Published 1 December 2002
The Todd Corporation Limited (2002/123)
The Todd Corporation Limited is the investment company for the Todd family interests. All the shareholders of the company are members of the Todd extended family or represent interests associated with that family.
Under the constitution of the company share transfers generally are tightly controlled by the directors. However the constitution does allow, at clause 14.1, certain unrestricted transfers of shares to be made that do not require the approval of the directors. These transfers are inter-family transfers of shares.
The Code provides a mechanism, at rule 7(c), for non-associated shareholders to approve acquisitions of increased voting interests in a Code company by other shareholders. However, the unusual nature of Todd Corporation in which all shareholders are members of or represent the interests of the same family presents special difficulties for the application of the Code.
Because of the family relationship between the shareholders it is arguable that all shareholders of Todd Corporation are “associates” for the purposes of the Code. This means that anytime a shareholder proposes to increase its shareholding, no matter how small that shareholding, the increase will be caught by the Code. If it were proposed to have the change in control percentage approved by the non-associated shareholders, this will not be possible because under rule 17 an acquirer’s associates are not permitted to vote on a rule 7(c) proposal, and all shareholders in the company would probably be associates.
The Panel granted a class exemption for every person who increases his or her control percentage in Todd Corporation as the result of receiving an unrestricted transfer of shares under clause 14.1 of the constitution of the company. The exemption took effect on 1 June 2002 and expires on 31 May 2004.
The Panel decided to grant the exemption provided the shareholders of Todd Corporation, at a meeting of the company, supported the proposed exemption. Accordingly the exemption was granted subject to the conditions that:
- Todd Corporation distributes the notice of meeting containing the exemption resolution to Todd Corporation shareholders in a form approved by the Panel; and
- Todd Corporation shareholders, at the meeting, pass the exemption resolution by both–
- a 75% majority of the total voting rights in Todd Corporation; and
- a 50% majority by number of those shareholders entitled to vote and voting on the resolution at the meeting (whether voting in person or by proxy) and
- the maximum number of voting securities that may be transferred under clause 14.1 of the constitution in any 12- month period is voting securities that carry in the aggregate not more than 10% of the total voting rights in The Todd Corporation at the commencement of the 12-month period.
The Panel considered that the class exemption was appropriate because:
- all the recipients of transfers under clause 14.1 of Todd Corporation’s constitution represent members of a single extended family, or represent interests associated with that single family, and therefore are probably associates for the purposes of the Code. As such, the mechanisms provided in the Code for approval of increased shareholdings through transfers of shares are unworkable;
- the transactions covered by the exemption are confined to clause 14.1 of Todd Corporation’s constitution, the principal purpose of which is to facilitate transfers of shares between family interests;
- there are restrictions on the transfer of shares that may take place in any 12-month period to limit the possibility of a change of control occurring without using the mechanisms of the Code.
The Panel considered that granting the class exemption was consistent with the objectives of the Code for the following reasons:
- it retained all the requirements of the Code except in relation to inter-family transactions in limited circumstances;
- shareholders of Todd Corporation were required to approve the exemption, by a substantial majority and on the basis of a notice of meeting that was satisfactory to the Panel;
- it avoided unnecessary compliance costs that would have been incurred if the exemption were not granted.
Eastern Bay Energy Trust (2002/347)
Eastern Bay Energy Trust (“EBET”) is a trust established by Horizon Energy Distribution Limited to apply trust funds towards certain energy-related purposes. EBET owns 77.3% of the voting rights of Horizon and each trustee is the joint legal owner of EBET property, including the Horizon shares.
Under rule 6(2)(b) of the Code, if persons jointly hold shares and another person subsequently joins those persons, then the person who joins is deemed to have become a holder of all shares held by those original holders. Accordingly, in respect of EBET any person elected as a new trustee will become the joint holder of the Horizon shares held by the trustees and accordingly will not comply with the fundamental rule unless one of the exceptions in rule 7 applies.
The Panel granted an exemption from rule 6(1) of the Code to every person who is appointed as a trustee of EBET if the appointment will result in that person being deemed (by the operation of rule 6(2)(b) of the Code) to have become the holder or controller of an increased percentage of voting rights in Horizon. The exemption is limited to trustees appointed in accordance with the Trust Deed in force on 22 August 2002. The exemption expires on 31 July 2007.
The Panel considered that the class exemption was appropriate because upon the appointment of any trustee of EBET, the shares in Horizon held by EBET will continue to be held by a person or persons in their capacity as trustees of EBET and subject to their duties and obligations under the Trust Deed and at law.
The Panel considered that the class exemption was consistent with the objectives of the Code because the cost of obtaining the approval of the non-associated shareholders of Horizon to a change of trustee of EBET was not justified when a change in the trustees of EBET would not in substance represent any change in the control of the Horizon shares held by EBET.