Breaches & offences

 

The Securities Act, regime contains offence and breach provisions relevant to issuers.  Different provisions apply to issuers offering under the Financial Markets Conduct (FMC) Act.

Securities Act 1978

Generally, any allotment of securities to the public made without a registered prospectus (or an exemption) is invalid and of no effect. There are other requirements in the Securities Act which if not complied with will make an allotment void. These include allotments made under an investment statement or prospectus when the Financial Markets Authority has prohibited or suspended allotment due to a defect in those documents. These are known as 'void irregular allotments'.

Generally, an allotment of securities to the public can also, on written request of a subscriber, be made invalid if among other things:

  • the subscriber did not receive an investment statement before subscribing
  • at the time of allotment, the investment statement or registered prospectus is known by the issuer (or a director of the issuer) to be false or misleading by failing to properly emphasise adverse circumstances, such as such as risks.

These are known as 'voidable irregular allotments'.

Following void and voidable irregular allotments, the issuer is required to repay investors' money. In some circumstances, directors of issuers can also be liable for repaying subscriptions and interest.

Issuers, directors of issuers, and promoters, can also have civil and criminal liability where prospectuses or advertisements contain untrue statements, or where securities are offered or allotted in breach of the Act. This can result in a fine or imprisonment.

Persons can also be fined for more minor offences under the Act, such as failures to comply with record keeping obligations.

FMA has broad powers under the Act to prohibit distribution of advertisements (including investment statements), and to suspend or cancel the registration of prospectuses, where those offering documents are likely to confuse or mislead, or where certain procedural requirements have not been met.

Find out more about FMA's enforcement powers.

Financial Reporting Act 1993

Directors of issuers can also be liable for breaches of their financial reporting obligations under the Financial Reporting Act.

Every director of an issuer is liable for a fine of up to $100,000 if the financial statements or group financial statements:

  • are not completed and signed within the timeframes in the Act
  • fail to comply with financial reporting standards
  • contain financial information that does not comply with financial reporting standards
  • are not audited, or are not delivered to the Registrar of Companies as required by the Act.

In 2014 the FMA has successfully taken enforcement action against a number of directors and issuers for failing to file financial statements by the statutory deadline.