• Functions and Powers of the Panel
• Chairman's Review
• Members of the Panel
• The Panel's Performance in 2006/2007
• Other Matters
• Financial Report 2007
• Statement of Service Performance
• Audit Report
• Executive of the Takeovers Panel
• How to Contact Us

Annual Report 2007

Chairman's Review

John King

John King retired as Chairman in March 2007 after 16 years of involvement with the regulation of takeovers. John had a key role from the initial Panel set up in 1991, through the development and drafting of the Code, the reactivation of the Panel in 2000 and the introduction of the Code in 2001. He chaired the Panel through almost six years of operation during which time the Code was tried and tested, and proved its worth. Takeovers in the New Zealand market now take place in an orderly way and shareholders are kept well informed of, and involved in, the takeover process. We are grateful to him for his foresight, his leadership, and his determination to see the Code in force and accepted by the market.

The change of Chairman does not herald major change. The manner in which the Code is applied and its provisions are interpreted is largely settled. The market understands the Code and the Panel's approach to interpretation and enforcement well. We recognise the importance to the market of maintaining consistency in this approach.

DAVID JONES
CHAIRMAN

That is not to say that there will not be changes in the future. Commerce and the takeovers market is a dynamic environment where change is a part of the landscape. In the face of change the Code will be tested and the Panel may need to respond. Any response will be made in a manner consistent with the objectives underlying the Code and, to the extent possible, in consultation with the market. The Panel will continue to work with the market as it has always done. It prides itself on providing certainty and, subject to the legal limitations of the Act and the Code, will always strive for sensible commercial outcomes.

Changes to legislation

The Takeovers Amendment Act, passed in October 2006, amended the Act and Code in a number of areas.

Code company definitions

Under the new definitions the Code applies to companies with listed securities that confer voting rights and to companies of that type that have been listed on the exchange in the preceding 12 months. Companies with only non-voting securities quoted on the NZDX, some of which are wholly-owned subsidiaries of overseas companies, are no longer code companies.

The asset threshold has been removed for unlisted companies so the Code now applies to every company with 50 or more shareholders. Consequently some companies which were code companies are no longer subject to the Code, and some small non-listed companies that were not subject to the Code now come under its jurisdiction.

Panel's enforcement powers

The new legislation gives the Panel power to make permanent compliance orders. The permanent orders give the Panel power to deal decisively with any kind of misleading conduct including misleading or deceptive, or otherwise defective, takeover documents. The orders enable the Panel (without recourse to the Courts) to prohibit or restrict persons from making statements or distributing documents, and to direct those persons to disclose information or to publish, at their own expense, corrective statements. The Panel can make restraining orders and compliance orders against the principal party to a breach of an exemption as well a breach of the Code itself, and also against any person with a secondary involvement in the breach.

Civil remedies and penalties

The new regime includes new pecuniary penalties as well as a power for the High Court to make compensatory orders which may be awarded to a person for loss or damage caused by a contravention of the Code. The fines for general offences under the Act are increased. In addition, the Court can make management banning orders against persons convicted of misleading the Panel or of making or disseminating materially false or misleading statements or information. Company directors who persistently contravene the Act or Code, the Companies Act, the Securities Markets Act or the Securities Act may also be subject to management banning orders.

Misleading conduct

The law on misleading conduct relating to takeovers has been passed and is awaiting regulations to be settled before coming into effect later in 2007. The new rule 64 of the Code effectively imports section 9 of the Fair Trading Act 1986 into the Code. This will enable the Panel to take action in respect of any misleading conduct relating to takeovers. Currently the Panel can only deal with misleading conduct in takeover documents. Misleading conduct includes a failure to observe "last and final statements" such as extending an offer period after a statement that the offer period will not be extended, raising the offer price after a statement that the price will not be raised, and making a second offer after the first offer is represented as being the only offer that will be made. The Panel is developing policies for enforcing the new rule 64 and will take into account policies in Australia where 'truth in takeovers' has received considerable attention.

Technical amendments to the Code

The technical amendments to the Code came into force on 1 July 2007. These address a large number of issues that arose in the first years of operation of the Code. They improve efficiency in some areas, address drafting anomalies that became apparent during the early years of operation of the Code, and clarify some rights and obligations of parties to takeovers.

Amalgamations and schemes of arrangement

A significant policy issue confronting the Panel continues to be amalgamations and schemes of arrangement under Parts 13 and 15 of the Companies Act which involve code companies. The Panel's concern has been the use of these mechanisms to achieve a similar outcome to a takeover offer made under the Takeovers Code, viz control changes of code companies but without affording to shareholders the same protections they would have under the Code. This was raised as a matter of urgency by John King in his Chairman's Review in last year's annual report.

In October and November 2006 the Panel was involved in proceedings in the High Court and the Court of Appeal over a scheme of arrangement promoted by the Dominion Funds Group of companies. The scheme included the amalgamation of three companies. Under the scheme (based on the Court's initial orders) the amalgamations could have been approved by a small number of shareholders in each company.

The Panel believed the scheme should require the support of the holders of a majority of the voting rights in each company. The Panel applied to the High Court for leave to be heard as to the adequacy of the initial orders relating to the process to be followed, submitting that the Court should amend its earlier initial orders to include this additional voting requirement. The Court granted the orders sought by the Panel.

However, the Court of Appeal reversed the order made by the High Court. The main reason was a practical concern that the scheme could receive overwhelming approval from those shareholders who vote on it, but fail to secure support from the holders of a majority of the voting rights in each amalgamating company. The Court considered this to be an orthodox amalgamation and not a device to avoid the Code. Under new orders made by the High Court, and modified by the Court of Appeal, the Panel was advised of the outcome of the shareholder vote on the scheme shortly after voting was concluded. It then had two business days to apply to be heard when the High Court considered the final approval of the scheme. When the shareholder vote was analysed, it was clear that a majority of the holders of voting rights in each company supported the amalgamation. The Panel therefore decided it did not need to be heard at the final High Court approval of the scheme and advised the Court accordingly.

The Panel will continue to seek to be heard on schemes of arrangement involving code companies when appropriate.

In August 2006, after wide public consultation, the Panel recommended to the Minister of Commerce changes to the law relating to schemes and amalgamations under the Companies Act. At the same time, the Panel made submissions to the Parliamentary Select Committee considering the 2006 Business Law Reform Bill. However, the Panel's recommendations could not be included in the 2006 Bill. Subsequently the Minister asked the Panel to look at the issue of schemes and amalgamations again. She asked that the Panel develop proposals using the Regulatory Impact Analysis framework and provide a Regulatory Impact Statement with its recommendations. A consultation document will be released soon. When submissions have been considered the Panel will report to the Minister.

Appreciation

I would like to thank Alastair Lawrence for taking the role of Deputy Chairman, and welcome the new members of the Panel - Pip Greenwood, Keith Taylor and John Waller. Thanks go also to all members who served on the Panel this year including Denis Byrne, Anthony Frankham and Daphne Rawstorne who have now left the Panel. The contribution of these retiring members has been valuable to the Panel, and is much appreciated. I would also like to record my appreciation, and that of all Panel members, for the highly professional work and commitment of Senior Executive Officer, Kerry Morrell, and his staff.

D O Jones
Chairman