Law Changes Under Regulatory Reform Bill 2010 Move Forward

Published 1 September 2011

In June 2008, the Panel recommended to the Minister of Commerce that minor amendments be made to the Takeovers Act. These amendments will be made when the Regulatory Reform Bill 2010 is enacted.

This article provides a brief overview of the amendments to the Act that will come into force when the Bill is enacted as well as an update on the passage of the Bill.

Overview of amendments

The changes to the Takeovers Act contained in the Bill largely relate to the definition in the Act of a “Code company”.

Definition of a “Code company” — Clarifying “50 or more shareholders”

The Act currently defines a “Code company” as including companies that have “50 or more shareholders”. The issue is whether each individual shareholder named on the company’s share register should be counted as a shareholder, or whether the number of share parcels that are held by shareholders should be counted. These different approaches can result in different figures because some share parcels are held by more than one person.

After the Bill is enacted, the Act will define a “Code company” as including companies that have “50 or more shareholders and 50 or more share parcels”. This amendment will reduce the scope of the Code and result in the Code compliance burdens (but also the shareholder protections) residing with only larger companies.

Definition of a “Code company” — Start with the Code, finish with the Code

The question has been raised whether the Code still applies if a company no longer meets the “Code company” definition of having “50 or more shareholders” midway through a Code regulated transaction or event. An example of where this question might arise is in relation to the requirements for compulsory acquisition, where a shareholder becomes the “dominant owner” by becoming the holder or controller of 90% (or more) of the voting rights in a Code company. There may be fewer than 50 shareholders left at the time the 90% threshold is reached.

After the Bill is enacted, the Act will clarify that a company that is a Code company by virtue of having “50 or more shareholders and 50 or more share parcels” remains a Code company for the purposes of Part 7 of the Code[1] even if it ceases to have 50 or more shareholders and 50 or more share parcels as a result of a transaction or event that is regulated by the Code.

The amendment will provide certainty about the rights and obligations that continue in force for a transaction, and that the Panel retains regulatory oversight of transactions that begin under the Code.

Definition of a “Code company” — shareholders holding voting securities

In 2006, the Takeovers Act was amended to remove NZX debt-listed only companies from the purview of the Code. This was on the basis that the Code is concerned with voting rights. However, there are unlisted companies that have large numbers of shareholders whose shares do not confer voting rights,[2] but that have fewer than 50 shareholders who do have voting rights.

After the Bill is enacted, the Code will apply more evenly as between listed and unlisted companies, because a definition of “shareholder” will be added for the purposes of interpreting “50 or more shareholders”. The new definition defines a “shareholder” as “a shareholder holding a security that confers a voting right”.

By stipulating that the Code applies to shareholders with voting rights, the amendment will reduce the scope of the Code to its intended sphere, and will correspondingly reduce the compliance costs for businesses that are no longer subject to the Code.

Panel procedures

The Takeovers Act does not presently allow divisions of the Panel to make decisions by written resolution. After the Bill is enacted, divisions of the Panel will be able to pass resolutions in writing. The amendment will allow the Panel to be more operationally efficient.

Progress of Panel’s recommendations into law

On 26 July 2011, the Bill was reported back by the Commerce Select Committee. The Bill is on the Parliamentary Order Paper, awaiting its second reading, and most of the Bill will come into force on the day after the date it is given the Royal Assent.

Footnotes: 

[1] Part 7 of the Code deals with compulsory acquisitions under the Code.

[2] Under the Code, a voting right is defined as a currently exercisable right to cast a vote at meetings of shareholders of a company (excluding certain limited voting rights)