Gould Holdings Limited
Published 3 March 2003
BEFORE THE TAKEOVERS PANEL
|IN THE MATTER OF||the Takeovers Act 1993 and the Takeovers Code|
|IN THE MATTER OF||
a meeting held under section 32 of the Act to determine
 whether the following shareholders of Gould Holdings Limited:
by subscribing for shares in Gould Holdings Limited, by virtue of the deeming provisions of rule 6(2)(b) of the Takeovers Code, joined with Mr George Gould as the holders or controllers of more than 20% of the voting rights of Designer Textiles (N.Z.) Limited otherwise than in compliance with the Code.
 Whether any members of the Rutherford family, in particular:
Anne Rutherford in respect of 700,000 shares purchased between October and December 2002;
Scott Rutherford, Gael Rutherford, and Margaret Rose Rutherford, as trustees of the Indiana Trust, in respect of 53,000 shares purchased on 24 October 2002
had purchased shares in Designer Textiles (N.Z.) Limited at a time when they may have been associates of Mr George Gould for the purposes of the Takeovers Code and accordingly may have purchased those shares other than in compliance with the Code.
|MEETING:||3 March 2003 at Wellington|
|MEMBERS:||J C King (Chairperson)
D O Jones
K J O'Connor
|APPEARANCES:||J L Holland representing G A C Gould, Gould Holdings Limited, and Gould Investments Limited
M Russell representing various Rutherford family interests
R A Dobson QC as counsel assisting the Panel
|IN ATTENDANCE:||J S Rutherford
G A C Gould
K G Morrell, J H van Amelsfort (from Panel Executive)
|DETERMINATION:||7 March 2003|
 Designer Textiles (N.Z.) Limited ("DTL") is a New Zealand incorporated company based in Auckland and is party to a listing agreement with the New Zealand Stock Exchange. As such, DTL is a code company for the purposes of the Takeovers Act 1993 ("the Act") and the Takeovers Code ("the Code").
 Gould Holdings Limited ("GHL") is a private investment company based in Christchurch. In mid-2002 GHL was wholly-owned by Gould Investments Limited ("GIL"), a company effectively controlled by Mr George Gould, businessman, of Christchurch. At that time GHL held 24.69% of the voting securities of DTL. Mr Gould was the sole director of GHL at that time.
 The Rutherford family comprises members of an extended Canterbury family.
 The Panel's meeting considered the Takeovers Code implications of two particular matters:
(a) The allotment of shares by GHL to members of the Rutherford family in November 2002; and
(b) The acquisition of several parcels of shares in DTL by members of the Rutherford family between 2001 and 2003.
The allotment of shares in GHL to members of the Rutherford family
 The Rutherford family and Mr Gould have had a business association going back a number of years.
 The Rutherford family owned the motor vehicle franchise company Amuri Motors Limited which was subsequently floated to the public and listed in 1993 as Amuri Corporation Limited ("ACL"). ACL subsequently changed its name in 1996 to South Eastern Utilities Limited ("SEU"). Mr Gould was managing director of ACL and SEU. SEU was subject to a takeover by Pyne Gould Corporation Limited and the shareholders in SEU were paid out in cash in March 2001.
 The Panel was told in evidence that some senior members of the Rutherford family, co-ordinated mostly by Mr Scott Rutherford, and in some respects by his cousin, Mr David Rutherford, wanted to keep at least a significant portion of the proceeds of the SEU sale together in an appropriate investment vehicle. For this purpose they formed Amuri Securities Limited ("ASL") which commenced operations in May 2001. All the shareholders were members of the extended Rutherford family. Mr Scott Rutherford was the Chairman. The investment of ASL's funds was managed for a fee by Mr Gould and a Mr Kevin Arscott, former Chief Financial Officer of SEU. The investment strategy of ASL was quite conservative, concentrating on fixed interest securities and shares with good liquidity.
 In its first year ASL had not performed to expectations, leading the family to consider whether the company should be wound up and the proceeds returned to family members. On 11 September 2002 Mr Gould attended a meeting of ASL shareholders and offered members of the Rutherford family who had invested in ASL the opportunity to invest in GHL. This was to be achieved by the takeover of ASL by GHL. GHL's sole asset at that time was its holding of 24.69% of DTL.
 The minutes of the ASL meeting of 11 September 2002 record:
FUTURE OPTIONS FOR ASL
Directors considered a paper presented by George Gould in respect of the proposal for Gould Holdings Limited (GHL) to take over Amuri Securities Limited (ASL).
It was noted that Kevin [Arscott] had prepared share transfer forms in case there was a decision to proceed with the proposal.
It was agreed for ASL shareholders to proceed with the proposal and sign the transfers. The transfers would be held by Kevin and would not be released without the prior approval of the Chairman. The shareholders would provide Kevin with an indication within 24 hours on whether they wanted some cash out and whether they wanted a change to the one-third equity and two-thirds convertible notes being offered in the proposal. Kevin would then endeavour to accommodate the indications between the shareholders without jeopardising what was being offered.
The meeting considered a paper prepared by Mr Gould which outlined his proposals for establishing an investment company. The Rutherford family members were being offered the opportunity to be investors in a "First Round Capital Raising".
 The meeting considered a paper prepared by Mr Gould which outline his proposals for establishing an investment company. The Rutherford family members were being offered the opportunity to be investors in a "First Round Capital Raising".
 A subsequent board meeting of ASL on 2 December 2002 recorded that:
Takeover of ASL by Gould Holdings Limited (GHL)
It was confirmed and noted that following the 11th September meeting the shareholders received the letter from the Manager on 22nd October that updated the shareholders of the proposed takeover of ASL. The takeover was effective 1st November and was based on a valuation of ASL and GHL on 31st October. The letter to all shareholders on 13th November confirming to each shareholder their shares and convertible notes in GHL had been received.
 The letter of 22nd October 2002, on ASL letterhead and signed by "Kevin Arscott" and "George Gould" included the following statements:
We advise that the takeover of Amuri Securities Limited (ASL) by Gould Holdings Limited (GHL) will occur on the 1st November 2002. ASL will therefore cease trading on the 31st October 2002 and all assets, liabilities and obligations of ASL will be transferred to GHL.
The valuation of ASL will occur on the 31st October and your ASL shares will convert to GHL shares and convertible notes on the 1st November. We will advise your new shareholding and convertible note holding in GHL as soon as possible after the takeover.
 On 1 November 2002 the formal takeover took place, with most ASL shareholders receiving a combination of shares and notes(*1) in GHL in exchange for their shares in ASL. The assets of ASL by this time comprised almost wholly cash. Between 11 September 2002 and 1 November 2002 there were some adjustments made to the amounts invested by individual family members, and in the mix between shares and notes. The value attributed to the shares and notes issued to the Rutherford family at the time was some $4.2 million. In November 2002 the Rutherford family had 23.6% of the total voting rights in GHL. However, the Panel was told that the family had agreed that GHL would grant Mr Gould an option to acquire further shares in GHL on the same terms, which he duly exercised in February 2003. Mr Gould invested a further $1 million in GHL, increasing his control percentage to 78.76%, and reducing the Rutherford family's voting control to 21.24%. This brought the total capital raised by GHL to $5.2 million.
 The investment by the Rutherfords in GHL was not formally recorded in any contractual documents between the parties. There was no formal offer and acceptance or subscription agreements. The Panel was told that the transaction was formally recorded in appropriate resolutions in GHL's records.
Appointment of an independent director to GHL
 Mr Gould's proposal (see paragraph 10) included:
Upon acquisition of ASL by GHL the Rutherford family will appoint a director to the board of GHL. So long as the Rutherford family maintains a significant shareholding it will continue to be entitled to have a director nominee on the board. This entitlement will need to be reviewed at the time of the public issue for obvious reasons.
 In December 2002 Mr Gould arranged for the appointment of Mr John Maasland, a professional company director, as a director of GHL. At the time of the Panel's meeting the Panel was told that Mr Maasland had not met any members of the Rutherford family, nor had he consulted with them on major transactions by GHL, for example GHL's recent on- and off-market purchases of shares in Vertex Holdings Limited.
 In his evidence Mr Gould said that he had discussed the matter of board representation with the Rutherfords because he considered it was bad practice in circumstances where there was a major shareholder and a number of minorities for there not to be an independent director on the board representing those minority interests. Mr Gould said in his evidence to the Panel in respect of the appointment of an independent director:
No it [the issue of appointment of a director] was resolved later, much later [than the time of subscription of the shares in GHL]. We didn't appoint John until December.
There never was a right to a board seat. We had just said that there would be a matter - the representation will have to be looked at but no right.
Certainly, just in addition to this, the facts are that no director name was ever mentioned prior to - they didn't ask for anyone and I didn't offer anyone prior to the subscription. The whole director thing came up later as we thought about well now that this has happened, now that you're minority shareholders in this company, I think it's appropriate that you have a director and that that director is a good one for you, a good one for the company and a good one for the future.
 Mr Scott Rutherford, in his evidence, told the Panel, in response to a question from Mr Dobson:
Q. In terms of the governance of GHL, your statement said that there was some consideration given to a Rutherford family member joining the Board of GHL. Can you tell the Panel how that proposition was developed and how it was dealt with?
A. Well, I don't recall anyone being invited. I think George really felt that he needed to profile the company as best be could. He recommended that we take an outside professional director to represent our family and the family voted that that would be the proper and correct way to do it.
 In response to further questioning Mr Rutherford said that the family's view had been obtained in an informal "ring around" of other shareholders by his cousin David Rutherford. Mr Rutherford said that the family view was unanimous that "it was far better for the family to be represented by a professional director."
Transactions in DTL shares by the Rutherford family
 By February 2003 members of the family held three separate parcels of shares in DTL totalling some 8.8% of the voting rights in DTL. The Panel was advised that these parcels were acquired or disposed of on the following dates or during the following periods:
(a) 1,000,000 shares (2.8%) purchased off-market on 21 February 2001 by Mr Scott Rutherford;
(b) 1,000,000 shares (2.8%) purchased off-market on 20 March 2001 by Mrs Anne Rutherford;
(c) 716,625 shares (2.0%) purchased off-market on 20 March 2001 by the Indiana Trust;
(d) 300,000 shares sold on-market in February 2002 by Mrs Anne Rutherford;
(e) 700,000 shares (1.9%) purchased on-market by Mrs Anne Rutherford in 13 trades between 8 October 2002 and 30 December 2002; and
(f) 53,000 shares (0.15%) purchased on-market by the Indiana Trust on 24 October 2002.
 In relation to these transactions we note that:
(a) Mr Gould first invited the Rutherford family to take shares in GHL in September 2002;
(b) The records of the meeting of ASL on 11 September 2002 indicate that the family representatives agreed at that meeting to proceed with the proposal to sell ASL to GHL in exchange for the issue of shares and notes in GHL; and
(c) The transfers of shares in ASL from individual family members to GHL were effected on 1 November 2002.
Statement to the New Zealand Stock Exchange
 On 17 February 2003 GHL announced to the New Zealand Stock Exchange ("NZSE") that it had raised equity capital of $6.2 million "to fund future investments including the purchase of shares in companies listed on the New Zealand Stock Exchange". The statement also noted that "Mr George Gould's beneficial relevant interest in Designer Textiles has been diluted from 24.69% to 17.65% …". The appointment of Mr John Maasland as a director of GHL was announced in the same release.
 The statement to the NZSE did not indicate from whom the equity had been raised. It did not indicate that a significant portion of the equity funds was in the form of notes. Subsequent media reporting disclosed that GHL had introduced 18 new shareholders but did not identify them.
 On 25 February 2003 DTL announced that it was making a pro-rata buy-back offer to all existing shareholders at a ratio of 1:9 at $1.50 per share. This offer opened on 25 February 2003 and is open for six weeks.
Initial actions by the Panel
 Following the announcement by GHL to the NZSE on 17 February 2003 the Panel executive asked GHL's legal advisers for some background about the share allotment by GHL and raised a number of questions about the application of the Code. A substantive response was received from Chapman Tripp, Christchurch (acting for GHL) on 20 February 2003, and the Panel met to consider this response on Friday 21 February 2003. Further information was sought from Lane Neave, Christchurch, legal advisers to at least some members of the Rutherford family, on Monday 24 February. (Buddle Findlay, Christchurch represented the Rutherford family interests at the Panel's meeting.)
 DTL announced the commencement of its share buyback on Tuesday 25 February. The Panel met again on the afternoon of Wednesday 26 February 2003. At that meeting the Panel resolved as follows:
On or about 17 February 2003, Gould Holdings Limited ("GHL") announced to the New Zealand Stock Exchange that its beneficial relevant interest in Designer Textiles (NZ) Limited ("DTL") had been reduced as a result of an allotment of $6.2 million worth of shares by GHL to a number of new shareholders. GHL currently has a 24.69% holding in DTL..
The Panel considers that the effect of the allotment of shares by GHL is that the Rutherford family interests may not have complied with rule 6(1)(a) of the Code, in that the Rutherford family interests may have become, by virtue of the deeming provision in rule 6(2)(b) of the Code, the holders or controllers of an increased percentage of voting rights in DTL in excess of 20%. When taken together with the family's existing holdings of 8.8% in DTL, the total percentage amounts to 33.5%.
As a consequence the Panel considers that the Rutherford family interests may not have acted or may not be acting or may intend not to act in compliance with the Code.
 The Panel gave notice on 26 February 2003 of its intention to hold a meeting under section 32 of the Act on Monday 3 March 2003 in Wellington. GHL and the Rutherford family were requested to provide submissions to the Panel by 12 noon on Friday 28 February 2003.
 The Panel issued summonses under section 9 of the Act to Mr Gould and certain members of the Rutherford family requiring them to attend the Panel's hearing, and to produce any documents or information relevant to the Panel's meeting in their possession or control.
 Both parties provided their submissions as requested and these were exchanged between them prior to the hearing. Neither party produced any relevant documents to the Panel at the start of the meeting. It was necessary for the Panel to make several specific requests for documents during the course of, and subsequent to, the meeting. A number of these documents were not provided to the Panel until Tuesday 4 and Wednesday 5 March 2003. At the hearing further oral submissions were received by the Panel. Evidence was taken under oath from Mr Scott Rutherford and Mr Gould.
 The Panel excused the attendance of a number of Rutherford family members after receiving written acknowledgements from them that Mr Scott Rutherford was authorised to speak on their behalf.
 At the time the Panel issued its notice of meeting it also told the legal advisers to GHL and the Rutherford family that the Panel intended, at the meeting on 3 March 2003, to consider any issues of non-compliance with the Code that may arise from the acquisitions of DTL shares by Rutherford family members. The Panel's summonses to Mrs Anne Rutherford and the trustees of the Indiana Trust extended to this matter, and the legal representatives were asked to address it in their submissions to the Panel.
 Following the conclusion of the Panel's meeting the Panel requested comment from the legal representatives for GHL and the Rutherford family on some of the Code implications of certain aspects of the Rutherford family's direct shareholdings in DTL. In response to that request the legal representatives asked for more time to make further submissions to the Panel. The Panel agreed to allow Chapman Tripp and Buddle Findlay until the afternoon of Thursday 6 March 2003 to present further written submissions. These submissions were duly received and considered by the Panel.
The first issue considered by the Panel was whether the members of the Rutherford family who had subscribed for shares in GHL had, by so doing, joined in holding or controlling more than 20% of the voting rights in DTL.
The relevant provisions of the Code
 Rule 6(1) of the Code (the fundamental rule) states:
(1) Except as provided in rule 7, a person who holds or controls-
(a) 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:
(b) 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.
(2) For the purposes of subclause (1), if-
(a) a person and any other person or persons acting jointly or in concert together become the holders or controllers of voting rights, that person is deemed to have become the holder or controller of those voting rights:
(b) a person or persons together hold or control voting rights and another person joins that person or all or any of those persons in the holding or controlling of those voting rights as associates, the other person is deemed to have become the holder or controller of those voting rights:
(c) voting rights are held or controlled by a person together with associates, any increase in the extent to which that person shares in the holding or controlling of those voting rights with associates is deemed to be an increase in the percentage of the voting rights held or controlled by that person.
 "Control" is defined in clause 3 of the Code as:
Control, in relation to a voting right, means having, directly or indirectly, effective control of a voting right; and controller has a corresponding meaning.
 Before the allotment of shares in GHL to the Rutherford family interests GHL was wholly owned by GIL, which in turn was effectively controlled by Mr Gould. GHL holds and controls 24.69% of the voting rights DTL so Mr Gould and GIL had "control" of the 24.69% parcel of DTL shares.
 To illustrate the working of the fundamental rule:
(a) If GHL were to sell its 24.69% of the shares in DTL to the Rutherford family; or
(b) If GIL were to sell all its shares in GHL to the Rutherford family; or
(c) If Mr Gould were to sell all his interests in GIL to the Rutherford family,
all those transactions would be caught by the fundamental rule 2 because in each case effective control of the 24.69% parcel of shares in DTL would pass to the Rutherford family. The fundamental rule is not limited to just the immediate holder of a parcel of shares.
 The analysis is not as straightforward when the transaction involves an upstream party and the transfer of control is not absolute, or indeed may not occur at all. That is the present case. GHL remains the holder and legal controller of the 24.69% parcel of shares in DTL. GIL has moved from being the owner of 100% of the shares in GHL to being the holder of 78.76% of those shares, with the Rutherford family interests holding the balance of 21.24%.
 Rule 6(2) of the Code contains the principal anti-avoidance provisions. The Panel has explained the application of these provisions in Code Word 7, the Panel's own publication, which is available on the Panel's website at www.takeovers.govt.nz.
 Rule 6(2)(b) is a deeming provision. It provides, for the purposes of the fundamental rule, that where a person holds or controls voting rights (in this case GHL holds and legally controls voting rights in DTL, while GIL had 100% of the shares in GHL) if another person (in this case the Rutherford family) were to join that person in the holding or controlling of those voting rights as associates, then the other person (the Rutherford family) would be deemed to have become the holder or controller of those voting rights (in DTL).
 Rule 6(2)(b) is an anti-avoidance provision intended to deal with the situation where someone controlling a quantity of voting rights is "joined" in the controlling of those voting rights by someone else and those two persons are associates. There are thus potentially two questions to address:
(a) Whether any new persons have joined existing persons in the holding or controlling of voting rights; and, if so
(b) Whether the new persons are "associates" of the existing persons.
Have the Rutherford family interests "joined" Mr Gould in the "controlling" of voting rights in Designer Textiles (NZ) Limited?
 It was argued for both GHL and the Rutherford family that to join in the controlling of voting rights in DTL required some positive arrangements that would empower the Rutherford family to influence how the DTL shares were voted. It was submitted that, except for the limited protections afforded by the Companies Act 1993 for minorities, the Rutherford family had no means of sharing in the control of the DTL shares, in that they did not have any board representation, and no shareholder agreement existed that would improve the otherwise relatively powerless position of a 21.24% minority that could not defeat either an ordinary or a special resolution of the company.
 The Panel guidelines referred to in paragraph 38 above contemplate that shareholders buying into a closely held company will, given the typical circumstances of governance, usually be joining in the controlling of a Code company shareholding held by such a company. However, the guidelines acknowledged that there may be exceptional circumstances where this will not be the case, and the Panel is persuaded that such exceptional circumstances do apply in this case.
 It is clearly a rare occurrence for investors in New Zealand to make an investment in a closely-held company like GHL of the present magnitude of some $4.2 million on an entirely "sleeping partner" passive basis with no checks and balances as to the conduct of that company.
 In other circumstances, the Panel is unlikely to be persuaded that there is no joining in the control of a Code company investment, merely by the absence of any power, as here, under GHL's standard constitution for a closely held company and the absence of any right, as here, under any shareholder agreement to commit Mr Gould to consult or take account of the Rutherford family's views.
 In addition to the formal, contractual position, the evidence from both Mr Gould and Mr Rutherford was to the effect that Mr Gould was intent on retaining control of GHL, and that the Rutherford family bought their shares in GHL accepting that they had no rights to influence GHL's governance, either in controlling its votes on DTL, or otherwise. Several points support this completely "hands off" approach to their investment:
(a) Although Mr Gould's original proposal provided for the Rutherford family to appoint a director to GHL, it was subsequently agreed that Mr Gould would instead appoint an independent professional director to join him on the board. Mr Gould retains the right to appoint and dismiss any such other director;
(b) The structure of the Rutherford family investment was split so that approximately half consisted of notes convertible into equity only at GHL's option, and which currently represent a debt security investment with no impact on GHL's shareholding rights; and
(c) The Rutherford family apparently accepts Mr Gould's right to pursue investments as he chooses - potentially to the extent of selling down the DTL investment. The extent of this control was recently demonstrated by GHL's purchase of a parcel of shares in Vertex Holdings Limited without consulting the various Rutherford family interests. The Panel was told the Rutherford family first learnt about the investment when it was announced in the media.
 Accordingly, the Panel accepts that the Rutherford family has not joined Mr Gould or GIL in the controlling of GHL's 24.69% holding in DTL(*3), and it is therefore unnecessary for the Panel to consider whether Mr Gould or GIL is an associate of the Rutherford family for the purposes of the deeming provision in rule 6(2)(b).
 However, that leaves the issues of whether, first, some or all of the Rutherford family are associates of each other in respect to their indirect investment in DTL, and secondly, whether the Rutherford family or some of them are associates of Mr Gould or GIL, so that rule 6(1)(a) would apply to prevent any increases in any of their shareholdings in DTL from the time that such associate status in respect of DTL arose.
Are the Rutherford family members associates of Mr Gould, and are the individual members of the family associated with each other?
 The Code defines "associate" as follows:
(1) For the purposes of this code, a person is an associate of another person if-
(a) the persons are acting jointly or in concert; or
(b) the first person acts, or is accustomed to act, in accordance with the wishes of the other person; or
(c) the persons are related companies; or
(d) the persons have a business relationship, personal relationship, or an ownership relationship such that they should, under the circumstances, be regarded as associates; or
(e) the first person is an associate of a third person who is an associate of the other person (in both cases under any of paragraphs (a) to (d)) and the nature of the relationships between the first person, the third person, and the other person (or any of them) is such that, under the circumstances, the first person should be regarded as an associate of the other person.
 The Panel heard extensive evidence on the relationship between Mr Gould and the Rutherford family, as well as between various Rutherford family members. The evidence covered:
(a) An historical business relationship involving ACL, later SEU, where Mr Gould "turned around" a company in which the Rutherford family had extensive interests. Both Messrs Gould and Scott Rutherford were directors of SEU;
(b) The eventual buying out of the Rutherford family investment, and a proposal that a significant portion of the sums realised by various family members be retained in a joint investment vehicle, ASL. Mr Gould and a colleague of his, Mr Arscott, were contracted to manage the investments of ASL;
(c) After somewhat more than a year of results that were less than expectations, the Rutherford family were considering various options for the future of ASL, including winding it up and distributing the proceeds to shareholders. At that point, Mr Gould proposed an investment in his company, the sole asset of which was then the DTL holding;
(d) The Rutherford family investment in GHL was arranged very informally, with a bare minimum of documentation. The investment was characterised by a high degree of trust by the Rutherford family in Mr Gould;
(e) Although there had been widespread representation of various branches of the Rutherford family on the ASL Board, the Rutherford family agreed not to take part in the governance of GHL;
(f) A number of members of the Rutherford family have kept a pool of investment moneys together over many years, first in Amuri Motors Limited, later ACL which, after changing its name to SEU, was taken over by Pyne Gould Corporation Limited. The family, through negotiations co-ordinated primarily by Mr Scott Rutherford, set up ASL and then in September 2002 agreed to the takeover of that company by GHL in exchange for the issue of shares in GHL;
(g) Although various branches of the Rutherford family pursued diverse other investments separately, they agreed on a common approach to the investment in GHL.
The Rutherford family members
 Having regard to the various components of the definition of "associate" in the Code (see paragraph 48) the Panel's view is that:
(a) The Rutherford family members who are shareholders in GHL have a personal relationship as between themselves, and acted jointly or in concert in respect of the acquisition of shares in GHL, and have so acted over many years while investors in ACL, SEU, ASL and now GHL. The Panel acknowledges that the number of shares allocated to particular Rutherford family members or trusts was left to them individually, but that did not stop the investment in GHL being arranged in concert;
(b) The Rutherford family members should, in these circumstances, be regarded as associates. In this regard it is important to appreciate that the issue of associate status does not require that one party controls another, and nor does this mean that on many occasions family members will not go their own way on investment matters without consulting other family members. But the circumstances of this case are the kind of circumstances to which rule 4(1)(d) is intended to, and does, apply.
 The Panel's conclusion is that for the purposes of the Code the members of the Rutherford family who are shareholders in GHL are associated persons of each other.
Mr Gould and the Rutherford family members
 So far as the relationship between Mr Gould, GIL and GHL on the one hand and the Rutherford family on the other is concerned, the Panel considers that there are strands of all three elements of the extended definition of "associate" in rule 4(1)(d) of the Code, so as to satisfy the requirements for association between the two.
 The Panel acknowledges that the requirements of rules 4(1)(a) and 4(1)(b) are not met by the relationship between Mr Gould and the Rutherford family members.
 Against a background of the earlier relationship as investment adviser to the Rutherford family interests in ASL, and the Rutherford family's respect for Mr Gould's business acumen, the circumstances of the Rutherford family's investment in GHL are characterised more than anything else by a level of complete trust in Mr Gould. This permeates the business relationship, the latest manifestation of which is their investment in GHL, the personal relationship, particularly between Mr Scott Rutherford and Mr Gould, and the ownership relationship which they now have via GHL, in respect of a significant holding in DTL.
 As an example, during the course of the meeting Mr Gould was asked why there was no prospectus for the offer of securities by GHL to the members of the Rutherford family who were shareholders of ASL. He said:
There were two grounds. One, I was known to them. I didn't consider that I was touting this around to the public. On the contrary, it was something that they really wanted to do. It suited both parties so demonstrably that it was more akin to - I won't say any more than that. It's just that they weren't the public. It suited both parties so well and also the economics of the deal were so demonstrably clear, cash box, single asset company.
Now, had Gould Holdings had other assets or other contracts or other intentions, contractual commitments, capital expenditure coming, anything like that, that would have it more complicated, or if we were going outside of the Rutherford family, if any of these circumstances had arisen then I would have got into gear and sought more legal advice on it.
 The length of the prior business relationship, the fact that both parties were entirely comfortable resolving their new business relationship in GHL on such informal terms, and the extent of the commitment made by the Rutherford family on this basis all reflect elements of both business and personal relationships that support the view that the Rutherford family are associates of Mr Gould in respect of any investment by them in DTL.
 Submissions on behalf of Mr Gould argued that the types of relationship contemplated in rule 4(1)(d) should exclude those such as where the Rutherford family have no influence over the Code company investment, and where there are no arrangements or undertakings in respect of control of the Code company investment. In other words, that "sleeping partners" are not associates.
 However, this imports elements of the arguments concerning the "joining in control" issue under rule 6(2)(b) which are not relevant here.
 The Panel takes the view that to come within rule 4(1)(d) the relationships do not need to exhibit any agreement over control of the shares or any particular form of undertaking about the voting rights attached to shareholdings in the Code company. Such arrangements may exist in some circumstances, but they are not a requirement. It is a question of fact in each case as to whether the nature of the relationships gives rise to the associate status. An entirely passive "sleeping partner" may be an associate.
 Buddle Findlay's submissions were similar to those of Chapman Tripp, and contended that "the circumstances" of the relationships as are required to be evaluated under rule 4(1)(d) connote an active involvement in the investment that Buddle Findlay submitted was not present here. For the same reasons, the Panel rejects the need for such active involvement. The breadth of definition is apt to catch the sort of relationship that exists between the Rutherford family and Mr Gould in the present case. To give the term the narrow interpretation advocated in the submissions would place an unjustified limitation upon rule 4(1)(d). The expression "in the circumstances" is to enable all factors to be considered in assessing the relationship taking into account the importance of the associate status and in particular rule 6.
 Whilst there may well be a case for attributing an associate status to the parties prior to 11 September 2002, at which time informal arrangements for the investment by the Rutherford family in GHL were settled, the Panel considers the preferable analysis is that the associate status in respect of investments in DTL would have crystallised at that time.
 Mr Rutherford emphasised that the earlier direct investments in DTL made by his family trust, his wife and himself, were all entirely independent investment decisions, not influenced by any advice from Mr Gould. Having said that, it is apparent that the decision to make those investments was significantly influenced by an appreciation that Mr Gould had himself taken a stake in DTL and was to be, in part at least (as Chairman), responsible for its ongoing fortunes. A significant part of those purchases was made in off-market transactions, either directly from Mr Arscott, the colleague of Mr Gould who had joined him in managing the investments in ASL and is now managing GHL, or indirectly as a result of Mr Arscott's facilitating an on-sale to the Rutherford family trust from another holder of DTL shares with whom Mr Arscott had initially placed them.
 The Panel concludes that Mr Gould, GIL and GHL are associates under rule 4(1)(d) of the Code of those Rutherford family members who are shareholders of GHL in respect of the holding or controlling of voting rights in DTL, and that this associate status crystallised on 11 September 2002. The reasons for this are:
(a) The time period over which Mr Gould has had a personal and business relationship with members of the Rutherford family, particularly through managerial and advisory relationships in ACL, SEU, ASL and now GHL;
(b) The closeness of the relationship, as evidenced by the trust showed by the Rutherford family in Mr Gould, including their willingness to invest in GHL on the basis of minimal documentation and without any direct input into management of the investments of that company;
(c) The financial commitment made by the Rutherford family to GHL, at a time when the sole asset of GHL was a substantial shareholding in DTL and when several members of the Rutherford family themselves had significant shareholdings in DTL;
(d) The nature of the relationship changed materially on 11 September 2002 on which date the Rutherford family agreed to invest in GHL.
Share acquisitions by Rutherford family members after 11 September 2002
 There were purchases of 700,000 DTL shares by Mrs Anne Rutherford (wife of Mr Scott Rutherford) since the 11 September 2002 agreement to invest in GHL. Although Mrs Rutherford was not at the ASL meeting on that date, she was among those who invested in GHL as a result of that discussion.
 In addition, the trustees of the Indiana Trust, including Mr Scott Rutherford, acquired an additional 53,000 DTL shares after 11 September 2002.
 Because the Panel considers that Mrs Rutherford and the trustees of the Indiana Trust have been associates of Mr Gould and GHL since 11 September 2002, they, like Mr Gould and GHL, have been constrained by the fundamental rule from acquiring further DTL shares except pursuant to Rule 7 of the Code. Consequently, the purchases by Mrs Anne Rutherford and the Indiana Trust since 11 September 2002 were made in breach of the Code.
 In respect of the issue of whether certain members of the Rutherford family who subscribed for shares in GHL joined Mr Gould in the control of the 24.69% parcel of shares in DTL owned by GHL for the purposes of rule 6(2)(b) of the Code, the Panel is satisfied that those family members did not join Mr Gould in the control of that parcel of shares. As such, they have not breached the Code by subscribing for shares in GHL.
 In respect of the purchases of shares in DTL undertaken by Mrs Anne Rutherford (700,000 shares) and the trustees of the Indiana Trust (53,000 shares) since 11 September 2002 the Panel determines that the members of the Rutherford family involved in those purchases have been associates of Mr Gould since at least 11 September 2002 and accordingly determines that it is satisfied that those acquisitions were made in breach of rule 6(1)(a) of the Code.
 The most straightforward means of addressing these breaches of the Code would be for Mrs Rutherford and the trustees of the Indiana Trust (Mr Scott Rutherford, Mrs Margaret Rutherford, and Ms Gael Rutherford) to provide enforceable undertakings to the Panel:
(a) that they will sell their shares in DTL acquired since 11 September 2002 (700,000 shares and 53,000 shares respectively) to persons not associated with either Mr Gould or the Rutherford family over a period acceptable to the Panel; and
(b) that they will not exercise any voting rights in respect of those shares pending that sale.
 The Panel is concerned at the failure of Mr Gould and the Rutherford family to provide, in response to summonses, relevant documents that were clearly material to the Panel's inquiry. This failure contributed significantly to the procedural difficulties referred to earlier in paragraph 29. This necessitated documents being produced to the Panel after the meeting, when they should have been available at the meeting.
 The Panel will deal with costs separately in terms of the Takeovers (Fees) Regulations 2001.
DATED at Auckland this 7th day of March 2003
SIGNED for and on behalf of the Panel by the Chairperson
1. Although described in the terms sheet as "Convertible Notes" the securities are more in the nature of Capital Notes, since the conversion to shares is solely at the discretion of GHL. In this determination the Panel refers to these securities as "notes".
2. This assumes that all members of the Rutherford family are "associates" of each other for the purposes of the Code. This question is dealt with later in the determination - see para 50.
3. This is because, if the Rutherford family members were associates of Mr Gould, then GHL's holdings in DTL, which are already over 20%, and those of the relevant Rutherford family member or members, would have to be aggregated for the purposes of determining compliance with rule 6(1)(a).
- rule 6(1)