Changes to the penalties and remedies available under the Takeovers Act

Published 1 November 2006

The powers of the High Court under the Takeovers Act for providing civil remedies for contraventions of the Code and also in relation to penalties and offences have been completely overhauled.

Civil Remedies and Penalties

The new civil remedies regime includes not only the orders that could formerly be sought from the Court (e.g., orders to prevent transfers or disposals of securities, or for forfeiture, or preventing the exercise of voting rights, etc) but also now includes new compensatory orders which may be awarded to a person who has suffered or is likely to suffer loss or damage because of a contravention of the Code. Compensatory orders are made to compensate an aggrieved person in whole or in part for loss or damage suffered as a result of a contravention of the Code or are made to prevent or reduce loss or damage.

A new pecuniary penalties regime through the High Court has also been included in the Act. The maximum amount of a pecuniary penalty is $500,000 for an individual and $5,000,000 for a body corporate, for each contravention of the Code. Pecuniary penalties are paid to the Crown.

Only the Panel has standing to make an application for a pecuniary penalty order. It can make such an application if it has held a meeting under section 32 of the Takeovers Act and has made a determination that it is not satisfied that a person has acted or is acting or intends to act in compliance with the Takeovers Code.

On an application for a pecuniary penalty, if the Court determines that there has been a contravention of the Code, the Court must make a declaration of contravention. The declaration of contravention must be made regardless of whether or not the Court also orders that the person who contravened the Code pay a pecuniary penalty. The purpose of a declaration of contravention is to enable an applicant for a civil remedy order or a compensatory order to rely on the declaration of contravention and not be required, for their civil action, to prove the contravention.

Offences and Orders

The fines for general offences under section 44 of the Act (for example for misleading or attempting to mislead the Panel or for contravening orders made by the Panel) have been increased from the original range of $10,000 - $30,000 for individuals and $100,000 for companies, to $300,000 whether the offence is committed by an individual or a company. A fine of up to $10,000 per day for continuing offences may also be imposed.

In addition to the penalties and remedies mentioned above, the Court now may also make management banning orders against persons convicted of an offence under section 44 of the Act (for misleading the Panel, etc) or under section 44C (for making or disseminating materially false or misleading statements or information - when this section comes into effect).

Company directors who persistently contravene the Takeovers Act or Code, the Companies Act, the Securities Markets Act or the Securities Act may also be subject to management banning orders. Consequently, even though a director’s persistent contraventions may never have resulted in a criminal prosecution, a management banning order may nevertheless be made against him or her.

These banning orders can prohibit or restrict the person from being a director or promoter or in any way taking part in the management of companies in New Zealand for a period of up to 10 years.

If a criminal conviction for an offence under sections 44 or 44C of the Takeovers Act has been made against a company director, or a pecuniary penalty order has been made against him or her, that director is automatically banned for 5 years (except with the leave of the Court) from any involvement in the management of New Zealand companies.

The High Court also now has power to make orders aimed at preserving the assets of a person in respect of whom an investigation is being carried out by the Panel or where a prosecution or civil proceeding has been begun in respect of that person. These orders include the ability to require the subject person to deliver up their passport, and are broad enough to cover property held in trust. When an application is made to the Court for an order to preserve assets, interim orders preserving assets may be made pending the hearing of the substantive application.