Proposed New Securities Law - Making Capital Raising Easier for SMEs

Oct 2011

At 561 pages the Bill is a comprehensive replacement of the existing law.

One of the most useful changes for smaller and medium sized businesses is the "small offers" exemption under the Bill for capital raising.  This allows for offers:

  • of equity securities (e.g. company shares) or debt securities (e.g. loans to companies);
  • that are made to and may only be accepted by people who are "likely to be interested in the offer" or have an annual gross income of at least $200,000 in each of the last two financial years;
  • that will not result in a breach of the rule that the issuer has not issued "financial products" to more than 20 investors in any 12 month period;
  • that will not result in a breach of the rule that the issuer has not raised more than $2 million from the issue of "financial products" in any 12 months period

to be exempted from the standard disclosure regime under the Bill.

The Bill maintains a similar fundamental disclosure regime to the current Securities Act 1978, in that when issuing securities (or financial products) to members of the public, a registered prospectus and investment statement is required.  Under the Bill a registered prospectus and investment statement is replaced by a single, streamlined, Product Disclosure Statement ("PDS"). 

The proposed "small offer" regime (based on a similar exemption under Australian securities law) has obvious advantages in terms of cost, time and compliance for smaller and medium sized companies looking to raise less than $2million in any 12 month period from less than 20 investors. It should also alleviate some of the issues that we see directors of companies grapple with when they seek to make small "private" offers currently, by considering whether investors may be close business associates, habitual investors, eligible persons or otherwise for the purposes of the existing Securities Act.

Note that these "small offers" cannot be advertised and are only capable of being accepted by investors meeting the financial criteria or who are "likely to be interested in the offer" having regard to previous contact between the investor and the issuer, some professional or other connection between the investor and the issuer, or statements or actions by the investor indicating that the person is interested in offers of that kind (for example through that person's membership or participation in angel networking).

We believe that the "small offers" regime, coupled with the Bill's proposed clarification of some of the existing exemptions to public offers (such as to "close business associates") should mean that the compliance risks, time and costs for smaller capital raisings are significantly reduced.

Anderson Lloyd advised clients on the exposure draft of the Bill when it was released by the Ministry of Economic Development earlier this year and we are happy to assist clients who require any further information in relation to the Bill. 

Please contact Ben Johnston for further information.

A copy of the Bill is available by clicking here.