Capital raising now a little easier for smaller companies
January 28, 2020 | 2 min read
A recent change to New Zealand’s takeover rules has made life just a little bit easier for small, unlisted companies seeking to raise capital.
Background
On 13 January 2020, the Regulatory Systems (Economic Development) Amendment Act (No 2) 2019 came into effect amending the definition of “code company” under New Zealand’s takeovers legislation.
Previously, unlisted companies with at least 50 shareholders holding at least 50 parcels of shares, were automatically considered a “code company” and therefore subject to the provisions of the Takeovers Code.
The problem created was of undue compliance load. Many smaller New Zealand companies grow through small “friends and family” type investments, and can reach the “50 shareholder” threshold well before they reach the economic position that justifies the compliance load represented by the Takeovers Code. The old definition therefore risked loading those companies’ next round of capital raising with undue difficulty for little gain.
Amended definition of “code company”
The amended definition seeks to alleviate the disproportionate compliance burden imposed on smaller code companies by the Code. It introduces additional financial thresholds, and requires companies to be at least “medium-sized” before they qualify as a “code company”.
Importantly, these changes do not impact listed companies (or those which have been listed in the previous 12 months). These companies will continue to qualify as code companies regardless of their size.
What are the new thresholds?A company will be “medium-sized” if the company and its subsidiaries has:
(Where a company has not yet completed its first accounting period, the “total assets” limb of the test will be assessed on the last day of its most recently completed month.) |
Partial relief was previously available under the Takeovers Code (Small Code Companies) Exemption Notice 2016, which allowed a subset of smaller code companies to opt-out of code compliance in respect of allotments, acquisitions and buybacks of voting securities. However, the relief granted under this exemption was narrower in scope, was largely underutilized and has been revoked as a result of the new changes.
Observations
The revised definition is a welcome change. It strikes an appropriate balance between protecting shareholder interests without imposing disproportionate compliance costs on smaller companies. The result will be an easier capital-raising environment for the affected companies.
More information / Get in touch
The Panel has published updated guidance on unlisted code companies detailing the Panel’s view on the meanings of “medium-sized”. The guidance note also includes some consequential updates to reflect that the small code companies exemption has now been revoked, and other updates to reflect the Panel’s position on shareholders’ agreements and potential association relationships.
Please get in touch with any of our contacts to discuss the changes in more detail and how they could affect your business.
Contacts
