Dominion Income and PF31 were code companies, having assets of more than $20 million and more than 50 shareholders. Newmarket became a code company on 25 October 2006 when the $20 million minimum asset threshold was removed from the definition of code company (through the Takeovers Amendment Act 2006).

Each of the three amalgamating companies had three forms of issued securities: Group A shares, Group B shares and debentures.

Group A shares are ordinary voting shares. These shares can be voted on all company resolutions but holders only have the right to appoint one director, who must be part of the Money Managers Investment Review Panel. (In each case the appointee has been Mr Douglas Lloyd Somers- Edgar.)

Group B shares are all issued to the directors of the manager, that is, Dominion Funds. Holders of Group B shares have the right to appoint the remaining three directors of each company, but do not share in any distributions by the companies. The other directors of each company are Alastair Burkitt Hasell, Ian Crayley Hasell and Paul John Duffy.

Debentures are debt securities “stapled” to the Group A shares and do not carry voting rights.

Each amalgamating company has a widely spread shareholding with no individual shareholder in any company having more than 2% - 3% of the voting rights. When the Panel became aware of the amalgamation the High Court in Auckland had already made orders under s236 of the Companies Act (applied for by the Dominion Group) which established the basis on which the amalgamation proposal was to be put to the shareholders of each company for their approval.

In essence these initial orders said that the scheme required approval by special resolution (75% of each class of shareholder of each company entitled to vote and voting). Voting was to be by postal ballot. The Court dispensed with the requirement for a meeting of shareholders of each company and with the requirement for a minimum quorum of voters, although quorum in each company's constitution - two voters - was very modest anyway. The Court also ordered that a minority buy-out right should not apply in this case. A minority buy-out under the Companies Act allows shareholders who vote against the proposal to be bought out of their holding for a fair and reasonable cash sum. This requirement is an integral feature of an amalgamation under Part 13 of the Companies Act i.e. where there is no court involvement.
THE PANEL'S FIRST ACTION IN THE HIGH COURT IN AUCKLAND

The Panel was concerned that the initial Court orders could result in the scheme being approved by a small number of shareholders because the 75% majority relates only to shareholders who vote on the proposal. For example, if only 10% of the total voting rights were exercised, the proposal could proceed with the support of only 7.5% of the total voting rights.

No single shareholder would move to a voting position which might have a control consequence in respect of the continuing or surviving company (in the sense that any single holder would have over 20% of the voting rights in the surviving company (Dominion Income)) but the collective group of PF31 shareholders would have only 24.1% of the voting power in Dominion Income, and Newmarket shareholders would have only 6.5% of the voting power.

The Panel decided to ask the High Court to amend its initial orders so that the amalgamation required the approval of 75% of those eligible to vote and voting in each company, and also a simple majority of the total voting rights in each company.

This was in accordance with the broad principles of the Code. A takeover cannot succeed without the offer being accepted by the holders of more than 50% of the voting rights in the target company. A positive vote by holders of a majority of the total voting rights in the company was a reasonable equivalent to the Code's requirement for the positive act of acceptances by the same majority of shareholders where change of legal control occurs by means of a takeover offer under the Code.

There is an argument that an amalgamation is in effect a compulsory acquisition, which, if it were a code transaction, would require the dominant owner to obtain 90% of the total voting rights in the target company. However, the Panel recognised (a) that this amalgamation was a true merger with no single shareholder obtaining control of the amalgamated entity and (b) that shareholders in the two target companies were to receive shares and debentures in Dominion Income. No shareholder would be forced to take cash for their shares and cease to be a shareholder.

In these circumstances the Panel was comfortable that, in addition to the special resolutions, approval by a simple majority of the holders of each company's total voting rights was an appropriate minimum voting threshold.

The Panel applied to be heard in the High Court to have the Court's initial orders amended. Dominion Group opposed
 
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