House of Representatives

Explanatory Memorandum

(Circulated by the authority of the Parliamentary Secretary to the Treasurer, the Hon Chris Pearce, MP)

Chapter 1

Outline

1.1 The Corporations (NZ Closer Economic Relations) and other Legislation Amendment Bill (the Bill) amends the Corporations Act 2001 (the Corporations Act) as part of a series of initiatives to support closer economic relations between Australia and New Zealand through the greater co-ordination of business law. The Bill also makes amendments to the Trade Practices Act 1974 (the TP Act) following recommendations made by the Productivity Commission in its 2004 Research Report, Australian and New Zealand Competition and Consumer Protection Regimes (the Report).

1.2 The Bill addresses:

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mutual recognition of securities offerings;

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reduced filing requirements for certain foreign companies carrying on business in Australia;

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information-sharing between the Australian Competition and Consumer Commission (the Commission) and other agencies, bodies and persons; and

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the protection of certain information which is given to, or obtained by, the Commission.

1.3 These initiatives are consistent with the Australia-New Zealand Closer Economic Relations Trade Agreement which has shaped the economic and trade relationship between the two nations since 1983. They are also included in the work programme attached to the Memorandum of Understanding on Coordination of Business Law between Australia and New Zealand. Implementation of the proposals will be a further step towards a single economic market, based on common regulatory frameworks.

1.4 The mutual recognition scheme embodied in the Bill is intended to reduce duplicated regulation, and thereby facilitate investment between the two countries, enhance competition in capital markets, reduce costs for business and increase choice for investors. Mutual recognition achieves this by enabling entities from New Zealand to offer securities into Australia on the basis of compliance with the New Zealand fundraising requirements with minimal additional requirements imposed by Australian law. Mutual recognition means that Australian entities can offer securities into New Zealand under the same terms.

1.5 The mutual recognition scheme implements a Treaty agreed between Australia and New Zealand on 22 February 2006, known as the Agreement between the Government of Australia and the Government of New Zealand in relation to Mutual Recognition of Securities Offerings.

1.6 The second initiative included in the Bill is also a deregulatory move, reducing the paper burden for those companies established in New Zealand which wish to carry on business in Australia. The revised Memorandum of Understanding between the Government of New Zealand and the Government of Australia on Coordination of Business Law (MOU) calls for the closer integration of company laws, in particular managing cross-recognition of company registrations, whereby companies in Australia and New Zealand can do business in the other jurisdiction without complying with the filing requirements applicable to other foreign companies.

1.7 The first and second initiatives are framed in the context of Australia's relationship with New Zealand and are seen as two of a series of initiatives to coordinate the business law of the two countries. However, they are drafted in such a way that they could be extended to other countries if comparable arrangements were reached with them.

1.8 The third initiative enhances the Commission's ability to share certain information with other agencies, bodies and persons, including the New Zealand Commerce Commission. At present the Commission is unable to share such information with other regulators (with limited exceptions in relation to the Australian Energy Regulator). This initiative will place the Commission in a similar position to that of the Australian Securities and Investments Commission (ASIC). Section 127 of the Australian Securities and Investments Commission Act 2001 provides for the appropriate disclosure of information by the ASIC to Australian, and foreign, governments and agencies, including regulators. The Report recommended that the TP Act and the Commerce Act 1986 (NZ) (the Commerce Act) should be amended to allow the Commission and the New Zealand Commerce Commission to exchange information that has been obtained through their information gathering powers.

1.9 The fourth initiative protects certain information given, or obtained, by the Commission, including from a foreign government body such as the New Zealand Commerce Commission. The Report also recommended that safeguards should be built into the TP Act and Commerce Act to ensure against the unauthorised use and disclosure of confidential or protected information.

1.10 The third and fourth initiatives are also consistent with the OECD Guidelines for protecting consumers from fraudulent and deceptive commercial practices. These guidelines encourage member countries to strive to improve the ability of consumer protection enforcement agencies to share information within timeframes that facilitate the investigation of fraudulent and deceptive commercial practices against consumers, subject to appropriate safeguards.

Chapter 2

Abbreviations

The following abbreviations are used in this commentary:

Chapter 3

Financial Impact Statement

3.1 Schedule 1 and 2 of the Bill will require Commonwealth expenditure.

3.2 It is expected that there will be minor implementation costs for the regulator, ASIC, from the measures in the Bill.

Chapter 4

Regulatory Impact Statement

Schedule 1 - Mutual recognition of securities offers

Background

4.1 The proposed trans-Tasman mutual recognition regime for offers of securities and interests in managed investment schemes is being developed as part of a general initiative for greater coordination of business law between Australia and New Zealand. The framework for the coordination of business law between Australia and New Zealand is set out in the Memorandum of Understanding between the Government of Australia and the Government of New Zealand on the Coordination of Business Law. The most recent version was signed on 22 February 2006.

4.2 Earlier memoranda were signed in 1988 and 2000. The 1988 memorandum formed part of the 1988 review of the Australian New Zealand Closer Economic Relations Trade Agreement (which came into effect on 1 January 1983).

4.3 On 4 October 2001, the then Australian Minister for Financial Services and Regulation, the Hon Joe Hockey MP, wrote to the then New Zealand Minister of Commerce, the Hon Paul Swain, proposing that Australia and New Zealand consider formal processes of mutual recognition in financial services regulation.

4.4 Under the current regulatory regime, issuers from one country (the home jurisdiction) who wish to offer securities to investors in the other country (the host jurisdiction) need to comply with two substantive regimes (subject to some exceptions).

Offers by Australian offerors in New Zealand

4.5 Under the Securities Act 1978 (NZ) (the Securities Act), a security may not be offered to the public unless there is a registered prospectus and the offer is accompanied by an investment statement relating to the security.

4.6 Australian issuers making an offer in New Zealand must comply with the disclosure requirements of the Securities Act, unless they fall within an exemption notice issued by the New Zealand Securities Commission (Securities Commission). Two relevant exemption notices are the Securities Act (Australian Issuers) Exemption Notice 2002 ('Australian Issuers Notice') and the Securities Act (Australian Registered Managed Investment Schemes) Exemption Notice 2003 ('ARMIS').

4.7 The Australian Issuers Notice provides relief from the prospectus requirements by allowing Australian issuers to use an Australian prospectus for an offer of equity or debt securities in New Zealand (subject to certain conditions). The exemption also allows Australian issuers to use an Australian trustee and trust deed for offers of debt securities in New Zealand.

4.8 Similarly, ARMIS allows investment products in Australian registered managed investment schemes to be offered to the public in New Zealand without a New Zealand registered prospectus, as long as the conditions of ARMIS are complied with.

4.9 An issuer operating under the Australian Issuers Notice is still required to prepare an investment statement to accompany offers in New Zealand that meets the requirements of the Securities Act and the Securities Regulations 1983 (NZ). An issuer operating under ARMIS does not need to prepare an investment statement if the offer is made using a Product Disclosure Statement.

4.10 The Securities Commission has also issued a number of issuer-specific exemption notices.

Offers by New Zealand offerors in Australia

4.11 Under Chapter 6D of the Corporations Act 2001 (Cth) (the Corporations Act), an offer of securities must be accompanied by the relevant disclosure document. The type of document that is required depends upon the specific nature of the offer, for example, an 'offer information statement' may be used instead of the standard prospectus if the amount raised by the offeror is $5,000,000 or less. Under Part 7.9 of the Corporations Act, offers relating to the issue of other types of financial products (including interests in managed investment schemes) are generally accompanied by a product disclosure statement.

4.12 The Corporations Act defines a managed investment scheme as an arrangement where investors' contributions are pooled and managed on an arms-length basis. The investor acquires rights to share in the benefits of the scheme. Such schemes require registration and are therefore regulated by the Australian Securities and Investments Commission (ASIC). A product disclosure statement is required for a particular scheme, subject to any exemptions, if the investors in that scheme are classified as 'retail investors' (for example, they invest amounts of $500,000 or less, or there are more than 20 investors in the scheme, subject to a $2,000,000 ceiling).

4.13 Under the Corporations Act, ASIC has the power to exempt a person, or class of persons, from any of the provisions of Chapter 6D and Part 7.9. For example, ASIC Class Order (CO 00/177) provides relief from section 711(6) of the Corporations Act to offerors whose prospectuses are registered in New Zealand. Section 711(6) relates to the issue of securities beyond the expiry date specified in the prospectus. These do not significantly reduce the cost of complying with the two regimes.

Problem identification

The need to regulate offers of securities

4.14 The aim of regulating the primary market for securities, the market in which capital is raised by the issue of new securities, is to ensure, as far as possible, that intending investors are supplied with adequate information so that they can make informed judgments.

4.15 The intangible nature of investment opportunities means that their merits cannot be assessed by inspection as in the case of, for example, land or goods. There is a need, therefore, for disclosure to the general public by the persons making the offer.

Two regulatory regimes

4.16 As indicated above, Australian and New Zealand issuers cannot use their home jurisdiction offer documents when making a trans-Tasman offer of securities or managed investment scheme interests. Instead, issuers must comply with the relevant requirements in the host jurisdiction unless the issuer is operating under an exemption in the host jurisdiction.

4.17 Issuers of securities report that the current regulatory arrangements impose significant costs on both sides of the Tasman.

4.18 Costs borne by Australian offerors, which have increased over time, include: fees for legal advice and corporate advisory services for New Zealand requirements; preparing, filing and disseminating New Zealand investment statements (although the costs are reduced for issues relying on exemption notices); preparing New Zealand compliant advertisements; and compliance with conditions of exemption notices.

4.19 Costs borne by New Zealand issuers are similar to those of Australian issuers in relation to advisory fees for Australian requirements and preparing and disseminating Australian disclosure documents. If no specific exemptions are available, New Zealand issuers also need to comply fully with the Corporations Act requirements.

The effect of the current regulatory regime

4.20 The effect of such costs is that, in some cases, the offer will be made in both countries, but the additional compliance costs will increase the offeror's cost of raising funds. In other cases, the additional costs will mean that the offer is not extended to the other country. This reduces the offeror's access to potential investors, and reduces investment options for investors in the other country.

4.21 A study has not been undertaken quantifying the aggregate costs to issuers of offering securities in the host jurisdiction. According to the Australian Securities Exchange (ASX), however, a number of companies listed on the ASX have advised the ASX that the cost of providing offer documents to New Zealand investors may range from $10,000 to $30,000 on average. These figures encompass circumstances where there may be only ten to twenty New Zealand investors. The ASX also understands that costs for larger companies could total approximately $50,000 although in such cases the shareholder base is likely to be substantially larger.

4.22 However, a number of submissions on the discussion paper on this matter issued on 18 May 2004 noted that the option identified in the discussion paper (that is option three) would involve a significant reduction in costs for companies who were issuing securities both in Australia and New Zealand.

4.23 A study in relation to the number of trans-Tasman offers that have not proceeded due to the additional costs of compliance with the host jurisdiction has not been conducted. It can be said, however, that there is an opportunity cost involved in not accessing a potential overseas investment market. While such an opportunity cost would appear to be greater for New Zealand offerors (because of Australia's relatively larger investment market), the cost to Australian offerors cannot be discounted.

4.24 While the electronic provision of disclosure documents may marginally reduce the costs to some extent, a significant element of the cost of such documents is the advice and checks needed to produce the offer documents. There is no way of quantifying the level of electronic provision of offer documents or quantifying the difference in costs between electronic and hard copy provision of offer documents. This is in part due to the number of variables that impact on costs, including the type of offer, the size of the offer (and the size of the offeror) and the location of the offeror. Nevertheless, anecdotal evidence from business suggests that many companies make offer documents available both electronically and in hard copy form, and that the cost of printing such material is minimal. In other words, the vast majority of costs arise from the advice and checks needed when making an offer and there is a minimal cost difference in relation to issuing prospectuses and product disclosure statements electronically or by hard copy.

The problem

4.25 The problem to be addressed, therefore, is the regulatory barriers currently facing issuers wishing to offer securities in the host jurisdiction of complying with the relevant requirements in relation to the structure of the investment scheme in that jurisdiction and preparing further offer documents, unless the issuer is operating under an exemption in the host jurisdiction.

Objectives

4.26 The fundamental objective is to address the problem of trans-Tasman regulatory barriers currently facing issuers of securities and managed investment scheme interests, and to thereby facilitate investment between Australia and New Zealand, enhance competition in capital markets, reduce costs for business, and increase choice for investors.

Description of options

4.27 Mutual recognition arrangements aim both to overcome mutually inconsistent requirements that may exist between national regulatory frameworks and to reduce compliance costs associated with the need to comply with the different regulatory requirements of different jurisdictions.

4.28 Mutual recognition arrangements achieve these aims by enabling an issuer in the home jurisdiction to operate in the host jurisdiction on the basis of compliance with a single substantive regulatory framework (that of the home jurisdiction). Compliance with the regulatory framework of the home jurisdiction operates as a 'passport' that allows an entity to carry on business in the host jurisdiction under the same regulatory framework.

4.29 Three alternative options were identified for a trans-Tasman mutual recognition arrangement for offers of securities and managed investment scheme interests. The three regimes are outlined below.

Option one - disapplication of domestic law

4.30 Option one is the simplest model of mutual recognition. It involves, for home jurisdiction issuers that satisfy the host jurisdiction's domestic access regime, the host jurisdiction disapplying parts of its own regulatory framework (in relation to certain conduct by the home jurisdiction issuer) in favour of the applicable law of the home jurisdiction. There are no ongoing requirements under the law of the host jurisdiction (other than, for example that the home jurisdiction issuer remains regulated in its home jurisdiction) - the offer is regulated solely by the law of the home jurisdiction. The securities regulator of the host jurisdiction has no involvement in the regulation of the offer, and has no supervisory or enforcement powers.

4.31 Disapplication by the host jurisdiction of aspects of its domestic regulatory framework in relation to conduct by home jurisdiction issuers may be subject to additional specific requirements, such as to appoint a local agent.

4.32 This option appears to be the basis of the model of mutual recognition adopted in the European Union (EU). Under the EU arrangements, EU countries have agreed to disapply their domestic licensing requirements in relation to entities that are subject to regulation in other EU jurisdictions. A licence granted in one EU jurisdiction operates as a regulatory 'passport' across the EU. However, EU countries have not disapplied their respective 'conduct of business' rules. These rules continue to apply and differ significantly across EU jurisdictions.

4.33 This approach can also be adopted by a host jurisdiction in the absence of any agreement from other jurisdictions that are to be recognised under the arrangement (although in these circumstances the approach should be more accurately characterised as unilateral, rather than mutual, recognition).

Option two - incorporation of foreign law

4.34 Under option two, the host jurisdiction, in common with option one, disapplies aspects of its domestic regulatory framework in favour of the applicable law of the home jurisdiction. Unlike option one, however, the host jurisdiction incorporates the laws of the home jurisdiction within its domestic regulatory framework, which applies in relation to conduct within its boundaries by entities from the home jurisdiction. The host jurisdiction incorporates home jurisdiction law either 'word for word' or by reference to the home jurisdiction law as at a particular date.

4.35 Option two differs from option one in that the host jurisdiction is responsible for regulating the conduct of the home country issuer, which will satisfy the requirements of the host jurisdiction by complying with the requirements of the home jurisdiction. (Home country issuers will also need to satisfy the entry requirements of the mutual recognition arrangement.)

4.36 A mutual recognition arrangement based on option two provides a greater role for regulators in the host jurisdiction than an arrangement based on option one. Offerors would still be able to issue securities in the host jurisdiction under a single substantive regulatory framework. However, they would be required to deal with more regulators (and would be subject to multiple court systems). Each domestic regulator would have responsibility for regulating the conduct of all issuers within its respective jurisdiction. Regulators would regulate overseas-based issuers under different regulatory frameworks to those that apply to domestically-based issuers.

Option three - compliance with substantive requirements of domestic law

4.37 Option three seeks to provide a 'middle ground' between option one and option two. It is based on applying the substantive fundraising laws of the home jurisdiction to offers made in the host jurisdiction. The basic principle that underpins this option is that an offer of securities that is a regulated offer in the home country and can lawfully be made in that country, can lawfully be made in the host country in the same manner and with the same offer documents, provided that: (i) the entry requirements are satisfied; and (ii) the offeror complies with the ongoing requirements.

4.38 Entry requirements include, for example, requirements to:

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opt into the mutual recognition regime in respect of a particular offer, by filing with the host country regulator a notice that contains prescribed information in relation to the offeror and the offer; and

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provide an address for service of legal documents in the host country and submit to the jurisdiction of the courts of that country.

4.39 An offer that does not meet the entry requirements falls outside the mutual recognition regime. It is treated as an ordinary, domestic offer under the host jurisdiction's law and needs to meet the standard requirements under the laws of that jurisdiction.

4.40 Ongoing requirements are imposed by domestic legislation in the host jurisdiction and include, among others, conditions that:

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the offer must remain a regulated offer in the home jurisdiction;

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the offeror must comply with the home jurisdiction's relevant fundraising laws in relation to the making of such offers as they apply from time to time; and

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the principal offer document be accompanied by specified warnings in relation to, for example, the governing law, tax differences and currency risk.

4.41 Failure to meet the ongoing requirements results in a breach of the host country's laws (that specify ongoing requirements).

4.42 Under option three, the home jurisdiction regulator has primary responsibility for supervising a cross-border offer and can exercise powers of its own motion, at the request of the host country regulator, or at the request of a person in the host country. The host country regulator has the power to suspend or stop an offer, to prohibit advertisements in the host country if entry requirements are not satisfied or if the ongoing requirements are not complied with and to investigate suspected breaches of the law, including breaches of entry requirements or ongoing requirements (including the home jurisdiction compliance requirement).

4.43 Under any option, ASIC will not send officers to New Zealand to undertake investigations or enforcement activity there. ASIC's powers do not extend to New Zealand and it would be inappropriate to amend the law to purport to provide for this. Instead, ASIC may exchange relevant information with the New Zealand Securities Commission and Registrar of Companies under their respective governing laws. Their co-ordination is facilitated by Memoranda of Understanding between the regulators.

Impact analysis

4.44 The groups currently most affected by the regulation of trans-Tasman securities offerings and likely to be most affected by the options include:

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issuers of securities in Australia and New Zealand (particularly public companies);

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investors in Australia and New Zealand; and

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ASIC, the New Zealand Securities Commission and the New Zealand Registrar of Companies (the New Zealand Regulators).

4.45 The costs and benefits of the identified options, which this impact analysis compares against the current regulatory environment (and against each other), can be evaluated under four headings:

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The benefits of overcoming mutually exclusive regulatory requirements and the costs for offerors and regulators.

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Consistency with providing appropriate regulatory outcomes in host jurisdictions (especially in relation to foreign issuers operating under mutual recognition).

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Impact on national and parliamentary sovereignty.

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The extent of associated complexity.

4.46 The first two of these headings are probably the most significant. They are also closely related to one another. The extent to which host jurisdictions realise the benefits associated with them disapplying their domestic regulatory frameworks under mutual recognition arrangements is likely to depend on the capacity of these arrangements to ensure the maintenance of appropriate regulatory outcomes within each host jurisdiction.

Benefits from overcoming mutually exclusive regulatory requirements

4.47 The most immediate benefit derived from overcoming the need to comply with different regulatory requirements in Australia and New Zealand that pursue the same policy objectives is removing/reducing the compliance costs associated with multiple market participation currently borne by Australian and New Zealand issuers. Other, derivative benefits include:

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Facilitating cross-border fundraising (and investment) activity by Australian and NZ entities.

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Enhancing competition in domestic capital markets by facilitating market entry.

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Providing significant potential to reduce the cost of capital to issuers by enabling them to access wider capital markets at lower cost than is currently available.

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Providing investors with more opportunities to manage risk through geographical diversification of their investments by increasing the range of investment choices.

4.48 These benefits derive in large part from the disapplication of aspects of the host jurisdiction's regulatory framework. From this perspective, each option has the potential to yield these benefits. The extent to which these benefits will be realised under each of the options, however, depends on two, related, factors:

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The extent to which the host jurisdiction disapplies its domestic regulatory framework.

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The particular parts of its regulatory framework that the host jurisdiction disapplies.

4.49 The second factor is particularly important, as some regulatory requirements are likely to be more burdensome and generate higher compliance costs that others. As discussed above, fundraising regulation, which the host jurisdiction would disapply under each identified option, in both Australia and New Zealand, is relatively onerous and generates significant compliance costs for issuers.

4.50 Under all three options, potential issuers are likely to face initial familiarisation costs, with these being greater the more complex the option.

Option one

4.51 It can be argued that option one may involve lower compliance costs than options two and three because an issuer may not be required to interact with host regulators (or courts) under option one. ASIC advises that option one is likely to have the lowest costs for regulators, though they note that in the event of difficulties, to the extent that the home regulator is expected to ensure compliance with the home jurisdiction requirements in the host jurisdiction, option one potentially involves complexities and costs that may not arise under the other options.

Options two and three

4.52 Options two and three may involve slightly higher compliance costs and pose a slightly higher regulatory risk for offerors issuing securities in the host jurisdiction. This is because issuers would be required to interact with the host jurisdiction regulator and would be subject to multiple liability frameworks (albeit under the same substantive law).

4.53 Under option two, the host country regulator would also be likely to face greater costs associated with understanding, and supervising and enforcing the home jurisdiction's securities laws, with the potential for inconsistent administration of the provisions.

4.54 Compliance costs would potentially be marginally higher under option three than option two because of the existence of ongoing requirements - features not present in option two. However, these costs are expected to be small.

4.55 From this perspective, option three may be less attractive to potential trans-Tasman issuers than options one and two. However, if option three is better able to ensure the maintenance of appropriate regulatory outcomes in the host jurisdiction, these costs may be offset by their potential to facilitate the more extensive disapplication of host jurisdiction legislation.

4.56 ASIC has advised that between options two and three, all other things being equal, option two is likely to involve greater costs for regulators than option three. This is essentially because option three assumes that the home regulator will be playing a 'lead regulator' role in relation to an offering, while option two does not envisage the host regulator being able to rely on the home regulator in dealing with matters arising under the locally adopted foreign law.

4.57 ASIC, however, notes that the costs for offerors and regulators under either options two or three would probably not be high in absolute terms.

4.58 There would not be any significant costs for investors under any of these three options, beyond the initial familiarisation costs.

Maintenance of appropriate domestic regulatory outcomes

4.59 Mutual recognition arrangements aim to overcome regulatory barriers facing offerors issuing securities in multiple jurisdictions while maintaining appropriate regulatory outcomes in host jurisdictions. The key issue in this regard concerns the adequacy of the protection available to investors dealing with home jurisdiction issuers operating in the host jurisdiction (although market integrity and financial stability are also important considerations). The protection available to investors in these circumstances should be similar in its effectiveness to the protection available to investors acquiring domestically-issued securities.

4.60 This requires that home and host jurisdictions have equivalent regulatory frameworks and that the enforcement provisions and remedies available under these frameworks should apply to issuers when they operate outside their respective home jurisdictions.

Option one

4.61 Under option one, host jurisdictions do not impose their own regulatory frameworks. Rather, they rely on the cross-border effects of regulation in the home jurisdiction. A benefit associated with this approach is that the financial burden of the host regulator's supervisory, investigative and enforcement roles is removed entirely.

4.62 This means that there is total reliance on the home jurisdiction's fundraising requirements and regulator - there is no capacity for the host regulator to issue a stop order on the issue where there is a contravention of a disapplied provision. In addition, as indicated above, the home jurisdiction regulators would not be entitled to exercise their own investigation and examination powers in the host jurisdiction.

4.63 This approach may be appropriate in relation to parts of the regulatory framework that have the indivisibility and non-excludability characteristics of a public good - for example, investors in both home and host jurisdictions may all benefit from a prohibition in the home jurisdiction on offer documents containing false or misleading statements. It may be less appropriate where regulation does not have strong public good characteristics. In these circumstances, a home country regulator may be able to choose not to regulate a domestic issuer in relation to conduct by that issuer beyond its territorial boundaries or provisions in the home jurisdiction may not apply to conduct in a host jurisdiction that has disapplied its domestic legislation. Further, disapplication is inappropriate where there is the possibility of the issuer undertaking separate conduct, such as advertising, in the host jurisdiction, which is not also being undertaken in the home jurisdiction.

4.64 While option one may reduce the marginal costs of extending an offer into the host jurisdiction, the host jurisdiction is likely to limit the application of such a regime when it has no means of regulation or responsibility over offers of securities made inside its jurisdiction.

4.65 Option one also raises issues relating to the ease with which investors in the host jurisdiction may access remedies that may be available to them under the home jurisdiction's regulatory framework. Most importantly, such investors may be required to incur the additional expense of pursuing remedies through the court system of a foreign jurisdiction. This aspect of the model may even dissuade host jurisdiction investors from taking up the securities being offered by home jurisdiction issuers.

4.66 Option one has the least capacity to ensure the maintenance of appropriate regulatory outcomes and may decrease investor confidence.

Options two and three

4.67 Options two and three have a number of potential advantages over option one in terms of their capacity to ensure the maintenance of appropriate regulatory outcomes in the host jurisdiction.

4.68 Firstly, an issuer offering securities across the Tasman would be subject to oversight by the host jurisdiction regulator, who retains responsibility for regulating conduct within its jurisdiction. Host jurisdiction regulators are more likely than home jurisdiction regulators to have both the capacity and willingness to exercise effective regulatory oversight in relation to issuers operating in the host jurisdiction.

4.69 Secondly, host jurisdiction investors can pursue statutory and other remedies in their domestic court system (and would not be required to pursue these remedies in the court system of the home jurisdiction). This would reduce the difficulty and expense of pursuing legal remedies in comparison with option one.

4.70 Option three also enables host jurisdiction investors to pursue civil proceedings against a foreign issuer for a contravention of the home jurisdiction regulatory framework in the courts of the host jurisdiction.

4.71 This is because the foreign issuer will have an address for service in the host jurisdiction, and will have in effect submitted to the jurisdiction of its courts. However, the investor may still need to enforce his or her judgment in the home jurisdiction. Investors will be given notice of such practical difficulties by the 'health warnings' associated with these offers.

4.72 The arrangements for enforcing in the home jurisdiction fines and penalties imposed in the host jurisdiction for breaches of the ongoing requirements are currently being examined by the Trans-Tasman Working Group on Court Proceedings and Regulatory Enforcement. The Working Group, comprised of officers of the New Zealand Ministry of Justice and Commonwealth Attorney-General's Department, is reviewing legal co-operation in such areas as service of process, the taking of evidence, the recognition of judgments in civil and regulatory matters and regulatory enforcement, and issued a discussion paper for public consultation in 2005.

National/parliamentary sovereignty

4.73 All of the options have implications for national/parliamentary sovereignty because host countries must disapply parts of their domestic regulatory frameworks and, therefore, surrender (at least while the mutual recognition arrangement is operational) to various extents their capacity to directly regulate certain conduct within their jurisdictions. Each option would also require Australia and New Zealand to consult with one another before amending their domestic regulatory frameworks because this may have implications for regulating conduct in each other's jurisdictions.

4.74 Reductions in national sovereignty may be inevitable, however, in order to address problems that result from the existence of national regulatory frameworks.

Option one

4.75 Under option one, the host jurisdiction surrenders the capacity to influence the development and implementation of regulation and, instead, relies on the cross-border effects of regulation within an issuer's home jurisdiction to ensure appropriate conduct when it operates across borders. The disadvantage of this approach is that the host jurisdiction must accept any adverse consequences of the regulation adopted by the home jurisdiction or end the arrangement by introducing its own regulatory framework.

Option two

4.76 A significant difficulty with option two is the parliamentary sovereignty issues it raises. The host jurisdiction would have to amend its law or regulations to reflect changes in the home jurisdiction's law. Not only would national parliaments not have control over certain aspects of the content of the laws of their jurisdiction, such a process would be likely to be resource intensive and could lead to gaps in the mutual recognition regime where there is a lag between changes in the laws of the respective jurisdictions. Such lags could delay proposed or existing trans-Tasman securities offerings and could constitute a disincentive for issuers contemplating entering the regime. This is a key weakness that option three does not share.

Option three

4.77 Because compliance with the host jurisdiction's laws can be achieved through complying with the current requirements of the home jurisdiction, a change in the laws of the home jurisdiction has the effect of altering the substantive compliance requirements in the host jurisdiction, even though the laws of the host country do not change. This approach creates the theoretical risk that the laws of one country will change in a manner that affects the equivalence of the regulatory regimes, giving rise to concerns about the appropriateness of continuing to operate the mutual recognition regime. This risk is addressed by including in the treaty provisions:

•

requiring consultation in relation to the implementing legislation (and proposed amendments to it) and material changes to the scope of a jurisdiction's securities legislation; and

•

enabling each jurisdiction to terminate the treaty for any reason (in the unlikely event that serious concerns arise and cannot be resolved).

4.78 The treaty also provides the capacity to add to the prescribed list of entry and ongoing requirements if there is agreement between Ministers.

4.79 The provision requiring consultation is likely to reduce only marginally the flexibility with which Australia may amend its regulatory framework. This is because the Commonwealth is already under an obligation to consult the States and Territories before any such amendment. Consultation with New Zealand will take place at this time and the views expressed taken into account.

Complexity

4.80 The aim of the proposed mutual recognition arrangement is to reduce complexity for issuers offering securities across the Tasman by enabling them to carry on business under a single substantive regulatory framework (that of their home jurisdiction). Each of the identified options has the potential to reduce complexity for companies wanting to offer securities in Australia and in New Zealand.

4.81 All three options increase complexity for investors in the sense that the offer documents will not be in compliance with the usual Australian fundraising requirements (although they are functionally equivalent). It may therefore prove harder to compare the offer with the usual Australian offer.

Option one

4.82 Option one is the least complex option since the host jurisdiction simply disapplies particular aspects of its regulatory framework. This would marginally reduce ASIC's costs, however it would increase the complexity for investors (and hence their costs) as they would be required to familiarise themselves with the issuer's home system of regulation, make a judgement regarding its appropriateness and (potentially) seek relief in the issuer's home judicial system.

Options two and three

4.83 Options two and three may involve greater complexity for issuers since they would be required to interact more closely with regulators in two jurisdictions and would be exposed to multiple liability frameworks. This complexity is illustrated particularly with respect to option three by the existence of entry requirements and ongoing requirements.

4.84 Understanding the entry and ongoing requirements also increases the complexity for investors. However, options two and three may also result in less complexity for investors seeking to pursue statutory remedies against issuers since they could be pursued within an investor's home jurisdiction rather than the issuer's home jurisdiction.

4.85 Options two and three are likely to increase complexity for host jurisdiction regulators (and courts) as they would be required to monitor and enforce compliance with the laws of different substantive requirements within their respective jurisdictions.

4.86 However, complexity may be less evident under option three than option two since the host regulator performs a role secondary to that of the home regulator. ASIC indicates that the impact on regulators in relation to complexity is likely to be minimal. Options two and three are less complex than the current regime.

Summary

4.87 The following table summarises the likely impacts of each option.

4.88 In conclusion, while options one and two may involve smaller overall compliance costs, option three provides for a reduction in compliance costs compared to the current system, while maintaining appropriate regulatory outcomes, a point recognised in many of the submissions. As the Australian Stock Exchange noted in their submission: 'Importantly, the proposals outlined in the discussion paper [option three] will have the effect of lowering costs in both jurisdictions [over the current requirements] while achieving the same regulatory outcome.'

Consultation

4.89 The main parties affected by the regulation of trans-Tasman securities offerings are: issuers of securities in Australia and New Zealand; investors in Australia and New Zealand; and ASIC and the New Zealand Regulators.

4.90 The Australian Treasury and New Zealand Ministry of Economic Development jointly wrote a discussion paper relating to the establishment of trans-Tasman mutual recognition arrangement for offerings of securities and managed investment scheme interests. The discussion paper was released on 18 May 2004 for two months' public consultation. A total of 29 submissions on the discussion paper were received from Australian and New Zealand respondents, including from regulators, corporations, industry bodies and groups representing investors.

4.91 Treasury has discussed the options with ASIC, which expressed considerable concerns with option two (and will continue to do so). Treasury has also liaised with the New Zealand officials extensively in relation to the terms of the arrangement and the implementing legislation. New Zealand officials favour adopting option three.

4.92 Subject to various comments, nearly all respondents strongly supported putting in place a mutual recognition regime along the lines of option three, which was described in the paper together with options one and two.

4.93 Respondents to the paper raised various issues, including:

•

the scope of the mutual recognition arrangement;

-

whether the regime should apply to issuers registered in the home jurisdiction as foreign companies (as this may lead to the regime's abuse);

•

entry and ongoing requirements;

-

the standardisation between Australia and New Zealand of entry and ongoing requirements (so that application of the arrangement is not unbalanced);

-

the consistent interpretation of the requirements by courts and regulators;

-

the content of, and guidance on, warning statements;

•

consequences of breach of entry and ongoing requirements;

-

proportionality between the penalty for non-compliance with particular requirements and the nature of the breach (and whether particular breaches should result in an offer being voided);

•

regulatory enforcement

-

whether existing arrangements are the most efficient way of fostering regulatory cooperation;

-

the potential for respective regulators/courts to take different approaches to the interpretation and application of home jurisdiction laws.

4.94 Since respondents to the paper are parties that have a familiarity with, and an appreciation of, the mechanics and subtleties involved in trans-Tasman offerings of securities and managed investment scheme interests, their submissions are significant in shaping the scope and terms of the final arrangement and its implementation.

4.95 The majority of issues raised by respondents were technical issues that are best addressed by the implementing, domestic legislation (see below).

4.96 Broader issues that were raised and that have been assessed and incorporated into option three include that:

•

The mutual recognition regime should not encompass financial advice that extends beyond offer documents and investment statements;

-

since the requirements under Australian and New Zealand law in respect of the provision of financial advice are not sufficiently similar at present, mutual recognition in this regard would not be readily achieved;

•

the home jurisdiction regulator should issue guidance notes to the host jurisdiction regulator setting out their approach to interpreting and applying home jurisdiction laws;

-

since there is potential for Australian and New Zealand regulators to take different approaches to interpreting and applying their domestic laws, co-operation of this nature is desirable.

Conclusion and recommended option

4.97 The Government has therefore taken the view that option three (based on compliance with the substantive requirements of domestic law) provides a better basis for a mutual recognition arrangement than option one (based on the disapplication of domestic law) or option two (based on the incorporation of foreign law). The Government has thus adopted option three as the arrangement for establishing a trans-Tasman mutual recognition framework for offers of securities and managed investment scheme interests.

4.98 This conclusion is based on a weighted assessment of the following criteria, where the first two are probably the most significant:

•

The benefits of overcoming mutually exclusive regulatory requirements.

•

Consistency with providing appropriate regulatory outcomes in host jurisdictions (especially in relation to foreign issuers operating under mutual recognition).

•

Impact on national and parliamentary sovereignty.

•

The extent of regulatory complexity.

4.99 It is acknowledged that option three, compared to options one and two, is perhaps more complex and may contain marginally higher compliance costs for issuers (as they would have to interact more extensively with the overseas regulator) as well as for the host jurisdiction regulator and courts (as they would be required to enforce compliance with different frameworks within their respective jurisdictions). Nevertheless, option three will still lower costs for issuers compared to the current system, a point that was made in many of the submissions.

4.100 Further, the advantage of option three (compared to option one) is that it is more likely to ensure the maintenance of appropriate regulatory outcomes in relation to the conduct of overseas-based issuers in the host jurisdiction. Under option one, the conduct of overseas-based issuers is essentially unregulated under the law of the host jurisdiction (depending on the degree of disapplication of host jurisdiction law).

4.101 While option two would probably also ensure the maintenance of appropriate regulatory outcomes in the host jurisdiction, it is considered unrealistic for Australia to formally incorporate relevant parts of New Zealand's laws as part of its own framework.

4.102 Finally, the vast majority of respondents to the discussion paper strongly supported putting in place a mutual recognition arrangement based on option three. New Zealand also strongly supports option three.

Implementation and review

4.103 The Agreement between the Government of Australia and the Government of New Zealand in relation to mutual recognition of securities offerings (the treaty) specifies the scope of the trans-Tasman mutual recognition regime and domestic legislation will implement the arrangement in Australia and New Zealand. Account was taken of the submissions received on the discussion paper in framing the treaty and has been taken in framing the draft domestic legislation.

4.104 The treaty provides for:

•

Consultation if, for example, a party considers that the achievement of any of the objectives of the treaty are being or may be frustrated.

•

Review of the effectiveness of the mutual recognition regime no later than five years after the entry into force of the treaty.

•

Termination of the treaty by either Australia or New Zealand at any time.

4.105 The following paragraphs indicate the steps involved in signing the treaty, implementing it via domestic legislation and reviewing the effectiveness of the mutual recognition regime.

4.106 The treaty was signed by both Australia and New Zealand Ministers on 22 February 2006 and tabled in both Australian Houses of Parliament 28 March 2006. It is available at: http://www.info.dfat.gov.au/Info/Treaties/treaties.nsf/AllDocIDs/ED1FD8029677CB61CA2571310080BF78.

4.107 It was then examined by the Joint Standing Committee on Treaties which issued a report on 15 August 2006. The treaty then goes to the Executive Council for authorisation of ratification and is then ratified by the Minister for Foreign Affairs.

4.108 Concurrently with this process, the implementing legislation is drafted and exposed for public consultation. The legislation was exposed for comment on 11 September 2006. It is available at http://www.treasury.gov.au/contentitem.asp?NavId=002&ContentID=1155).

4.109 The Ministerial Council for Corporations will also be consulted, in accordance with the Corporations Agreement 2002, and the comments received from the public and the Ministerial Council taken into account before the Bill is introduced into the Parliament.

4.110 The treaty will come into effect after an exchange of diplomatic notes with New Zealand, confirming the completion of the respective domestic procedures for the entry into force of the treaty. In Australia's case, this means that the treaty can only enter into force after all the legislative changes have been put in place.

4.111 A review will be conducted no later than five years after the date of entry into force of the treaty. This process will review the effectiveness of the scheme, with a view to agreeing to and implementing any necessary improvements.

4.112 In terms of ongoing implementation, the Australian Treasury and the New Zealand Ministry of Economic Development will continue to liaise in order to coordinate details of the implementing legislation. ASIC and the New Zealand regulators will also liaise in order to ensure that offers made under the mutual recognition scheme are regulated appropriately. This is not expected to significantly increase the work load of these or other Government agencies.

4.113 Any problems that may arise in the context of the mutual recognition scheme will be dealt with through mutual understanding and dialogue between the relevant parties.

Chapter 5

Notes on individual clauses

Clause 1 - Short title

5.1 Upon enactment, the Bill will be known as the Corporations (NZ Closer Economic Relations) and Other Legislation Amendment Act 2007.

Clause 2 - Commencement

5.2 This clause sets out when the amendments contained in the Bill come into operation, which include:

•

Sections 1 to 3 (and any provision not listed in clause 2) will commence on the day the Act receives Royal Assent.

•

Schedule 1 (items 1 to 18) will commence on a day to be fixed by proclamation. Items 21 and 22 of Schedule 1 will also commence at the same time as items 1 to 18 of Schedule 1.

•

Schedule 2 will commence on a day to be fixed by proclamation.

•

Schedule 3 will commence on the 28th day after the Act receives Royal Assent.

5.3 Certain provisions in Schedule 1 relate to the commencement of Schedule 2 provisions. For this reason, there are alternative commencement provisions for Schedule 1, items 19 and 20.

•

Schedule 1, item 19 - if items 1 to 18 in Schedule 1 commence before Schedule 2, the amendments in Schedule 1, item 19 does not commence at all.

•

Schedule 1, item 20 - if Schedule 2 commences before or at the same time as items 1 to 18 in Schedule 1, the amendments in Schedule 1, item 20 does not commence at all.

Clause 3 - Schedule(s)

5.4 The Act is amended as set out in the applicable items in Schedules 1 to 3.

Schedule 1 - Mutual recognition of securities offerings

Item 18 - Mutual recognition of securities offerings

5.5 Item 18 inserts new Chapter 8 to regulate the mutual recognition of securities offerings.

Part 8.1 - Preliminary

Definitions

5.6 The Bill contains a number of new definitions which form part of new Chapter 8. The key definitions for the purposes of the regime for the mutual recognition of securities offers are:

•

'recognised jurisdiction' - the foreign country to which the mutual recognition provisions apply;

•

'foreign recognition scheme' - the laws of that foreign country to which the mutual recognition provisions apply; and

•

'recognised offer' - an offer, that at the time it opens, meets the requirements imposed by section 1200B.

5.7 While the amendments are a direct response to the Treaty between Australia and New Zealand, the Act is drafted in general terms. For this reason the term 'recognised jurisdiction' (defined in subsection 1200A(1)) refers to a foreign country, rather than specifically to New Zealand. The details of these definitions will be filled out in regulations. This means that if comparable arrangements are reached in the future with other countries they will be able to be implemented through these provisions, possibly with amendment only of the regulations.

5.8 The other significant definition is 'securities'. This term is defined in subsection 1200A(1) to include shares, debentures and interests in managed investment schemes, and certain derivatives over these financial products. It includes 'securities' as defined in section 761A of the Corporations Act and 'managed investment schemes' as defined in section 9 of the same Act.

5.9 The regime will not apply to:

•

'excluded security' as defined in section 9 of the Corporations Act; or

•

other financial products such as life insurance, superannuation products, or derivatives (other than the derivatives over securities referred to above).

Part 8.2 - Foreign offers that are recognised in this jurisdiction

5.10 New Part 8.2, Division 1 sets the eligibility and entry requirements for the offer and offeror under the scheme.

Division 1 - Recognised offers

Entry requirements

5.11 The entry requirements for the scheme relate to:

•

the offeror (subsections 1200C(2) and (3));

•

the kind of offer (subsection 1200C(4)); and

•

lodging a notice of intention to use the scheme, and lodging the required documents and information with ASIC (subsection 1200C(5), (6) and section 1200D).

5.12 If an offeror does not meet these requirements, then the offer will be considered under the usual Australian fundraising and managed investment scheme requirements.

The offeror

5.13 A person proposing to offer securities in Australia must be:

•

incorporated by or under the law of the recognised jurisdiction; or

•

a natural person residing in the recognised jurisdiction; or

•

a legal person who is established by, or under, the laws of the recognised jurisdiction (subsection 1200C(2)).

5.14 The third class listed in the paragraph above is intended as a residual clause to cover circumstances not described in the first two instances. This takes into account situations under foreign laws which do not necessarily equate to Australian provisions. For example, in relation to New Zealand it encompasses the structure of New Zealand 'participatory securities'.^[F1]

5.15 The result of the limitations on who can be an offeror under the regime is that companies incorporated in third countries will not initially be able to use this regime to issue securities in Australia when they have complied with New Zealand fundraising law. The regulation-making power in paragraph 1200C(2)(d) could allow this in future if considered appropriate.

5.16 The definition of 'offeror' in subsection 1200A(1) also includes the power to prescribe the kind of person who is the offeror. This relates to the possibility, in relation to collective investment vehicles, that the trustee will be caught by the concept of 'offeror' but the obligations should instead be imposed on the promoter.

5.17 ASIC is empowered to ban a person who has contravened the mutual recognition provisions from using the regime again (section 1200P). Such a person will not meet the entry requirements (subsection 1200C(3)).

5.18 In addition, one of the offering conditions (subsection 1200G(6) in division 3) requires that there must be no person concerned in the management of the offeror who:

•

has been disqualified from managing corporations under Part 2D.6 of the Corporations Act;

•

is disqualified from being concerned in the management of the offeror under the law of the recognised jurisdiction;

•

has been banned under section 920A of the Corporations Act; or

•

has been banned by the court under subsection 921A(2)(a) of the Corporations Act.

The kind of offer

5.19 The offer must be an offer of a kind prescribed by the regulations in relation to the recognised jurisdiction (subsection 1200C(4)).

Notice and documentation to ASIC

5.20 For an offer to be recognised under the mutual recognition scheme, the offeror must file a notice with ASIC stating that it proposes to make an offer under the regime (paragraph 1200C(5)(a)).

5.21 The offeror must also lodge a number of documents and information (required by paragraph 1200C(5)(b) and listed in section 1200D), including:

•

the offer documents required by the law of the recognised jurisdiction;

•

for shares, the company's constitution;

•

for other issuers, the relevant scheme constituent document;

•

the warning statement that will accompany offers in Australia (discussed further below at paragraph 5.25);

•

details of any exemption granted by the recognised jurisdiction which is relevant to the offer or the offeror;

•

an address for service in Australia; and

•

notice of documents or information not being lodged because the offeror is relying on an exemption (see paragraph 5.23).

5.22 These documents must be lodged with ASIC at least 14 days prior to the date the offer first opens for acceptance (subsection 1200C(5)).

5.23 The only exceptions are:

•

where the information has already been lodged with ASIC in relation to registration as a foreign company or registered body under Division 2 or 3 of Part 5B.2; or

•

because the information or document is covered by the provisions in Schedule 2 of the Bill which reduce the filing requirements for foreign companies.

5.24 The offeror is obliged (see subsection 1200C(6)) to notify ASIC of changes to documents and information (referred to in paragraph 1200C(5)(b) and listed in section 1200D) before the offer opens, if an event listed in subsection 1200G(9) occurs, or if the address for service in Australia changes. These obligations continue during the offer period and during certain other periods (see further paragraph 5.45).

5.25 The warning statement, referred to above and in section 1200E, is intended as notice to potential investors that the security offering is subject to foreign laws. The warning statement, set in the regulations, will state that the offer is regulated under the home jurisdiction's securities laws and that the standard host jurisdiction securities law requirements that apply to domestic offers do not generally apply to the offer. Other specified warnings may also be included, for example, in relation to tax differences and currency risk.

When is an offer a recognised offer?

5.26 An offer is a recognised offer from a recognised jurisdiction if, when it is first made here, it meets all of the conditions in section 1200C (see subsection 1200B(1)).

5.27 However, it is possible that there has been a minor or technical failure to meet these requirements which only becomes apparent at some later time.

5.28 To address this possibility, subsection 1200B(3) provides that ASIC may declare in writing that such an offer is a recognised offer. Subsection 1200B(5) provides that such a declaration is not a legislative instrument. This subsection is included only to inform readers that the notice is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003.

5.29 An offer that is a recognised offer continues to be such after the first day the offer is made in this jurisdiction, even if a condition in section 1200C ceases to be met after that day (subsection 1200B(2)).

Division 2 - Effect of a recognised offer and Division 4 - Modifications of provisions of this Act

5.30 Division 2 of new Part 8.2 sets out the effect of a recognised offer. Division 4 is also related and deals with modifications to the Corporations Act for recognised offers.

Provisions which are ' turned off'

5.31 Provisions of the Corporations Act in respect of which there will be exemptions for recognised offers are set out in the table at subsection 1200F(1). They are:

•

In relation to shares, options to acquire securities and equitable interests in securities:

-

Chapter 6D (fundraising) except the securities hawking provision and associated remedy for breach of the securities hawking provision (sections 736 and 738).

•

In relation to debentures:

-

Chapter 2L (debentures);

-

Chapter 6D (fundraising) except the securities hawking provision and associated remedy for breach of the securities hawking provision (sections 736 and 738).

•

In relation to managed investment schemes:

-

Chapter 5C (managed investment schemes);

•

Also:

-

Part 7.6 (licensing of providers of financial services);

-

Part 7.7 (financial services disclosure);

-

Part 7.8 (other provisions relating to conduct etc connected with financial products and financial services, other than financial product disclosure except the hawking provision (section 992AA)); and

-

Part 7.9 (financial product disclosure and other provisions relating to issue and sale of financial products, except the hawking provisions (sections 1020B and 1020C)).

Provisions which are not 'turned off'

5.32 Not all of Part 7.9 of the Corporations Act will be 'turned off':

•

The short selling and hawking provisions will continue to apply (see Items 3, 4 and 5 of the table at subsection 1200F(1));

•

Further, it is intended to use the regulation power of section 1020G to make regulations to continue the effect of sections 1012A-1012C but provide that the document required would be the offer document required under the recognised offer;

•

The requirement for the issuer of units in a managed investment scheme, for an internal dispute resolution procedure and membership of an external dispute resolution scheme is retained through section 1200J in Division 3, unless an exemption is granted by ASIC (see paragraph 5.45).

5.33 Division 4 continues the operation of existing Corporations Act pre-offer advertising provisions, and also continuous disclosure obligations.

5.34 The continuation of pre-offer advertising provisions clarify that advertising before an offer becomes a recognised offer is permitted in accordance with existing pre-offer advertising provisions of the Corporations Act, with modifications to recognise that the relevant offer document is the document of the recognised jurisdiction.

5.35 In relation to continuous disclosure obligations, - see 'Ongoing Requirements' at paragraph 5.46.

Flexibility

5.36 As the Bill is drafted in general terms, there is potential for the mutual recognition scheme to be extended to other countries if comparable arrangements are reached with them.

5.37 This has resulted in some flexibility in terms of the inclusion of regulation making powers.

5.38 Subsection 1200F(2) provides that the Regulations may apply the provisions, previously excluded in subsection 1200F(1) to certain offers. This includes the power to omit or modify requirements applied.

5.39 In addition section 1200M provides that the Regulations may modify provisions of the Corporations Act (including existing modifications in Division 4 for recognised offers) in relation to recognised offers or proposed recognised offers.

5.40 This regulation making power is included principally to address the possible application of the regime to foreign countries other than New Zealand. The fundraising requirements in another country may be largely comparable with those of Australia but may need supplementation in particular minor respects.

5.41 These respects could be addressed through regulations - which would have the effect of enlivening some of the provisions 'turned off' by subsection 1200F(1) or otherwise modifying provisions of the Corporations Act. The most significant and obvious circumstances are anticipated in the legislation, and the powers contained in subsection 1200F(2) and 1200M are only intended for minor alterations to make a good fit with the requirements of any potential recognised jurisdiction.

Division 3 - Ongoing conditions for recognised offers

5.42 Division 3 of new Part 8.2 specifies the ongoing conditions that must be complied with for recognised offers.

Ongoing requirements Chapter 8 specific

5.43 The offer must comply with certain ongoing requirements. These are referred to as:

•

offering conditions (section 1200G);

•

supplementary lodgement conditions (subsection 1200G(9));

•

address for service condition (section 1200H); and

•

dispute resolution condition (section 1200J) -see paragraph 5.45.

5.44 These provisions, among other things, impose obligations where there has been an amendment to the initial offer documents, or the circumstances of the offeror. The reason for separating the various obligations is that they are triggered for various periods during the offer process and thereafter.

5.45 In combination, the requirements they impose include the following:

•

the offeror must comply with the law of the recognised jurisdiction;

•

the offer must be open to acceptance by persons in the recognised jurisdiction at all times at which it is open for acceptance by persons in Australia;

•

the offeror must file information concerning certain changes to the offer with ASIC, including any amendments to the regulated offer documents or the warning statement;

•

the offeror must notify ASIC of any exercise of statutory power by the recognised jurisdiction in relation to the offer;

•

the offeror must lodge written notice of any change of address for service; and

•

an offeror of interests in managed investment schemes must comply with the dispute resolution provisions of the Corporations Act, unless an exemption is granted by ASIC.

•

ASIC is able to exempt the issuer from maintaining the dispute resolution process under subsection 1200(J)(3). The exemption is intended for use in circumstances where a technical requirement to maintain the dispute resolution procedure exists but in practice the scheme is not required. One such circumstance includes where records of the issuer indicate that holders of securities are resident in Australia (subsection 1200J(1)) but those holders are unable to be found despite attempts by the issuer.

•

ASIC are able to set conditions in relation to the exemption (subsection 1200J(5)) - for example requiring the reinstitution of the dispute resolution scheme if holders are subsequently found.

•

The regulations may set additional ongoing conditions for recognised offers (subsection 1200G(12)).

•

Failure to comply with these requirements is addressed at paragraph 5.61.

Continuous disclosure

5.46 Schedule 1 contains amendments to Part 1.2A of the Corporations Act. These amendments expand the definition of 'ED securities' to securities issued under a recognised offer (as defined in section 1200B). Consequently, the continuous disclosure provisions of Chapter 6CA of the Corporations Act will apply should 100 or more people hold securities or managed investment products in the class.

5.47 The accounting requirements which are triggered by being a disclosing entity (section 111AO) will have no application because the foreign offerors will not be 'companies' as defined for this purpose, registered schemes or the set of disclosing entities referred to in subsection 285(2).

5.48 The continuous disclosure obligations which apply to unlisted disclosing entities are modified by section 1200K.

Division 5 - ASIC's power in relation to recognised offers

5.49 Division 5 of new Part 8.2 sets out ASIC's powers in relation to the recognised offer, including the power to issue stop orders, prohibit advertising in Australia and ban offerors from the future use of the scheme.

Role of the regulators

Australian and New Zealand responsibility

5.50 ASIC will have primary responsibility for taking action against foreign issuers into Australia for failure to comply with the ongoing requirements, other than the requirement to comply with the foreign jurisdiction law. The foreign jurisdiction regulator (the ASIC equivalent as prescribed under subsection 1200G(13)^[F2]) will have lead responsibility for taking action in respect of breaches of the substantive requirements of foreign jurisdiction laws.

5.51 A breach of a foreign jurisdiction's substantive requirements in the course of making an offer to investors in Australia will also constitute a breach of Australia's ongoing requirements, and thus could be the subject of enforcement action by ASIC in appropriate cases (subsection 1200Q(1)).

5.52 As a consequence of the inclusion of compliance with the home jurisdiction requirements as an ongoing requirement in the host jurisdiction, ASIC will have a wide interest in the conduct of the issuer in Australia, as a host jurisdiction. This will enable it to use the powers in Part 3 of the Australian Securities and Investments Commission Act 2001 (ASIC Act) in relation to investigations of the issuer's conduct in the host jurisdiction.

5.53 Information gained in this way can be disclosed to the foreign jurisdiction regulator in accordance with section 127, particularly paragraph 127(4)(c) of the ASIC Act.

5.54 Further, ASIC has signed Memoranda of Understanding with the New Zealand Companies Office and the New Zealand Securities Commission which reflect an ongoing interest in aligning the regulatory functions of the respective agencies and provide for cooperation and the exchange of information to assist each regulator, particularly on operational and enforcement matters.

ASIC's powers

5.55 ASIC may exercise 'stop orders' against recognised offerors in a variety of circumstances (section 1200N). This includes circumstances where ASIC is satisfied that there is a misleading or deceptive statement or a material omission from the offer document.

5.56 These 'stop orders' relate to, among other things, breaches of sections 1200D and 1200G and may take the form of:

•

prevention of the offer while the order is in force; or

•

prevention of specified conduct in respect of the securities while the order is in force.

5.57 The procedure for issuing 'stop orders' is set out in section 1200N. This includes a hearing and reasonable opportunity for submissions to be made by interested parties (see subsection 1200N(3)). The method and form of orders issued by ASIC are prescribed in later subsections. ASIC is also empowered to make an interim order.

5.58 ASIC also has the power to ban persons from making any subsequent recognised offers if, for example, that person has been convicted of an offence or a court has made a civil penalty order against the person in relation to a recognised offer (section 1200P).

5.59 Before making a declaration to ban a person, ASIC must provide the person with hearing and reasonable opportunities for submissions. However, this does not apply where a person does not maintain a relevant contact point (an address for service) in Australia. In those circumstances, ASIC will publish the notification of the ban in the ASIC Gazette. ASIC can review the declaration under subsection 1200P(3) if ASIC is satisfied circumstances have changed. As with a number of ASIC decisions under the Corporations Act, review by the Administrative Appeals Tribunal is available (see existing section 1317B of the Corporations Act). Subsection 1200P(8) provides that such a declaration is not a legislative instrument. This subsection is included only to inform readers that the notice is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003.

5.60 A New Zealand offer into Australia that does not meet the entry requirements at the time of the first offer will fall outside the regime. Such an offer will be treated as an ordinary domestic offer in Australia and, therefore, will be unlawful if domestic regulatory requirements are not met, with consequences prescribed by Australian law.

5.61 Failure to comply with the ongoing requirements will result in a breach of Australia's laws. The consequences of non-compliance include criminal sanctions and/or stop orders issued by ASIC. Sections 1200Q create offences for breaches of the ongoing requirements (supplementary lodgement conditions, address for service, offering conditions, and dispute resolution condition).

5.62 Amendments to Schedule 3 of the Corporations Act provide the maximum penalties for these offences at Item 22 of Schedule 1 of the Bill. In the longer term, the penalties may be affected by the current review of penalties in general terms by the Commonwealth Attorney-General's Department.

Division 6 - Miscellaneous

5.63 Division 6 of new Part 8.2 deals with the service of documents to offerors of recognised offers.

Service

5.64 Section 1200R provides for the manner in which documents may be served on a person. Notwithstanding existing provisions in the Corporations Act, including sections 109X and 601CX, a document may also be served on a person at the address lodged under paragraph 1200D(1)(g).

5.65 The reason for this is to accommodate offerors which are not companies, as defined in the Corporations Act for the purpose of section 109X, or registered bodies.

Part 8.3 - Offers made under foreign recognition scheme

Australian offers recognised in foreign jurisdictions

5.66 New Part 8.3 sets the requirements for an Australian offer of securities into a recognised jurisdiction under the mutual recognition scheme.

5.67 In accordance with existing provisions of the Corporations Act, any offeror that intends to make an offer in Australia (and have an offer recognised in a foreign jurisdiction) must first satisfy the Australian requirements set out in Chapter 6D or Part 7.9.

Requirements of the offer

5.68 If an offeror wishes to opt into the mutual recognition scheme, then it will need to lodge a notice that it is opting into the regime with ASIC (section 1200S).

5.69 Subsection 1200T(1) extends the operation of the Corporations Act to conduct under the mutual recognition scheme in a recognised foreign jurisdiction. This extends the ambit of the Corporations Act for regulated offers in Australia to foreign jurisdictions, in this specific instance New Zealand. This does not mean that ASIC officers will visit New Zealand, or other countries, and exercise the Commission's powers there.

5.70 Subsection 1200T(2) provide that the Regulations may exempt from, or modify the provisions of the Corporations Act, as it applies to recognised jurisdictions.

5.71 This regulation making power is included principally to address the potential scope of the legislation. At present the scheme relates only to New Zealand, however it is drafted in such a way that it can be extended to offers in other foreign jurisdictions if a comparable agreement is reached with them. It is difficult to foresee all likely scenarios involved in foreign laws and legislate for each of them. Therefore the regulation making power is essential to the flexibility of this regime and its possible expanded operation. The authority contained in subsection 1200T(2) is intended to be used for necessary minor alterations to make a good fit with the requirements of any potential recognised jurisdiction.

Australian and New Zealand regulators

5.72 ASIC will have lead responsibility for taking action in respect of breaches of the substantive requirements of Australian law, which extends to the foreign jurisdiction by virtue of section 1200T.

5.73 The foreign jurisdiction regulator will have primary responsibility for taking action against Australian issuers into their jurisdiction for failure to comply with the ongoing requirements imposed by that jurisdiction, other than the requirement to comply with the Australian law.

ASIC's powers

5.74 ASIC will have its ordinary powers relating to a securities offer in Australia (see Chapter 6D and Part 7.9 of the Corporations Act; Part 2 of the ASIC Act).

Other consequential changes (Schedule 1)

Items 1 to 17

5.75 The amendments in items 1 to 17 of Schedule 1 include a number of consequential changes to the Corporations Act as a result of new Chapter 8 dealing with mutual recognition of securities offerings. This includes:

•

Item 4 inserts a signpost definition of 'recognised offer' in section 9;

•

Item 5 amends an existing heading in section 111AF to better reflect the purpose of the section;

•

various explanatory notes are included to signpost the extended operation of existing Corporations Act definitions and the extended operation of certain provisions of the Corporations Act relating to the mutual recognition scheme; and

•

the changes to 'ED securities' are described at paragraph 5.46.

Schedule 2 - Recognition of companies

Background

5.76 Schedule 2 to the Bill amends Divisions 2 and 3 of Part 5B.2 of the Corporations Act to exempt those companies, incorporated in a country that is prescribed in regulations (prescribed foreign country companies), from the requirement to lodge information or a copy of a document with ASIC that is already lodged with an authority of the prescribed foreign country whose functions include functions equivalent to any of those of ASIC.

5.77 New Zealand will be prescribed in the Regulations. It is possible that other countries could be prescribed in future if comparable arrangements were reached with them.

5.78 The exemptions do not remove the requirement for prescribed foreign country companies to register with ASIC if they wish to operate in Australia. However, the aim is to reduce the administrative burden of registration and the ongoing filing requirements by decreasing the information or copies of documents required to be lodged with ASIC.

5.79 The ASIC Act and agreements between ASIC and the New Zealand Registrar of Companies already allow ASIC to share information on New Zealand companies operating in Australia and Australian companies operating in New Zealand.

Item 1

5.80 Item 1 in Schedule 2 to the Bill amends Division 2 of Part 5B.2 of the Corporations Act to exempt foreign companies, whose place of origin is prescribed, from lodging with ASIC information or copies of documents required pursuant to the Division that they have already lodged with a foreign authority whose functions include functions equivalent to any of those of ASIC.

5.81 The functions of the foreign authority do not have to align with all of ASIC's functions; however, the functions of the foreign authority must be equivalent to any of those that ASIC perform. This allows for circumstances where foreign countries arrange their regulation of corporations and financial services differently to Australia. The amendment captures foreign authorities that perform regulation, compliance and enforcement functions as well as those authorities that collect information and maintain company registers.

Item 2

5.82 Item 2 in Schedule 2 to the Bill amends Division 3 of Part 5B.2 of the Corporations Act to extend the amendment in Item 1 to foreign bodies registered with ASIC.

Item 3

5.83 Item 3 in Schedule 2 to the Bill amends Part 9.1 of the Corporations Act. This amendment deems information or a copy of a document lodged with the foreign authority to be lodged with ASIC if the foreign authority has given the information or the document to ASIC.

5.84 The amendment covers both electronic transfers of information and copies of documents, as well as paper transfers of information and copies of documents.

Schedule 3 - Protection of information obtained by the Australian Competition and Consumer Commission

Item 3 - New section 155AAA

5.85 Item 3 in Schedule 3 to the Bill inserts a new section 155AAA. Section 155AAA prohibits the disclosure of protected information by a Commission official, except in circumstances set out in that section. The term 'protected information' is defined in subsection 155AAA(21).

Protection of certain information

5.86 New subsection 155AAA(1) provides that a Commission official must not disclose any protected information to any person except in particular circumstances. Those circumstances are when the Commission official is performing duties or functions as a Commission official or when the Commission official or the Commission is required or permitted by the TP Act or by any other law of the Commonwealth, or a prescribed law of a State or internal Territory, to disclose the information.

5.87 Subsection 155AAA(2) provides that subsection 155AAA(1) does not allow a Commission official to disclose protected information when performing a function of the Commission described in section 28. Section 28 of the TP Act confers on the Commission functions in relation to dissemination of information, law reform and research.

Disclosure to Ministers

5.88 Subsection 155AAA(3) provides that a Commission official may disclose protected information to the designated Minister. The term 'designated Minister' is defined in subsection 155AAA(21).

5.89 Subsection 155AAA(4) provides that if protected information relates to a matter arising under a provision of the TP Act, or a provision of another Act, that is administered by a Minister other than the designated Minister, a Commission official may disclose the protected information to the other Minister.

5.90 Subsection 155AAA(5) provides that subsection 155AAA(4) does not limit subsection 155AAA(3).

Disclosure to Secretaries etc

5.91 Subsection 155AAA(6) provides that a Commission official may disclose protected information to the Secretary of the designated Department or an officer of the designated Department who is authorised by the Secretary of that Department, in writing, for the purposes of subsection 155AAA(6), for the purpose of advising the designated Minister. The term 'designated Department' is defined in subsection 155AAA(21).

5.92 Subsection 155AAA(7) states that if protected information relates to a matter arising under a provision of the TP Act or a provision of another Act that is administered by a Minister other than the designated Minister, a Commission official may disclose the protected information to the Secretary of the Department that is administered by the other Minister, for the purpose of advising the other Minister. This subsection also provides that the Commission official may disclose the information to an officer of the Department who is authorised by the Secretary of that Department, in writing, for the purposes of subsection 155AAA(7), for the purpose of advising the other Minister.

5.93 Subsection 155AAA(8) provides that subsection 155AAA(7) does not limit subsection 155AAA(6).

Disclosure to a Royal Commission

5.94 Subsection 155AAA(9) provides that a Commission official may disclose protected information to a Royal Commission.

5.95 Subsection 155AAA(10) provides that the Commission Chairperson may, by writing, impose conditions to be complied with in relation to protected information disclosed under subsection 155AAA(9).

5.96 Subsection 155AAA(11) specifies that an instrument under subsection 155AAA(10) is not a legislative instrument. This subsection is included only to inform readers that the notice is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003.

Disclosure to certain agencies, bodies and persons

5.97 Subsection 155AAA(12) provides for the disclosure of protected information to specified agencies, bodies or persons if the provision of the information will enable or assist them to perform or exercise any of their functions or powers. The protected information may, in this situation, be disclosed by an authorised Commission official. The agencies, bodies and persons specified in subsection 155AAA(12) include those to who the Commission is most likely to disclose protected information, such as other regulators.

5.98 Subsection 155AAA(13) provides that the Chairperson may, by writing, impose conditions to be complied with in relation to protected information disclosed under subsection 155AAA(12).

5.99 Subsection 155AAA(14) specifies that an instrument under subsection 155AAA(13) is not a legislative instrument. This subsection is included only to inform readers that the notice is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003.

Disclosure with consent

5.100 Subsection 155AAA(15) provides that a Commission official may disclose protected information that relates to the affairs of a person if the person has consented to the disclosure and the disclosure is in accordance with that consent.

Disclosure of publicly available information

5.101 Subsection 155AAA(16) provides that a Commission official may disclose protected information if it is already publicly available.

Disclosure of summaries or statistics

5.102 Subsection 155AAA(17) provides that a Commission official may disclose summaries of protected information or statistics derived from protected information if those summaries or statistics, as the case may be, are not likely to enable the identification of a person.

Disclosure authorised by regulations

5.103 Subsection 155AAA(18) provides that the regulations may authorise a Commission official to disclose protected information in specified circumstances and that the Chairperson may, by writing, impose conditions to be complied with in relation to the disclosure of protected information in those circumstances.

5.104 This provision will be important in situations where the Government may wish to provide for disclosure of information or documents on a case by case basis to, for example, certain inquiries or bodies not covered by the existing provisions.

5.105 Subsection 155AAA(19) specifies that an instrument under regulations made for the purposes of subsection 155AAA(18)(b) is not a legislative instrument. This subsection is included only to inform readers that the notice is not a legislative instrument within the meaning of section 5 of the Legislative Instruments Act 2003.

Delegation

5.106 Subsection 155AAA(20) provides that the Chairperson may, by writing, delegate any or all of his or her functions and powers under: (a) this section; or (b) regulations made for the purposes of subsection 155AAA(18); to a member of the Commission.

Definitions

5.107 The definitions in Subsection 155AAA(21) are:

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authorised Commission official means a Commission official authorised by the Chairperson of the Commission, in writing, for the purposes of section 155AAA.

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Commission official means a member, or associate member of the Commission; a person referred to in subsection 27(1); or a person engaged under section 27A.

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core statutory provision means a provision of Part IV, IVA, V, VA, VII, VIII, XIB or XIC; the remaining provisions of the TP Act so far as they relate to those parts; or a provision of the regulations so far as it relates to either a provision of those parts or the remaining provisions of the TP Act so far as they relate to those parts. The definition of core statutory provision expressly excludes the provisions of Division 1AA of Part V.

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designated Department means the Department that is responsible for the administration of section 155AAA (other than subsections (4) and (7)).

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designated Minister means the Minister who is responsible for the administration of section 155AAA (other than subsections (4) and (7)). The identity of the Minister is determined by the Administrative Arrangements Order.

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disclose means divulge or communicate.

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foreign country includes a region where: the region is a colony, territory or protectorate of a foreign country; the region is part of a foreign country; the region is under the protection of a foreign country; a foreign country exercises jurisdiction or control over the region; or a foreign country is responsible for the region's international relations.

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foreign government body means: the government of a foreign country; an agency or authority of a foreign country; the government of part of a foreign country; or an agency or authority of part of a foreign country. The definition envisages that there may be more then one government that governs part of a foreign country. This will be most common in federated foreign countries, such as the United States of America and Canada, where the responsibilities of government are shared between multiple levels of government. Each of these governments, and each of their agencies and authorities, would be a foreign government body for the purposes of section 155AAA.

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Information includes information in a document and information given in evidence. Subsection (4)(1) provides that a document includes a book, plan, paper, parchment or other material on which there is writing or printing, or on which there are marks, symbols or perforations having a meaning for persons qualified to interpret them; and a disc, tape, paper or other device from which sounds or messages are capable of being reproduced. The term evidence includes evidence provided pursuant to section 155.

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Protected information means:

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Information that was given in confidence to the Commission and that relates to a matter arising under a core statutory provision.

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Information that was obtained by the Commission under Part XID or section 155 where that information relates to a matter arising under a core statutory provision.

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Information that was obtained by the Commission under section 151AU, 152AU, 152BT, 152BZ, 152CBB, or 152CBH or rules in force under section 151BU, and that relates to a matter arising under Part XIB or XIC;

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Information that was obtained by the Commission under section 118C or 118G of the Radiocommunications Act 1992 (the Radiocommunications Act). Sections 118C and 118G of the Radiocommunications Act relate to further information requested by the Commission about access undertakings, and variations of access undertakings, respectively. This information was previously deemed to be protected part XIB or XIC information for the purposes of section 155AB; and

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Information that was given in confidence to the Commission by a foreign government body and that relates to a matter arising under a provision of a law of a foreign country or of a part of a foreign country.

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For the purposes of this definition, it is immaterial whether the information was given to or obtained by the Commission before, at or after the commencement of section 155AAA.

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Royal Commission has the same meaning as in the Royal Commissions Act 1902 (RC Act). Subsection 1B(1) of the RC Act defines Royal Commission to mean any Commission of inquiry issued by the Governor-General by Letters Patent in pursuance of the RC Act or of any other power, and includes the members of the Commission, or a quorum thereof, or the sole Commissioner, sitting for the purposes of the inquiry. The definition has the effect of limiting the meaning of Royal Commission for the purposes of subsection 155AAA(9). In particular, the term does not extend to a commission of inquiry issued by the Governor of a state by letters patent or other inquiries.

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State/Territory government body means the government of a State or Territory; or an agency or authority of a State or Territory. Subsection 4(1) defines the terms Territory and authority, in relation to a State or Territory (including an external Territory), for the purposes of the TP Act. The term Territory is defined as meaning an internal Territory, the Territory of Christmas Island; or the territory of Cocos (Keeling) Islands. The term authority, in relation to a state or Territory (including an external Territory) is defined as meaning a body corporate established for a purpose of the State or the Territory by or under a law of the State or Territory; or an incorporated company in which such a body corporate, or the State or the Territory, has a controlling interest.

Items [1] to [2] and [9] - Consequential amendments to the Radiocommunications Act 1992 and the Trade Practices Act 1974

5.108 The Bill contains consequential amendments to section 155AB of the TP Act and subsections 118C(6) and 188G(6) of the Radiocommunications Act. The consequential amendments avoid duplication in the protection of information which would otherwise be protected by both sections 155AB and 155AAA.

Item [1] - Subsection 118C(6)

5.109 Item [1] repeals subsection 118C(6) of the Radiocommunications Act. That subsection deemed information obtained by the Commission under section 118C of the Radiocommunications Act to be protected part XIB or XIC information for the purposes of section 155AB. The subsection is redundant following the repeal of section 155AB and the enactment of section 155AAA which protects information obtained by the Commission pursuant to section 118C.

Item [2] - Subsection 118G(6)

5.110 Item [2] repeals subsection 118G(6) of the Radiocommunications Act. That subsection deemed information obtained by the Commission under section 118G of the Radiocommunications Act to be protected part XIB or XIC information for the purposes of section 155AB. The subsection is redundant following the repeal of section 155AB and the enactment of section 155AAA which protects information obtained by the Commission pursuant to section 118G.

Item [9] - Section 155AB

5.111 Item [9] repeals section 155AB. That section governed protected telecommunications and radiocommunications information gathered by the Commission. The section is repealed in order to avoid duplication in the protection of what was pursuant to section 155AB 'protected Parts XIB or XIC information'. That information is now protected pursuant to section 155AAA.

Items [4] to [8] - Section 155AA

5.112 The Schedule also contains consequential amendments to section 155AA. These amendments avoid duplication, and ensure consistency, between section 155AAA and section 155AA.

Item [4] - Subsection 155AA(1)

5.113 Item [4] removes 'protected Part IV information' from the prohibition on disclosure contained in section 155AA(1) to avoid duplication. That information is now subject to section 155AAA.

Item [5] - Paragraph 155AA(1)(b)

5.114 Item [5] inserts the words 'or permitted' after the word 'required' in paragraph 155AA(1)(b). This amendments ensures consistency between the language used in paragraph 155AA(1)(b) and the language used in new paragraph 155AAA(1)(b).

Item [6] - Subsection 155AA(2)

5.115 Item [6] replaces the reference to 'paragraph 1(a)' in subsection 155AA(2) with a reference to 'Subsection (1)'. This amendment is related to the amendment made by item [5]. It ensures, among other things, that a Commission official cannot rely upon section 28 as permitting them to disclose protected part VB information pursuant to subsection 155AA(1)(b).

Item [7] - Subsection 155AA(2)

5.116 Item [7] removes 'protected Part IV information' from subsection 155AA(2). The term is no longer required as 'protected IV information' is no longer protected by section 155AA.

Item [8] - Subsection 155AA(3) (definition of protected Part IV information)

5.117 Item [8] repeals the definition of 'protected Part IV information' contained in subsection 155AA(3). That definition is no longer required as protected part IV information is no longer protected by section 155AA.