Rules needed to control law-ball securities offers

MEDIA RELEASE – For immediate use, 24 March 2011

Rules needed to control law-ball securities offers

The best advice for shareholders who receive low-ball offers to buy securities is usually to throw the offer in the rubbish bin, the New Zealand Law Society said today.

The convenor of the Law Society’s commercial and business law committee, John Horner, says he is heartened that Cabinet has decided to include rules to address the issues raised by low-ball offers in the current comprehensive review of securities law.

“The Law Society has been strongly urging development of more up-to-date legislative tools to protect investors from predatory offers for securities,” Mr Horner said. “The current publicity around the offers made by limited partnerships associated with Bernard Whimp shows that such action is well overdue. Healthy capital markets require effective regulation, but not over-regulation – striking the balance is the trick.”

Mr Horner said Commerce Minister Simon Power’s announcement that rules would be introduced to protect investors came only days after the latest low-ball offer.

“The tactic of paying above market price for shares, but using fine print to spread the payment over 10 years, was clearly designed to prey on less sophisticated investors. We commend Mr Power and his Cabinet colleagues for their decision to introduce the protections, and for his announcement that these will include protection around the use of information obtained from a public register and content requirements, along with a cooling-off period.”

Until the new rules are in place, Mr Horner said shareholders who receive similar offers in the mail should seek advice. Often the best advice was to file the offer in the rubbish bin. Anyone who wasn’t sure should definitely consult a lawyer or authorised financial adviser.

The Law Society said the change to the law was just one part of what will be a major review of New Zealand’s securities law.

“Our securities law has been amended many times in a piecemeal manner since the passing of the Securities Act in 1978,” Mr Horner said. “The review which is now underway is a once-in-a-generation opportunity to modernise our securities law.”

“Modernisation really means creating a legislative scheme which takes input from investors and industry to ensure it drives our securities law for the next 20 or 30 years. The other major consideration must be for the new legislation to be better for Mum and Dad investors as well as for companies looking to raise capital.”

Mr Horner said one good test of whether the new securities regime was working for investors would be if low-ball offers such as the latest one were no longer effective, if not prohibited.

ENDS

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