Limited Partnerships and Control of Code Company Voting Rights

Published 1 February 2012

The Panel is aware that New Zealand and overseas limited partnerships are increasingly being used in New Zealand as investment vehicles. Limited partnerships are of course subject to the Takeovers Code when they acquire shares in Code companies. The Panel has considered the position of general partners and limited partners in limited partnerships in respect of the Code.

The Panel’s view is that general partners and limited partners are likely to be associates of the limited partnership for the purposes of the Code. This means that the fundamental rule may apply if Code company voting rights are held or controlled by a limited partnership and its general and limited partners. If the limited partnership holds 20% or more of the voting rights in a Code company, then the partners (or their associated persons or entities) would likely need to comply with the Code if they wanted to acquire further shares in that Code company.

Further, the Panel considers that, while it is the limited partnership that   shares in a Code company, for the purposes of the Code the general partner and potentially the limited partners control the voting rights attached to those shares.

The Panel’s view is that it is likely that limited partners will control (or share in the control of) voting rights when:

(a) the same person or entity controls, or persons or entities control, the general partner and the limited partners;

(b) there is a small number of limited partners;

(c) as a matter of fact limited partners participate in the management and control of the limited partnership.[1]

This means that the transfer or issue of limited partnership interests in a limited partnership that holds shares in a Code company could have Code implications. The Panel has previously published guidance on “upstream” control issues in CodeWord 7 (which focuses on associates) and CodeWord 27 (which focuses on upstream acquisitions).

Footnotes:

[1] The Panel acknowledges the Schedule to the Limited Partnerships Act 2008 (Activities that do not constitute taking part in management of limited partnership), but notes that these safe harbour activities do not necessarily apply to the concept of “control” for the purposes of the Code. It is the Panel’s view that activities that do not constitute management of a limited partnership for the purposes of the Limited Partnerships Act may nevertheless constitute control for the purpose of the Code.