1. This statement sets out the policy the Panel is currently following in relation to the use of its exemption powers to facilitate changes of control of Code companies sought to be effected through schemes of arrangement conducted under the provisions of part XV of the Companies Act 1993 ("the Companies Act"). It is intended to assist Code companies and their advisers and others who may be advising clients on how best to structure a transaction to achieve a desired outcome.
2. This statement replaces an earlier statement, dated 1 July 2003¹ .

3. The Companies Act and the Takeovers Act 1993 ("the Takeovers Act") were significant parts of a comprehensive package of commercial law reform measures enacted in 1993. The Takeovers Act provides for the regulation of changes in control of voting rights of Code companies (generally being larger or listed companies), whereas the Companies Act has universal application. However, despite amalgamations and schemes of arrangement effected under part XV of the Companies Act requiring the approval of the Court, there is no statutory exemption from the provisions of the Code for such schemes provided in either the Companies Act or the Takeovers Act.
4. Rule 6(1) sets out the fundamental rule of the Code. It provides:
1. Except as provided in rule 7, a person who holds or controls-
   1. No voting rights, or less than 20% of the voting rights, in a code company may not become the holder or controller of an increased percentage of the voting rights in the code company unless, after that event, that person and that person's associates hold or control in total not more than 20% of the voting rights in the code company:
   2. 20% or more of the voting rights in a code company may not become the holder or controller of an increased percentage of the voting rights in the code company.
5. The focus of the Code is on change of control of voting rights. Rule 7 of the Code specifies the means by which the Code allows changes in ownership of control of parcels of voting rights above 20% to be effected. These means include full and partial takeover offers, acquisitions approved by non-interested shareholders, and allotments approved by non-interested shareholders. They do not include schemes of arrangements effected under the Companies Act.
6. The Panel recognises that schemes of arrangement are a part of the law in New Zealand and that the scheme provisions provide an appropriate mechanism by which to effect certain transactions. However, schemes of arrangement do not provide the same protections for shareholders as are provided by the Code.

Panel exemptions in general

7. Section 45(1) of the Takeovers Act provides that:
   • The Panel may, in its discretion and on such terms and conditions (if any) as it thinks fit,-
   1. Exempt any person from compliance with any provision of the takeovers code; and
   2. Exempt, from compliance with any provision of the takeovers code,-
      1. Any class of persons;
      2. Any class of transactions;
      3. Any class of offers.
8. Section 45(4A) of the Takeovers Act provides that:
   • The Panel's reasons for granting an exemption under subsection (1) must include-
   1. Why it is appropriate that the exemption be granted; and
   2. How the exemption is consistent with the objectives of the takeovers code.
9. The Panel interprets these provisions as giving it wide discretion to grant exemptions from the requirements of the Code provided it considers that any exemption granted is appropriate and is consistent with the objectives of the Code. The Panel's approach to exemptions generally is set out in the Panel's guidance note The Takeover Panel's Exemption Power (January 2005).

Panel exemptions in relation to proposed schemes of arrangement

10. To date the Panel has considered six applications for exemption in relation to proposed schemes of arrangements. Two were approved (see the Takeovers Code (Data Advantage Limited) Exemption Notice 2001 (S.R. 2001/317) and the Takeovers Code (Fisher & Paykel Industries Limited and Others) Exemption Notice 2001 (S.R. 2001/244)) and four were declined.
11. The Panel will consider each application on a case by case basis. Each application will be considered on its merits.

Circumstances where an exemption may be approved

12. When considering applications for exemptions for schemes the Panel will focus on how the Code applies to the particular scheme of arrangement that the parties want to use. It will consider any proposed exemption in accordance with the Panel's guidance note TheTakeover Panel's Exemption Power. The Panel's guidance note states that the Panel will, in deciding whether an exemption is appropriate, consider whether compliance with the Code is possible and whether compliance would create an inappropriate, unreasonable or unintended result.
13. It is important to note that the Panel's policy on exemptions for schemes is aimed at schemes which cannot proceed without some form of exemption. The policy is not aimed at schemes which can proceed without an exemption.

Conditions of any exemption granted in respect of a scheme

14. The conditions of any exemption will preserve as far as possible the objectives of the Code as embodied in the rights and protections contained in the Code. The conditions of any exemptions in relation to a scheme will focus on:
    • the level of shareholder approval required for a transaction to proceed and who is entitled to vote on the relevant resolution; and
    • the information given to shareholders about the proposed transactions.
15. The Panel's general approach is that schemes should be approved by shareholders representing:
    • at least 75% of the votes cast at a meeting at which all shareholders can vote, provided that the resolution represents more than 50% of the total voting rights in the code company; and
    • at least 75% of the votes cast at the meeting of independent shareholders.
16. Independent shareholders are shareholders who were not involved in formulating the proposal. Large shareholders will inevitably be involved in formulating the scheme proposal. As boards would be involved in the formulation of the scheme, board members and any shareholders they represent (and their associates) would also not be included as independent shareholders for the purposes of the vote.
17. The approach to approval thresholds recognises that:
    • the support of a significant majority of shareholders should be required where a change of control is being imposed upon all shareholders; and
    • shareholders involved in formulating and/or promoting a scheme, and their associates, should not dominate or determine the outcome of a shareholder vote. Independent shareholders should have a real opportunity to take part in the decision as to whether to proceed with a scheme.
18. The exception to this approach to voting thresholds is where a transaction does not involve a merger of shareholder interests. This is where the scheme provides for the shareholders of the merging companies to become shareholders of the same company. Where a scheme involves the exit of shareholders of one of the participating companies for cash, the Panel considers that the appropriate shareholder approval threshold for the transaction to proceed is a resolution which represents 90% of the total voting rights in that company, reflecting the compulsory acquisition threshold in the Code.
19. However, the conditions of exemption will be considered on a case by case basis and there may be circumstances where the Panel imposes different voting thresholds.
20. The conditions of any exemption will also require that shareholders are given sufficient information about the scheme to enable them to decide for themselves the merits of the proposal. The conditions of any exemption will require that shareholders are given at least:
    • information equivalent to information required to be provided under a Code offer; and
    • a report on the merits of the scheme by a Panel-approved independent adviser.
21. The Panel will decide on a case by case basis whether:
    • one adviser will be appointed to report on the merits of the transaction from the perspective of the shareholders of each of the companies taking part in the proposed scheme; or
    • different advisers for the shareholders of each company involved will be required.
22. In many situations one independent adviser would be appropriate.

Applications to the High Court regarding schemes

23. Applicants for exemptions in respect of schemes should advise the Panel of their intentions in the early stages of the planning process and well before an initial application to the Court is proposed to be made.
24. The Panel will seek to be heard by the High Court on schemes of arrangement involving code companies at the stage that initial orders are being made. If an exemption has been granted for a scheme, the conditions of that exemption may mean that it would not be necessary for the Panel to seek to be heard by the Court.

David Jones
Chairman
1 April 2007

Footnote

1. Codeword[19 ] contains a commentary on the revised policy and highlights the differences between the revised policy and the earlier policy published in 1 July 2003.