The Securities Markets (Unsolicited Offers) Regulations 2012 come into force on 1 December 2012, with the objective of preventing unfair practices in the making of unsolicited offers.
These regulations do not just target "low-ball" unsolicited offers. They apply to all "unsolicited offers" unless they are specifically excluded by the regulations.
In 2011 provisions to address a spate of low-ball unsolicited offers were introduced through the enactment of the Financial Markets Authority Act 2011 and amendments to the Securities Markets Act 1988 (SMA). These provisions allow the Financial Markets Authority (FMA) to respond to such offers by: issuing warning notices to investors; requiring any subsequent offers by the same offeror to be accompanied by, or refer to, the FMA warning; seeking relief from the High Court in the form of injunctions, compensatory orders, orders cancelling contracts, as well as orders returning shares and restraining the registration of share transfers.
The amendments to the SMA also allowed for regulations to be made to provide for rules applicable to unsolicited offers, including disclosure requirements, rights and remedies for investors and to enable pro-active action by FMA. Cabinet released its policy decisions on these regulations in October last year, but it has taken over a year to implement these decisions.
What types of offers do the regulations apply to?
The regulations apply to "unsolicited offers" where the offeror (or an associate of the offeror) has made, or intends to make, the same offer (or an offer on substantially the same terms) to at least 20 investors within a six month period. Generally speaking, an "unsolicited offer" is an offer to acquire a security made by an offeror to an investor where the offer is unsolicited by the investor and is not made on a registered market, is not a takeover offer under the Takeovers Code, and is not a buy-back by a company of its own shares.
The regulations are intended to assist investors who are not familiar with either the offeror or the transactions and implications involved in the trading of securities. As such, the regulations do not apply to a range of unsolicited offers. These include an unsolicited offer that is made:
- in connection with schemes or arrangements made under Parts 13 or 15 of the Companies Act 1993;
- to an associated person of the offeror or to a relative of a director of the offeror;
- to a close business associate of the offeror or of a director of the offeror;
- to a person whose principal business is the investment of money or who, in the course of and for the purposes of the person's business, habitually invests money;
- to a person who is defined as "wealthy" in the Securities Act; or
- to a person who is "experienced in investing money" (as defined in the regulations).
What are the new process requirements for unsolicited offers?
The regulations address the current lack of regulatory process requirements associated with unsolicited offers by:
- requiring the offeror to notify the issuer that an offer will be made at least five and not more than 10 days before the offer is made, with certain specified details of the offer. This includes providing the issuer with a list of the names and addresses of every investor to whom the offer will be made;
- requiring the unsolicited offer to be made in a document containing specified information and statements;
- providing for a minimum offer period of 30 days (to prevent investors being swayed by time-pressured offers); and
- providing for a 10-working-day cooling-off period within which an investor can cancel an agreement that results from an unsolicited offer.
The regulations also include a general prohibition on any false, misleading, or confusing offer documentation and misleading or deceptive conduct in relation to unsolicited offers.
What information must the offer document contain?
The form of, and information to be contained at, the front of an offer document for an unsolicited offer are set out in detail in the regulations. In particular, the regulations ensure that investors are fully informed of:
- the current market price of a listed security or, for a non-listed security, a fair estimate of the value of the security and the basis for making that estimate;
- the material terms of the offer and their effect; and
- any warnings issued by FMA.
What remedies are available?
The regulations allow an investor to cancel any agreement entered into as a result of an unsolicited offer within 10 working days of accepting the offer. They also set out various requirements and remedies following a cancellation. These provisions are aimed at putting the parties in the same position that they would have been in had the agreement not been entered into.
The "unsolicited offer obligations" set out in the regulations are enforceable by the current powers of FMA and are subject to certain civil remedies under the SMA. This means a contravention of an unsolicited offer obligation may give rise to an unsolicited offer order, a corrective order, a pecuniary penalty, a compensatory order or another civil remedy. A person who contravenes an unsolicited offer order made by FMA commits an offence and is liable on summary conviction to a fine not exceeding $30,000.