Lawyers, bankers at risk under new share trading law

New legislation on trading shares and the operation of securities markets will expose financial advisers, investment bankers and lawyers to the risk of breaking the law and criminal penalties, a leading Wellington law firm says.

Bell Gully partners Roger Partridge and David Cooper have written to the Ministry of Economic Development warning that unless a number of problems are tackled, "the Securities Markets Act will be unworkable in a number of important respects".

"This will expose innocent market participants to the risk of serious criminal sanctions. That is not in the interests of the efficient operation of New Zealand's capital markets," they said.

Bell Gully said it was leading a concerted effort to ensure the issue was addressed before the Act was passed.

It said certain key defences in takeovers and disclosure of information were available to a company preparing to make a takeover bid and a company which was the target of a bid but were not available to agents or professional advisers of companies acting through them or on their advice.

Most of these transactions were carried out with advice from such concerns as investment banks and corporate lawyers.

These issues were not addressed in the revised bill.

"It could effectively preclude the role of corporate finance advisers in takeovers and other capital market transactions and will frustrate in a fundamental way those operations," Bell Gully said.

Mr Partridge said the law firm had discussed the issues with all the major investment banks.

"They all share our views," Mr Partridge said. At least one of the investment banks had written to the Minister of Commerce and others were likely to.

The other major corporate law firms also shared Bell Gully's view, he said.

The bill had completed the select committee process and been revised, but it was not impossible for it to be amended now before it was finally passed.

An amendment could be moved from the floor of Parliament to change the bill, which was unlikely to be passed before Parliament was dissolved before the election.

Mr Partridge said he expected to talk to the new minister of commerce after the election.

In a takeover, an intending bidder undertook "due diligence" and the target company's board might provide confidential information to the bidder.

The new law criminalised insider trading and potentially criminalised the conduct of the target company board in disclosing the information to the bidder and the bidder going ahead with a takeover offer if they had potentially insider information.

So the bill provided a defence allowing the target company to disclose the confidential information to the bidder and the bidder to act on it and make a takeover offer, Mr Partridge said.

Bidders were generally companies acting with advice from corporate financiers, lawyers and accountants. But the bill did not provide for the confidential information to be disclosed to advisers who were usually the ones that pored over the information.

As the bill stood, the advisers would commit a crime in recommending the bidder make a bid on the strength of the information disclosed by a target company, Mr Partridge said.

The advisers needed to be protected.

- nzpa