Real Property Proportionate Ownership Schemes to comply with full securities law disclosure requirements

Offers of securities in schemes that provide a direct interest in property (Property Schemes), commencing on and from 1 October 2012, must comply with the full requirements of the Securities Act 1978 (Securities Act) and the Securities Regulations 2009 (Securities Regulations).  The Financial Markets Authority (FMA) proposes a transitional period expiring on 30 November 2012 during which all offers that commence on and before the close of 30 September 2012 can rely on the Exemption Notice. 

The FMA proposes to grant a general limited scope exemption to address two discrete issues applying in the case of Property Schemes (the life and currency of the prospectus of Property Schemes) by 31 December 2012:

• An exemption allowing extension of the prospectus for allotment of interests in Property Schemes to address the common circumstances of development timeframes exceeding 18 months.  Such exemption is intended to be granted subject to the following conditions, that:
  • subscriptions be held on trust
  • the offer document prominently disclose a backstop date after which investors would have an election as to whether subscriptions would be returned or the allotment date extended.
• An exemption that takes account of the fact that where there is a long period of time between subscription and allotment, market movements and other events, may mean that the prospectus is no longer up to date at the time of allotment.

The FMA is seeking comments on the above discrete exemptions by 24 September 2012.  The FMA is not seeking any further submissions on its decision not to renew the Exemption Notice.

The FMA has stated that it will consider a case for specific exemption where the requirement to comply with the standard provisions of the Securities Act and the Securities Regulations would result in significant detriment that would outweigh benefits to investors from full compliance.  The FMA has invited issuers to contact it if they consider the expiry of the Exemption Notice would have such a result in respect of their offers.

To assist issuers of Property Schemes in meeting the full disclosure requirements in an investment statement and registered prospectus, the FMA proposes to provide further assistance on issues of particular relevance to Property Schemes in addition to the general Guidance Note on Effective Disclosure that the FMA published earlier this year.

The FMA has been consulting with issuers on various exemptions from the Securities Act and Securities Regulations since April this year and had signalled its intention to significantly review the Exemption Notice.  In its update on 3 July, the FMA stated that it is in the process of developing a more detailed proposal paper for industry comment on the Exemption Notice.  However, it comes as a surprise that the FMA will not be renewing the Exemption Notice especially since the FMA states that most of the submissions it received on the Exemption Notice supported its renewal. 

There is real urgency for issuers of securities in Property Schemes to do one or a combination of the following:

• Issuers wanting to rely on the Exemption Notice in respect of upcoming offers of securities in Property Schemes, should ensure that any disclosure document is released on or before the close of 30 September 2012 – note that the transitional period will expire on 30 November 2012 after which issuers would be required to comply with the full securities disclosure requirements
• Make submissions on the discrete exemptions the FMA proposes by 24 September 2012
• Put a case to the FMA for specific exemption – we can assist with this
• Issuers proposing to make offers of securities in Property Schemes commencing on and from 1 October 2012 should ensure compliance with the relevant provisions of the Securities Act, the Securities Regulations and the Guidance Note on Effective Disclosure that the FMA published earlier this year.

This article is provided for general information purposes only and not as legal advice.  If you require further information or require assistance in making submissions please contact Daniel Kelleher or Mark Russell.