The New Zealand government is in the process of a major reform of the country's securities law. The reform is a three-stage process, consisting of the enactment of a Takeovers Code, the introduction of a Securities Markets and Institutions Bill and a review of securities trading law. The first stage of the law reform package, the introduction of a Takeovers Code, was completed in July 2001 and the second, the introduction of the Securities Markets and Institutions Bill, is underway. (Buddle Findlay has commented on each of these developments in previous issues of IFLR.) The third of the trinity of reforms will be a comprehensive review of securities trading law. In a speech to a commercial law conference, the Minister of Commerce, Paul Swain, recently outlined the scope of the review and reiterated the direction of future securities law reform.
The New Zealand Takeovers Code was enacted on July 1 2002. It aims to provide a transparent, orderly takeover process and align New Zealand's takeover regime with international best practice. The Code ensures that no one may increase their voting rights in a code company over the 20% threshold unless an offer is made to all shareholders on the same terms. Since its enactment the Takeovers Code has already impacted on several high profile bids such as Edison Mission's bid for Contact Energy and Danone's bid for Frucor. In both cases the Code ensured that all shareholders were treated equally.
The Securities Markets and Institutions Bill, the second stage of the law reform, is before the Finance and Expenditure Select Committee. The Committee is expected to report back to the House of Representatives in early June. The Bill aims to increase confidence in New Zealand's securities markets and institutions by, among other things, increasing disclosure requirements and providing more effective enforcement of breaches.
The final stage in the reform process is a comprehensive review of securities trading law. The review, which is being carried out at present, includes a fundamental review of insider trading law and considers whether market manipulation law should be introduced in New Zealand. It also looks at ways to improve the penalties, remedies and application of securities trading law.
The government's stated objective in implementing the review of securities trading law is to identify possible reforms that will produce capital markets that are fair and adequately protect the interests of small and overseas investors. It has also been said to be important that New Zealand's securities trading regime accords with those of her key economic partners and complies with international best practice while not imposing excessive compliance costs. The New Zealand market has been described by some commentators as the "Wild West". The government is anxious to strengthen securities trading laws to dispel that perception.
As well as the review of securities trading law, the government is working on several other business law initiatives. These include an amendment to the law on investment advisers, law reform designed to reduce the cost of raising capital for small, innovative enterprises and a review of the insolvency regime.
A discussion document setting out issues raised by the review of securities trading law will be released in the next few months. Government representatives have said that they hope that law reforms made as a result of the review will strengthen New Zealand securities law and help prevent corporate failures, such as the Enron collapse, from occurring in New Zealand.