Part I - Policy Justification for Disclosure of Substantial Security Holders
17. Most international jurisdictions require persons or entities holding significant holdings of shares to report these holdings to the market. The rationale behind such legislation is to ensure that public issuers and the market are kept informed as to the ownership of significant holdings and the control of shares in a company. It is also intended to act as a deterrent to insider trading and other market manipulation by making transparent any significant transactions by these shareholders.
18. In New Zealand the law relating to disclosure by substantial security holders is found in Part II of the Securities Amendment Act 1988.
19. When the Amendment Act was debated in Parliament, the Minister of Justice, the Right Honourable Geoffrey Palmer, stated that one of the purposes of the regime was to ensure that participants in the market have equal access to price sensitive information. This included information about the identity of persons who were entitled to exercise, or control the exercise, of significant voting rights in a public company.2 He noted that a disclosure regime would ensure that the public market remains what it is intended to be, which is a market to which members of the public have access as participants.
20. In Brook Investments Ltd (in vol liq) v Paladin Ltd Sinclair J stated that the purpose of the substantial security holder regime was to:
ensure that a public issuer, its members, the Stock Exchange and the investing public at large are kept informed as to the ownership of voting securities in a public issuer and as to the identity of those who are, or may be, in a position to control the company. In particular it is aimed at restricting secret dealing in shares for a takeover advantage.3
21. The rationale given in Australia for provisions that require substantial security holder disclosure is that holders, directors and the market are provided with sufficient information to enable them:
- to identify the controllers of substantial blocks of voting shares;
- to identify the associates of those substantial security holders;
- to know the details of any special benefits a person may have received for disposing of their interest; and
- to know the details of any agreements or special conditions or restrictions which may affect the disposal of shares or the way in which they are voted.4
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