable undertakings accepted by the commission have all required the developers to re-offer the interests, in compliance with the law. If subscribers decide not to take up the re-offer the enforceable undertakings require the companies to allow investors to withdraw from the income pooling schemes (and in the case of Monaco, to instead have their units administered on an individual basis).
These are the third, fourth and fifth enforceable undertakings the commission has accepted in connection with property developers.
“Developers offering unit ownership together with company or other incorporated structures, or with income pooling schemes must comply with securities law,” Jane Diplock said. “They should seek specialist legal advice for offers of this type.”
In some cases developers may use a class exemption to reduce compliance costs. Alternatively, the commission will consider exemption applications on a case by case basis.
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