Infratil and Alliant were parties to an investment agreement making them “associates” for the purposes of the Code. However the Panel was concerned, on the basis of the evidence, that all four major shareholders may have been associated with each other and with TrustPower in respect of the increased voting control being sought by TECT, Infratil and Alliant.

The four major shareholders offered to give the Panel enforceable undertakings under section 31T of the Act that they would not exercise their voting rights at TrustPower’s meeting. The Panel accepted these undertakings as an efficient way to deal with its concerns while allowing the buyback transaction to proceed in accordance with its contractual timetable.

Future buyback offers
This was the first time the Panel had intervened in a buyback transaction carried out under the buyback class exemption. The Panel’s determination settled the procedure for buyback offers involving shareholder approval under the buyback class exemption. The shareholder meeting to approve the potential increases in voting control must be held before the buyback offer is made to shareholders. Shareholders who wish to increase their control percentages must disclose their intention before the meeting takes place. This enables the notice of meeting and the independent adviser’s report to be prepared on a proper basis.

The need for the type of exemption granted to TrustPower should not arise in the future.

Rule 6(2) – Associates

DESIGNER TEXTILES (NZ) LIMITED – GOULD HOLDINGS LIMITED

Rule 6(2) has provisions designed to ensure that the fundamental rule is not defeated by the manner in which company shareholdings are structured.

Designer Textiles (N.Z.) Limited (DTL) is a Code company. Its major shareholder is Gould Holdings Limited (GHL), an investment company controlled by Mr George Gould, with a 24.69% stake.

Mr Gould has had a long association with the Rutherford family. In the latter part of 2002 the members of the Rutherford family sold their investment company, Amuri Securities Limited (ASL) to GHL in exchange for shares and convertible notes in GHL. After Mr Gould had subscribed some additional capital in GHL the Rutherford family held 21.24% of GHL while Mr Gould, through a separate company Gould Investments Limited (GIL), held 78.76%.

The Panel was concerned that the Rutherford family interests may have joined Mr Gould in “holding or controlling” GHL’s 24.69% stake in DTL in breach of the Code. The issue was the effect of rule 6(2)(b) which states that if:

(b) a person or persons together hold or control voting rights and another person joins that person or all or any of those persons in the holding or controlling of those voting rights as associates, the other person is deemed to have become the holder or controller of those voting rights:

To come within rule 6(2)(b) the Rutherfords first had to have joined Mr Gould/GIL in the control of GHL and therefore the control of GHL’s shareholding in DTL.

The Panel examined the relationship between the Rutherford family and Mr Gould to decide whether the Rutherfords may have joined Mr Gould/GIL in controlling GHL. Of particular note to the Panel were:

• the Rutherfords had no board representation on GHL;

• the Rutherfords acquired their interest in GHL accepting that they had no right to influence Mr Gould’s control of that company; and
• there was no shareholder agreement to provide the Rutherfords with any control in the decision-making process of GHL.

The Panel accepted that the Rutherford family had not joined Mr Gould/GIL in the controlling of GHL’s 24.69% holding in DTL. The Panel noted that it would be unusual for an investment of 21.24% to be made in a closely-held company on an entirely “sleeping partner” basis with no checks and balances on the conduct of that company. However, in this case the evidence indicated that

• Mr Gould was intent on retaining control of GHL; and
• the Rutherford family bought their shares in GHL accepting that they had no rights to influence GHL’s governance, either in controlling the votes in DTL, or otherwise.

The second part of rule 6(2)(b) requires that parties are joined in the holding or controlling of the voting rights as associates. As the Panel determined the requirements of the first part of rule 6(2)(b) had not been met, there was no need to consider whether the Rutherfords and Mr Gould/GIL were associates.

Associates – Aggregation of Holdings

DESIGNER TEXTILES (N.Z.) LIMITED - RUTHERFORD FAMILY

The question of association between the Rutherford family and Mr Gould did arise in connection with various acquisitions of shares in DTL itself by members of the family.

Several family members had acquired direct investments in DTL and by February 2003 these holdings amounted to some 8.8% of the total voting rights in DTL. They were in addition to the 24.69% held by GHL.

The issue was that if the Rutherford family were associates of Mr Gould or GIL at the time they had acquired these parcels of shares then the acquisitions would have been in breach of the Code.

The Code defines “associate” in rule 4 as follows:

For the purposes of this code, a person is an associate of another person if—

(a)

the persons are acting jointly or in concert; or

(b)

the first person acts, or is accustomed to act, in accordance with the wishes of the other person; or

(c)

the persons are related companies; or

(d)

the persons have a business relationship, personal