The Code and Lock-up agreements

The Panel has made it clear that lock-up agreements (entry into an agreement under which one party is agreeing to make a bid and the other party is agreeing to sell into it) are legal in New Zealand, but this does not mean that they have no consequences under the Code – they do. This can be seen from the above examples.

A lock-up agreement, by its very nature, will make the parties associates. That is not a breach of the Code but it means that the parties’ voting rights must be aggregated and this may limit their ability to undertake acquisitions of more voting rights.

Shareholder approval

The associate provisions of rule 4 are an anti-avoidance mechanism. However, the Code provides the means, through rule 7(c) in particular, for the shareholders of a Code company to approve any acquisition of voting shares. Consequently, where as a result of the association an acquisition of voting shares would be in breach of rule 6(1), the acquisition can be approved by shareholders.

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