NZX has released a consultation paper proposing amendments to the NZX Listing Rules and Corporate Governance Code to create a tiered compliance framework small to medium enterprise issuers (SME Issuers). The proposals follow an OECD recommendation to develop lighter listing requirements for growth companies in New Zealand.
Under the proposals, issuers with an average market capitalisation of $125 million or less could voluntarily elect SME Issuer status. Qualifying issuers would be subject to reduced compliance obligations and designated as “SME”, with a prescribed warning statement required in announcements and annual reports.
Objectives
The objectives of the review are to ensure that:
- SME Issuers are subject to regulatory settings that are proportionate to their size and scale, and provide sufficient flexibility to enable growth and innovation for New Zealand’s capital markets; and
- suitable governance and regulatory protections exist for investors and other stakeholders to have confidence that NZX’s markets operate in a fair, orderly and transparent manner, including because there is appropriate visibility of the differential obligations that apply to SME Issuers.
Key proposed changes
Governance
SME Issuers would need only one independent director and one resident director (rather than two of each) and would not be required to have an Audit Committee. Reporting against the Corporate Governance Code would shift from “comply or explain” to “apply and disclose” (meaning that an SME Issuer would not be required to explain the reasons for adopting alternative corporate governance practices where it has not adopted a Code recommendation, but would simply be required to state whether or not it had adopted a Code recommendation).
Capital raising
Placement capacity would increase from 15% to 25%, and share purchase plan thresholds from 10% to 30% (albeit with a reduction in the per holder participation limit from $50,000 to $20,000).
Related party transactions
A “pre-break” announcement regime would allow SME Issuers to proceed with material related party transactions without shareholder approval, unless 5% of shareholders requisition a meeting within 10 business days of the announcement of the transaction.
Disclosure
Reporting timeframes would be extended, with results announcements due within 75 days (rather than 60) and annual reports within four months (rather than three).
Other changes proposed
NZX is also proposing changes for all issuers (not limited to SME Issuers), including increasing the de minimis related party transaction threshold from $250,000 to $500,000 (which has not been revised in 20 years), as well as requiring issuers to look through all custodial holdings (not just the holdings held by New Zealand Central Securities Depository Limited) when calculating the 20 largest shareholders for the purposes of annual report disclosures.
Russell McVeagh supports the objective of the consultation and proposed changes to regulatory settings for smaller and growth issuers, as we commonly hear from listed and prospective listed clients that the "one-size-fits-all" approach to issuer regulation is not always appropriate and can be a barrier to growth and attracting new listings to New Zealand's public markets.
A link to the Consultation Paper, as well as the Exposure Draft of the NZX Listing Rules, Corporate Governance Code and Guidance note can be found here.