Takeovers Panel Recommends Law Changes for Schemes and Amalgamations
19 August 2008
The Takeovers Panel has made recommendations to the Minister of Commerce for changes to the Companies Act 1993 and the Takeovers Act 1993. The changes relate to amalgamations and schemes of arrangement under the Companies Act that involve changes of control of companies that fall under the Takeovers Code (Code companies).
The Panel's key recommendation is that changes of control of Code companies should be able to be effected either under the Takeovers Code, or as a scheme of arrangement with Court approval under Part 15 of the Companies Act (a Part 15 scheme), but not by way of amalgamation under Part 13 of the Companies Act. The main features of the Panel's proposal include that:
- For any Part 15 scheme that has an effect on voting rights in a Code company, either -
- the Court would have to be satisfied, before it could approve the scheme, that the Code company shareholders would not be disadvantaged by the transaction not being undertaken under the Takeovers Code; or
- the promoters of the scheme could produce to the Court a statement from the Takeovers Panel stating that the Panel has no objection to the scheme.
- These requirements would be in addition to the current common law tests which the Court applies when considering a scheme.
- The promoters of schemes involving Code companies would be able to apply to the Panel for a "no-objection" statement before seeking Court orders for the proposed scheme.
- Part 15 of the Companies Act would be amended to include some guidance for the Court on how to determine the different interest classes of shareholders for the purpose of their meeting to vote on the scheme.
- The Companies Act would set out the voting thresholds for the shareholders' approval of schemes involving Code companies. These thresholds would require approval by 75% of the votes cast at meetings of each interest class (this is the current voting threshold for a scheme) and, in addition, all of those votes combined would have to represent more than 50% of the total voting rights of the company.
A "no-objection" statement from the Panel would assist the Court to decide whether to approve a scheme. If the Panel opposed a transaction being undertaken as a scheme under the Companies Act, the Panel would be able to object to it in Court. This is very similar to the Australian requirements which have been in place for about 25 years and which generally are considered to work well.
The Panel agrees with comments from practitioners that there is a need for certainty in this area of the law. The Panel's proposal addresses this need while retaining the flexibility of allowing changes of control of Code companies to occur outside of the Code, but with greater regulatory oversight, better information for shareholders, and more rigorous voting requirements.
The Panel's recommendations to the Minister are available on the Panel's website along with theregulatory impact statement that was prepared for the Minister. An Explanatory Memorandum with a full explanation of the Panel's proposal and of the consultation process that was undertaken by the Panel is also available on the Panel's website.
History leading to Panel's recommendations
- The first Companies Act Part 15 scheme was undertaken outside of the Code in 2005 - the merger of Independent Newspapers Limited and Sky Network Television Limited.
- In August 2006 the Panel recommended changes to the Companies Act 1993 and Takeovers Act 1993 for schemes and amalgamations involving Code companies. The Panel's recommendations fell outside the scope of the 2006 Business Law Reform Bill and were not acted on by Government.
- In early 2006 Waste Management and Transpacific Industries amalgamated under Part 13 of Companies Act, outside of the Code. There were concerns (widely reported in the media) that the integrity of the New Zealand market would suffer because of avoidance of the Code.
- The Panel appeared in the High Court concerning a Part 15 scheme by Dominion Funds Group companies in late 2006. Dominion then appealed to the Court of Appeal.
- In early 2007 the Minister invited the Panel to advise her on the issue of schemes and amalgamations involving Code companies outside of the Code.
- In mid-2007 Dubai Aerospace Enterprises proposed an amalgamation involving Auckland International Airport Limited (AIAL). This was subsequently aborted, but a similar proposal was signalled by Canada Pension Plan Investment Board if the Code takeover offer for AIAL were to be successful.
- The Panel issued a discussion paper on 5 December 2007 seeking views on its assessment of the issue and on the merits of alternative options for change.
- The Panel received 16 submissions in response to the discussion paper and these were taken into account in formulating a preferred proposal.
- In May 2008 the Panel recommended to Minister of Commerce changes to Companies Act 1993 and Takeovers Act 1993.
- The Panel's recommendations are currently under consideration by the Government.
If the Government agrees to the Panel's recommendations, legislation would be required. The Panel would develop and publish information about:
- the criteria the Panel would apply for the giving of a "no-objection" statement (likely to be similar to those that apply in Australia, particularly regarding level of information for shareholders and appropriate identification of "interest classes" of shareholders for voting at meetings to approve a scheme);
- the timing of the giving of "no-objection" statements for the Court processes for schemes;
- how to obtain a "no-objection"statement;
- any fees for making an application for a "no-objection" statement.