In May 2016, the Panel had the opportunity to consider the meaning of “effective control” in relation to an exemption application in the context of the Trustpower Limited scheme of arrangement. This was the first time that the Panel has formally considered the meaning of effective control since the Panel’s determination under section 32 of the Takeovers Act 1993 in respect of Gould Holdings Limited in 2003.

Trustpower was planning to demerge into two listed companies by way of a scheme of arrangement under the Companies Act 1993. For each share in Trustpower, shareholders would receive one share in each of the two companies by way of an in specie distribution. Trustpower would then be liquidated. Prior to the distribution of voting rights in the two newly-listed companies, the two companies were wholly-owned (unlisted) subsidiaries of Trustpower.

Infratil Limited controlled 50.59% of the voting rights in Trustpower. As a controller of between 50% and 90% of the voting rights in Trustpower, Infratil had the right under rule 7(e) of the Code to increase its control of voting rights in Trustpower by up to 5% per year (“creep right”).[1] With the demerger in sight, Infratil applied to the Panel for an exemption to enable it to retain its creep right after the demerger, but in respect of the two newly-listed companies.[2] As part of its exemption application, Infratil submitted to the Panel that an exemption was not necessary because Infratil’s control of 50.59% of the voting rights in Trustpower gave Infratil effective control of Trustpower, and therefore effective control over 100% of the voting rights in Trustpower’s two (then) subsidiary companies.

In the context of considering whether to grant the exemption, the Panel considered whether Infratil had effective control over Trustpower’s voting rights in the two companies.

In considering the meaning of effective control, the Panel discussed the broad coverage of the definition of “control” as defined in rule 3(1).[3] The Panel was mindful that the definition of “control” was drafted into the Code as an anti-avoidance measure to catch changes in control in entities upstream of the Code company.

The Panel considered that effective control was about whether an entity or a person has the power to effect or make changes in a company, such as the power to appoint and remove directors. The power to appoint and remove directors was considered more relevant than whether or not the power had in fact been exercised. 

In respect of the Infratil exemption, the Panel agreed that Infratil, by virtue of controlling 50.59% of the voting rights in Trustpower, had effective control of Trustpower. With effective control of Trustpower, Infratil had effective control of Trustpower’s two subsidiaries because Infratil could effectively direct how Trustpower voted its shares in those subsidiaries. The exemption was therefore declined on the basis that there would be no change in effective control, and that Infratil would retain its creep right in the newly-listed companies. 

The Panel’s decision highlights that each situation depends on its own facts, and care should be taken because the Panel will look through shareholding structures to find where effective control lies. 

The Panel recommends engaging with the Panel executive early when a proposed transaction raises questions about possible changes of control, so that issues of effective control can be considered by the Panel outside of an enforcement context.


[1] 1 Rule 7(e) of the Code allows a person who holds or controls more than 50% but less than 90% of the voting rights in a Code company to increase their holding or control by up to 5% of the Code company’s total voting rights in a 12-month period, from the lowest percentage of voting rights in that Code company.

[2] If Infratil controlled 0% of the voting rights in the newly-listed companies prior to implementation of the scheme, then Infratil would have to wait for 12 months before it could creep under rule 7(e).

[3] “Control” is defined in rule 3(1) of the Code as “control, in relation to a voting right, means having, directly or indirectly, effective control of the voting right.”

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