The following sections set out in broad terms how the Panel intends to perform its functions and conduct its operations to meet its objective and to achieve its impacts.
Framework of the Code (including review of market practices)
4.2
The Panel intends to undertake a number of policy and market review activities in 2007/2008 and beyond. The Panel is responsible for keeping under review the provisions of takeovers law and making recommendations to the Minister for changes to that law where appropriate. This will involve:
- In response to the invitation from the Minister, undertaking further policy work to develop legislative solutions to the issue of amalgamations and schemes of arrangement under the Companies Act 1993 being used to effect changes in control in Code companies in ways that may not align with the Code; and
- Reviewing the terms of the Panel's class exemptions from time to time to ensure they remain relevant and appropriate.
4.3
The Panel will continue to draw on its experience with administration of the Code, including its enforcement functions and exemption activities, to identify aspects of the Code where amendment is considered urgent and/or essential. It will work with the Ministry in promoting desirable changes to the law.
4.4
The Panel is concerned at the process which seems to be required to bring about a change in the Code and intends to explore this issue with the Ministry. The outcome of some recent takeovers could well have been different, at least in terms of the consideration paid for compulsorily acquired shares, had the Panel's proposed technical amendments been put in place earlier.
4.5
If the Panel becomes aware of matters in the Code that need amendment it will develop proposals to solve the identified difficulty and circulate those proposals for public comment. Following a period of consultation the Panel would then make appropriate recommendations for change to the Minister.
4.6
The Panel has no current intention of promoting any further technical amendments to the provisions of the Code, but could do so. The Panel sees no need to undertake a review of the fundamental provisions of the Code other than in relation to the current interaction with the scheme of arrangement and amalgamation provisions of the Companies Act. The Panel also intends to review the Code's provisions relating to partial offers to ensure they remain appropriate
4.7
The Panel will use its own executive, with external assistance if necessary, to develop policy papers, guidance notes and practice notes relating to issues affecting the Code.
4.8
All these activities are aimed to ensure the Code fulfills its purpose of providing an efficient basis on which to conduct takeover activity in New Zealand. The level of impact the Panel is able to achieve towards this purpose is affected by the level of resources the Panel is able to put into the activity.
Enforcement of the Code
4.9
The Panel makes extensive use of its executive resources for enforcing the provisions of the Code.
4.10
All the main takeover documents are reviewed by the Panel executive staff for compliance with the Code.
4.11
Once the prospective technical amendments to the Code come into force on 1 July 2007, takeover participants will be obliged to send the Panel any documents that are published or sent to shareholders relating to the takeover offer or other Code transaction. This development should be followed by the coming into force of the "misleading or deceptive conduct" provisions of the Code and the Act, which will add another dimension to the Panel's review role.
4.12
The Panel executive routinely monitors NZX company announcements and (including through a news clipping service) major New Zealand newspapers for transactions which appear to have Code implications.
4.13
An enforcement issue that continues to involve the Panel concerns the complexities of associate relationships for Code purposes.
4.14
Where enforcement issues are relatively minor these are usually dealt with in discussion with the legal advisers to the party or parties involved. Appropriate correcting action may be taken by agreement and without recourse to the Panel's formal powers.
4.15
If non-compliance appears to be reasonably serious and the issues cannot be resolved then the Panel is likely to exercise its formal powers and convene a meeting under section 32 of the Act. Market participants also have the right to request that the Panel convene meetings under section 32 of the Act where they consider a breach of the Code may have occurred. This is a right that has been exercised sparingly.
4.16
The Panel expects an increase in enforcement activity once the misleading and deceptive conduct prohibitions in the Code come into force.
4.17
A section 32 meeting must be held within seven days of being called and the Panel must reach a decision within two days of calling the meeting if restraining orders are to be made or continued. The Panel's full decision will be advised to the parties and published as quickly as possible, usually within two days of the meeting.
4.18
If the Panel has determined that non-compliance has occurred then it is likely to issue restraining orders freezing the situation for up to 21 days. This period allows the parties to resolve the matter with the Panel or for the Panel to take the matter to Court to have the Court make final orders.
4.19
Under new powers introduced through the Takeovers Amendment Act 2006 the Panel is now able, where it has determined at a section 32 meeting that non-compliance with the Code has occurred, to make permanent compliance orders without recourse to the Courts. These powers are expected to be used primarily in relation to the new misleading or deceptive conduct prohibitions in the Code.
4.20
In 2007/08 and future years the Panel's enforcement role will, as noted, be significantly expanded by changes made to the Code through the Takeovers Amendment Act 2006 particularly concerning the prohibition on misleading or deceptive conduct in takeover transactions.
4.21
The Panel has been preparing for these changes by developing policies for dealing with complaints that may arise under the expanded provisions of the Code and by researching the law underlying the new provisions. When the new provisions come into force during 2007/2008 the Panel will be ready.
4.22
A new area of enforcement activity in 2007/2008 and beyond concerns intervention in transactions where the scheme of arrangement and amalgamation provisions of the Companies Act are used to attempt to effect changes of control of Code companies.
4.23
The Panel has a litigation fund of $675,000 provided by the Crown to meet the costs of litigation it initiates or to which it has to respond. The Crown is committed to topping up this fund (within limits) as it is used.
4.24
As part of the Panel's 2006/2007 Output Agreement with the Minister of Commerce the terms of the Panel's litigation fund were amended so that the Crown would provide funding for the Panel to bring actions in the Courts where Code companies are using the provisions of the Companies Act to effect changes of control.
4.25
The aim of enforcement activity is to raise the standard of compliance with the Code and thus facilitate the operation of the takeovers market. Sometimes this may mean having share acquisitions that were made in breach of the Code reversed by a sale of shares. Often it means requiring documents corrected. In the more extreme cases it may be necessary to have recourse to the Courts in order to achieve an appropriate and effective solution.
4.26
The Panel believes that the resources it puts into enforcement of the Code provide a reasonable prospect that breaches of the Code, particularly where they involve listed companies, will be detected and investigated. Unfortunately there is no reliable way to measure precisely how compliance standards are improving. The evidence is anecdotal. From the feedback the Panel receives it is clear that the Panel is having a significant impact on the level of compliance with the Code.
The power to grant exemptions
4.27
Next to enforcement the Panel's highest priority activity relates to the exercise of the power to grant exemptions from the Code.
4.28
The Code is a reasonably brief document expressed in quite broad terms. This means that there are many occasions where its provisions do not "fit"" a particular transaction or where its strict application would have unintended or unexpected consequences.
4.29
The Panel receives many requests for exemptions. A significant number are declined because they are either inappropriate or their granting would be inconsistent with the objectives of the Code. The Panel will not grant exemptions that attempt to alter any of the fundamental parameters of the Code.
4.30
When an exemption application is received the Panel executive analyses the issues arising from it. After clarifying any outstanding issues with the applicant the executive prepare a report for the responsible division appointed to deal with the matter. This report is then considered by the Panel and a decision made. If it is decided to grant an exemption instructions are given to Parliamentary Counsel Office to draft the particular exemption. After checking, this notice is signed by a member of the Panel (usually the Chairman) and published in the Gazette.
4.31
The Panel aims to meet the timing requirements of the market for exemptions. This can sometimes impose considerable strain on the Panel's resources. Exemptions are a significant area of work for the Panel's members and executive.
4.32
The Panel has the ability to make retrospective exemptions, in effect validating particular transactions that have occurred in the past. The Panel has used this power sparingly.
Approvals under the Code
4.33
A further important part of the Panel's activities involves the granting of approvals for independent advisers to carry out various roles under the Code and for the appointment of independent experts where required by rule 57 of the Code.
4.34
The Panel has published its policy for the approval of advisers on its website. Any time that an adviser is required under rule 18, rule 21, rule 22 or rule 57 of the Code the company that is required to appoint the adviser will go through a process to find a suitable adviser and then that adviser will apply to the Panel for approval.
4.35
The application is processed by the executive. If there are any queries about the independence or competence of the adviser these are taken up with the adviser. New advisers are asked to produce copies of their past work so that the Panel can assess their experience and competence. The executive then reports to the responsible division of the Panel, which will make a decision on the application.
4.36
The Panel published a guidance note about the role of independent advisers in July 2003. This is available on the Panel's website and outlines the Panel's expectations in relation to each type of report required under the code. This guidance note is currently being reviewed and a revised version is expected to be issued early in the new financial year.
4.37
The Panel also has a policy of having the executive review draft reports before they are sent to shareholders. Given the tight deadlines in the Code most often these reviews have to be undertaken in less than 48 hours. Many reports are of a high standard and require no comment or need correction only on a few points relating to Code matters. Other reports have required considerable executive input, sometimes resulting in the Panel seeing several successive drafts.
4.38
If appropriate the Panel may tell an adviser that, because of the quality of a report it has produced, the Panel is not prepared to approve the appointment of that adviser for preparation of future Code reports. Any such adviser will be given the right to be heard by the Panel on the issue. If suitable corrective action is taken by the adviser the Panel may approve the appointment of the adviser for reporting on later Code transactions.
4.39
The Panel itself has the responsibility of appointing independent experts where these are required for the purposes of the Code's compulsory acquisition provisions. When the Panel is required to appoint an independent expert it goes through a process of seeking expressions of interest from firms with valuation expertise that are not already conflicted by previous involvement with the transaction or any of the main parties. The Panel then chooses the most appropriate firm for the assignment.
4.40
The Panel does not review the independent expert's report before it is given to the bidder and the target company. This is to avoid any suggestion that the Panel has influenced the outcome of the valuation.
Public education activities
4.41
The Panel uses a number of means to promote public understanding of takeovers law. These include:
- Publication of the Panel's newsletter Code Word as required, usually two to four times a year depending on what is occurring in relation to takeovers (changes in the law, Panel enforcement and exemption decisions), including distribution to a list of several hundred recipients;
- Maintenance of a website that is kept up-to-date with all Panel decisions, news releases, speeches, discussion papers, practice notes etc;
- Publication of practice notes and guidance notes explaining how market participants should relate to the Panel and how the Panel interprets various rules of the Code;
- Giving public speeches to relevant seminars explaining issues around the Panel's activities and takeovers law;
- Meeting with market participants in "feedback" sessions to both gauge the effectiveness of the Panel in dealing with its stakeholders and to explain issues which have arisen over the previous year;
- Communication with affected shareholders through telephone calls, email messages and correspondence explaining the application of the Code in particular circumstances.
4.42
During 2007/2008 it is intended to hold a range of meetings, involving three to four Panel members and a representative of the executive, with law firms, independent advisers and other market participants. These meetings will focus on changes to the law arising from the technical amendments to the Code and the new provisions relating to the prohibition on misleading or deceptive conduct expected to come into force in the first part of the next financial year.
4.43
Takeovers tend to attract their own publicity, for a variety of reasons. It is on such occasions that questions about the application of the Code are often raised. The Panel is willing, through its senior personnel, to assist journalists with background information so that the public will get an accurate understanding of issues of public interest.
4.44
The Panel believes that its current approach to promoting public understanding of takeovers law is effective in raising the level of public understanding of takeover law and is appropriate given the level of the Panel's resources that it has available to put into this activity.
International liaison
4.45
The Panel co-operates with overseas takeovers regulators when asked to do so and within the limits of its powers. The Panel calls on assistance from overseas regulators when there is a need to do so. This has proved invaluable recently in relation to proposed merger transactions involving Australian and New Zealand companies.
4.46
The membership of the Australian Panel by the New Zealand Panel's Chairman, and of New Zealand's Panel by a member of the Australian Panel (a position currently not filled), ensure ongoing close linkages between the two regulators. These appointments were made pursuant to the Government's aims of progressing a single economic market with Australia within the framework of the Memorandum of Understanding on Business Law Coordination between the two countries.
4.47
The New Zealand Panel has been represented at two recent international conferences of takeovers regulators and will continue to support the formation of an informal grouping of takeovers regulators currently being promoted by Australia. The Panel's Counsel visited the Australian Takeovers Panel and the Australian Securities and Investments Commission during 2006/2007. No similar visits are currently planned for 2007/2008.
4.48
The Panel spends only a modest sum on this output. The principal expenditure is on participation in overseas conferences when these occur. The Panel has received no notification of the time or place of the next takeovers regulators conference.
4.49
The Panel is satisfied that its current activities enhance and improve the level of co-operation with overseas takeover regulators without the need for significant expenditure.
PREVIOUS | INDEX | BACK TO TOP | NEXT
