Corporate Alert – April 2018

NZX has released a consultation paper and initial exposure draft of the revised NZX Listing Rules and is seeking feedback on the proposed changes. A table summarising the main proposed changes can be found here.

The closing date for submissions on the exposure draft is Friday 8 June. Russell McVeagh submitted on NZX's initial 2017 discussion paper and will be providing a further submission on the exposure draft. We look forward to collaborating with any clients that would like to have their views included in our feedback. Any questions or comments can be directed to one of our experts listed below.

The key objectives of NZX's Listing Rule review is to reduce complexity and promote market activity, whilst enhancing investor protections. The final version of the amended NZX Listing Rules is currently expected to become effective from 1 January 2019, with a transitional period ending on 1 July 2019. Issuers may need to update existing governing documents in response to NZX Listing Rule changes.

Some key points from NZX's consultation paper and the initial exposure draft are listed below:

• A single equity market: NZX has rejected the idea of a two-tiered equity market, which was initially proposed in its 2017 discussion paper and has instead elected to maintain a single set of standards, consolidating the current NZAX and NXT mini-markets onto the Main Board. This aligns with the submission we made to NZX where we noted that differential requirements for equity issuers would lead to unnecessary complexity.
• Only two markets operated by NZX: There will only be two markets operating by the NZX – the Main Board, comprising equity securities and funds, and the Debt Market. 
• Overall simplification: NZX has aimed to generally simplify the drafting of the Listing Rules, including making them more user friendly, using plain English drafting, and re-ordering the rules.
• Eligibility for listing: Although the minimum market capitalisation requirements have increased to $15 million for all companies seeking to list, spread requirements for equity issuers have been reduced to 300 shareholder (from 500) and free float requirements have been reduced to 20% (from 25%). The same eligibility requirements will apply to listed funds, but eligibility requirements have been completely removed for debt issuers. This may assist to facilitate the listing of more issuers.
• Continuous disclosure obligation: NZX proposes to extend the basic continuous disclosure principle of actual knowledge to "constructive knowledge" of directors and senior managers. This aligns with the position of ASX. If this change is effected in the final version of the Listing Rules, issuers will need to closely review their current procedures for assessing whether directors or senior managers have, or ought reasonably to have, come into possession of material information requiring disclosure to the market. This would likely deem management to be aware of information that was known by someone else within the organisation and should have been brought to the attention of management (even though it wasn't). It will therefore be even more incumbent on issuers to ensure their continuous disclosure processes are well understood throughout the organisation. We will be closely considering the proposed amendments to the current rule.
• Reporting and disclosure: NZX is proposing to remove the requirement for issuers to prepare a half-year report. Issuers will still be required to publish half and full year financial statements, as well as an Annual Report.
• Governance: NZX is proposing to maintain the current mandatory requirement for issuers to have at least two independent directors, but the independence criteria will be further bolstered through a recommendation in the NZX Corporate Governance Code that issuers have majority independent directors. NZX also proposes to align the Listing Rule director residency requirements with that of the Companies Act 1993 – i.e.  a director who is resident in Australia will satisfy the requirement to have at least one NZ-resident director.
• Share placement thresholds: The share placement threshold for offers of equity securities is proposed to decrease from 20% to 15%.
• QFP offers: NZX has proposed to remove the requirement for NZX Regulation to review and approve offer documents for offers made in reliance on clause 19 of Schedule 1 of the FMCA (QFP Exclusion) and on the exclusion for dividend reinvestment plans (among others). 

This article is intended only to provide a summary of the subject covered. It does not purport to be comprehensive or to provide legal advice. No person should act in reliance on any statement contained in this publication without first obtaining specific professional advice. If you require any advice or further information on the subject matter of this newsletter, please contact the partner/solicitor in the firm who normally advises you, or alternatively contact one of the partners listed below.