Panel policy on schemes of arrangement


15 May 2006

The Takeovers Panel is concerned about the increasing use of schemes of arrangement under the Companies Act 1993 as a means of avoiding the provisions of the Takeovers Code. This issue was outlined in a recent discussion paper released by the Panel on its proposed policy on exemptions for such schemes.

The Panel is considering submissions received from the public in response to its discussion paper. The submissions received have included comment on the use of the amalgamation provisions of the Companies Act in the proposed amalgamation of Waste Management New Zealand Limited with Transpacific Industries Group Limited. The Panel has similar concerns about the use of the amalgamation provisions as a means of avoiding the provisions of the Code.

As part of its function of keeping the law relating to takeovers of code companies under review the Panel proposes to make submissions to Government about the relationship between the Code and the provisions of the Companies Act relating to amalgamations and schemes of arrangement. Amending legislation is likely to be recommended by the Panel.

Pending the review of the legislative framework, the Panel has decided to take some steps to mitigate the use of schemes of arrangement as a means of avoiding the protections for shareholders contained in the Code.

The Panel:

  • will seek to be heard by the High Court when the Court considers proposed schemes of arrangement involving code companies; and
  • has revoked the class exemption for initial public offers which has been relied upon in some schemes of arrangement to effect a merger.

The Panel considers that it would be of assistance to the Court in its supervision of schemes of arrangement to receive submissions from the Panel on the use of the scheme procedure and the protections contained in the scheme for shareholders, particularly minority shareholders, taking into account the special legislative treatment relating to code companies contained in the Takeovers Act 1993 and the Code.

The existing class exemption for initial public offers, contained in clause 7 of the Takeovers Code (Class Exemptions) Notice (No.2) 2001, was granted to enable new public company floats to proceed where the parties have complied with the Securities Act 1978 and some additional disclosures about control percentages have been made. The use of this class exemption in schemes of arrangement is not appropriate and accordingly the class exemption has been revoked. Future applications for exemptions for new company floats will be considered by the Panel on a case by case basis.

The revocation of the class exemption will take effect from the day after its notification in the Gazette.

Enquiries should be referred to Kerry Morrell, Senior Executive Officer of the Takeovers Panel.