'Perry provisions' on equity swaps dropped

The so-called Perry provisions, added to the Securities Legislation Bill after a widely publicised court case between Guinness Peat Group and Perry Corporation, have been removed.

In its report to Parliament last week, the Commerce Select Committee recommended dumping the Ministry of Economic Development's attempt to regulate hedging strategies around equity swaps - devices that expose an investor to the performance of a stock without a purchase of shares.

Roger Wallis, a Chapman Tripp partner specialising in securities law, said cutting the Perry provisions was a move that would be welcomed by banks and other financial institutions because it preserved the status quo and provided certainty.

Chapman Tripp's submission to the select committee warned the changes would not be effective because there was no standard practice for hedging swaps. The provisions would have created uncertainty as there are numerous ways of hedging swaps.

"If you want to regulate equity swaps, then draw up a regime that regulates equity swaps spelling out which swaps need disclosure and which ones don't," Wallis said.

In July 2002 GPG made an overnight raid on forestry firm Rubicon's share register taking a 19.8 per cent stake. Perry emerged as a second major shareholder with 16 per cent after unwinding equity swaps with Deutsche Bank and UBS Warburg and buying back shares.

GPG sued Perry, claiming it had illegally concealed a shareholding in Rubicon through an arrangement to warehouse shares via the two investment banks.

Securities law requires holdings in listed companies of more than 5 per cent to be disclosed to the stock exchange.

A GPG win in the High Court was overturned by the Court of Appeal and the Privy Council rejected GPG's plea for the right to appeal.

The select committee says the deficiency exposed in the law by the GPG versus Perry litigation was "fact specific" to that case.