Schemes of Arrangement & Inconsistencies Between the Code & the Companies Act

The Panel has released a discussion paper on proposed changes to its policy on the use of its exemption powers to enable changes of control of Code companies using schemes of arrangement under Part XV of the Companies Act 1993.

The paper also discusses the relationship between the Code and the Companies Act in respect of schemes of arrangement.

The Panel has watched with interest the proposed amalgamation of Waste Management NZ Limited and Transpacifi c Industries Group Limited under Part XIII of the Companies Act. This use of the amalgamation provisions in the Companies Act raises similar concerns to those raised in the Panel’s discussion paper on schemes of arrangement.

The Panel will carefully consider the issues arising out of the relationship between Parts XIII and XV of the Companies Act and the Takeovers Code as part of its function to keep the law relating to takeovers of Code companies under review.

Misleading the Panel

The Panel is concerned about incompleteness and lack of accuracy in some information it receives. These shortcomings occur both in complaints about the behaviour or actions of others and in exemption applications.

The Panel has powers which can influence the outcome of a takeover. Among the most important are powers enabling the Panel to investigate and take action on suspected breaches of the Code (section 32 of the Takeovers Act) and powers to grant exemptions from the Code (section 45 of the Act).

The Panel can take enforcement action in various ways and for a number of different reasons.

The Panel may take action on its own initiative, or may act on a complaint from a party to a takeover or potential takeover against the actions or suspected actions of another party. A party can complain to the Panel through either:

• a letter describing the alleged breach of the Code by the other party, and asking the Panel to investigate the matter; or
• a formal request under section 35 of the Act that the Panel convene a meeting under section 32 to determine the matter.

The Panel takes all complaints seriously. It expects complainants to give full and frank disclosure of their position in, or

relationship to, the person or activity complained of. If the complainant’s own behaviour or actions are material to the resolution of the complaint then the Panel expects complete disclosure of any relevant behaviour or actions.

It is a serious matter for the Panel to intervene in the market. It has strong statutory powers including power to:

• issue restraining orders;
• obtain documents under summons; and
• compel people by summons to attend its meetings and answer questions put to them (generally on oath).

When the Panel initiates an investigation or inquiry, on its own account or in response to a complaint, the investigation or inquiry has the potential to impose considerable costs on the party that is its subject. It may also disturb and disrupt the market.

Some complaints are made for tactical purposes. Whatever the purpose, the complainant should take care to disclose all relevant facts to the Panel, even if some of those facts do not assist the complaint. Failure to provide such information is likely to be considered by the Panel as game-playing at best. At worst the Panel may conclude it has been intentionally misled.

The same disclosure requirements apply to applications for Panel exemptions. During a takeover a Panel exemption may affect the rights of parties in significant and different ways. It is therefore vital that the Panel knows all the relevant facts and circumstances when deciding whether to grant an exemption and, if an exemption is granted, on what terms.

The Panel believes that some applicants for exemptions have not provided full and complete information in their applications. For example, exemptions may be sought for particular aspects of a transaction when other aspects of the transaction, also requiring a Panel exemption, are not disclosed when the first exemption is sought. Sometimes the likely outcomes of certain events are exaggerated for effect.

Under section 44 of the Act it is a criminal offence to furnish information or produce a document to, or give evidence at a meeting of, the Panel knowing it to be false or misleading, or to attempt to deceive or knowingly mislead the Panel in relation to any matter before it. This reflects the statutory nature of the Panel’s processes, and underscores the importance of making full and frank disclosure to the Panel in all matters.

It is important for the efficient operation of the takeovers market that participants always fulfil their responsibility to provide complete and accurate information to the Panel.