Securities law reform eagerly anticipated

Earlier this year, the Ministry of Economic Development released a discussion document on proposed reforms to our securities laws.

The current Securities Act 1978 is more than 30 years old and the proposed reforms are welcomed as they will consolidate the existing securities legislation and introduce reforms that some consider long overdue.

Submissions on that discussion document closed on August 20 and the expectation is that new securities legislation will be passed next year before the close of the parliamentary term.

One particular area of securities law that is very important (and sometimes very frustrating) for small- to medium-size businesses is the scope of the exemptions for private offers of securities.

Currently, offers of securities to members of the public need to be made in conjunction with a registered prospectus and investment statement unless investors fall within certain specified exemptions.

Under the existing Securities Act, those exemptions are: relatives or close business associates of the company or a director; persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money; individuals making investments of at least $500,000 and certain other eligible persons provided they satisfy the requirements for being wealthy or experienced.

There has been criticism that the range of existing exemptions is too narrow and restricts the flow of capital and investment.

This can be a problem for small start-up companies where the increased compliance costs associated with a formal prospectus and investment statement might be difficult to manage.

The Ministry of Economic Development discussion document includes reforms around the current exemptions which would certainly expand the range of private offers that can be made without requiring full compliance with the normal public issue requirements.