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IN THE MATTER OF
the Takeovers Act 1993 and
IN THE MATTER OF
meetings held under section 32 of the Takeovers Act 1993 to determine several questions:
1. whether the directors of OTAGO POWER LIMITED have taken or intend to take, or have permitted or intend to permit, an action in relation to the affairs of Otago Power Limited, namely the refusal to register transfers of shares resulting from either an offer for 20% of the shares in Otago Power Limited made on 24 April 2002, or a takeover offer dated 8 May 2002 notice of which was given on 24 April 2002, made on by or on behalf of ELECTRICITY INVERCARGILL LIMITED AND THE POWER COMPANY LIMITED by BLUESPARKS LIMITED, LIGHTSWITCH LIMITED, POWER SURGE LIMITED and SHOCKWAVE LIMITED ("EIL/TPC") for all the shares in Otago Power Limited, that has resulted in, or could effectively result in, EIL/TPC's offer being frustrated and/or the holders of equity securities in Otago Power Limited being denied the opportunity to decide on the merits of the EIL/TPC's offer, thereby not acting or intending not to act in compliance with the Takeovers Code.
2. Whether the directors of OTAGO POWER LIMITED have taken or permitted or may take or permit action in relation to the affairs of Otago Power Limited, namely the giving of notice on 10 May 2002 to prospective bidders for the assets of Otago Power Limited that, contrary to the timetable for the sales process previously notified to interested parties in an Information Memorandum dated April 2002, final bids as to price could be submitted that day, subject to due diligence supporting the information previously conveyed to prospective bidders, that could effectively result in the Code offer dated 8 May 2002 made on behalf of ELECTRICITY INVERCARGILL LIMITED AND THE POWER COMPANY LIMITED by BLUESPARKS LIMITED, LIGHTSWITCH LIMITED, POWER SURGE LIMITED AND SHOCKWAVE LIMITEDbeing frustrated and/or the holders of equity securities in Otago Power Limited being denied the opportunity to decide on the merits of the offer, thereby not acting or intending not to act in compliance with the Code.
3. Whether the directors of OTAGO POWER LIMITED have taken or permitted or intend to take or permit action in relation to the affairs of Otago Power Limited, namely the despatch of a notice of a meeting of that company called to consider several changes to Otago Power Limited's constitution, that could effectively result in the Code offer dated 8 May 2002 made on behalf ofELECTRICITY INVERCARGILL LIMITED AND THE POWER COMPANY LIMITED by BLUESPARKS LIMITED, LIGHTSWITCH LIMITED, POWER SURGE LIMITED AND SHOCKWAVE LIMITED being frustrated and/or the holders of equity securities in Otago Power Limited being denied the opportunity to decide on the merits of the offer, thereby not acting or intending not to act in compliance with the Code.
4. Whether BLUESPARKS LIMITED, LIGHTSWITCH LIMITED, POWER SURGE LIMITED, SHOCKWAVE LIMITED, ELECTRICITY INVERCARGILL LIMITED AND THE POWER COMPANY LIMITED who on 8 May 2002 made a full takeover offer under the Code for all the shares of OTAGO POWER LIMITED that included a clause in the acceptance and transfer form attached to the offer that specified that by executing the acceptance form the seller is appointing the buyer power of attorney with respect to a number of matters, including exercise of voting rights at a meeting of the company and, separately, ONE OTAGO LIMITED AND DUNEDIN ELECTRICITY LIMITED, who on 11 May 2002 gave notice of an intention to make a full takeover offer under the Code for all the shares of OTAGO POWER LIMITED that included a clause in its acceptance and transfer form to the same effect, could thereby acquire voting rights in Otago Power Limited in excess of 20% of the total voting rights of the company other than in compliance with the fundamental rule in the Code.
17 May 2002
D O Jones (Acting Chairperson)
D J Stock, F Miller, M-A Borrowdale and L Walls for Otago Power Limited
J P H Oldfield, M Peters and P Greenwood for Bluesparks Limited, Lightswitch Limited, Power Surge Limited and Shockwave Limited and Electricity Invercargill Limited and The Power Company Limited
S Grant and R Macassey for One Otago Limited and Dunedin Electricity Limited
R A Dobson QC as counsel assisting the Panel
D Garvan, L Wilson and K Lawson (as representatives of Otago Power Limited)
R Polson and J Walsh (as representatives of One Otago Limited and Dunedin Electricity Limited)
M Walton, (as representative of Invercargill Electricity Limited and The Power Company Limited and their related companies Bluesparks Limited, Lightswitch Limited, Power Surge Limited and Shockwave Limited)
K G Morrell and T P Dolan (from Panel Executive)
19 May 2002
 Otago Power Limited ("OPL") is a co-operative company based in Balclutha. It was formed in 1992 when, as a requirement of the Electricity Companies Act 1992, the then Otago Electric Power Board was obliged to corporatise. It became a co-operative owned by the consumers. In 1998 OPL was obliged to divest either its line business or its generation and electricity retail business. It sold the latter.
 At a meeting on 27 February 2002 the shareholders approved a special resolution to sell the network assets for a minimum price of $73.5 million. The meeting had been called because OPL had received two indicative offers to purchase the assets from Powernet Limited ("Powernet") and Dunedin Electricity Limited ("DEL").
 The board of OPL then entered into a sales process for the network. It issued an Information Memorandum to interested bidders on 24 April 2002, seeking indicative bids by 10 May 2002, to be followed by due diligence, and final bids by 10 June 2002.
 As from 1 September 2001 OPL's network has been managed by Powernet, a company jointly owned by Electricity Invercargill Limited ("EIL") and The Power Company Limited ("TPC").
 On 24 April 2002 EIL and TPC:
 Various newspaper reports in The Southland Times indicated that this bid was unexpected. A report in the newspaper on 1 May 2002 attributed to Cherie Sivignon was headed "Directors may block southern power bid". The article included a statement that:
The consortium's bid to buy all the shares in Otago Power could supercede the company's plan to sell its assets. Otago Power lawyer David Stock, of Christchurch, said last night the directors wanted the assets sales programme to continue.
"(To let) everybody who's put time and effort into having a fair shot at making an offer for the assets," Mr Stock said. Otago Power directors wanted an "even playing field on which people can make bids on the same basis".
"As a result of that you can take it for granted (the board) will not be approving the transfer of shares." However, no decision was made by the board and Otago Power representatives were due to meet consortium representatives today to discuss the issue.
 As a result of these published statements on 2 May 2002 the Panel requested comment and explanations from OPL. The Panel met on the morning of 8 May 2002 to consider the company's responses. The Panel recognised that it may have to consider the matter further. The Panel also considered a complaint from OneOL that EIL/TPC was holding acceptances for more than 20% of the voting rights in OPL other than pursuant to a Code offer. The Panel subsequently satisfied itself that any acceptances above the 20% level would be returned by EIL/TPC to shareholders promptly.
 Late in the afternoon on 8 May 2002 the Panel received a request from EIL/TPC to hold a section 32 meeting to investigate the conduct of OPL's directors in refusing to register transfers of shares in favour of the offerors. By 6 May 2002 EIL/TPC had acceptances in terms of its informal offer for 20% of shares. It was alleged that OPL's refusal to register was a defensive tactic for the purposes of rule 38 of the Code that could frustrate the offer to be made by EIL/TPC.
 On the morning of Friday 10 May 2002 the Panel met to consider the request from EIL/TPC. The Panel took into account material already received from OPL in response to the Panel's own inquiries. The Panel considered that OPL's directors may not have acted, or may not be acting, or may intend not to act in compliance with the Code because of their public statements, confirmed to the Panel, that they would not register transfers in favour of the offerors without changes being made to OPL's constitution. The Panel retained Counsel to assist and obtained urgent advice on the point.
 The Panel decided to convene a section 32 meeting on Friday 17 May 2002 in order to determine whether it should exercise its powers under that section. The Panel gave notice of the meeting to OPL and EIL/TPC. The Panel did not make any restraining orders in relation to the matter. OPL was advised that one reason why the Panel did not make any restraining orders was because of an expectation that OPL would not speed up the sales process for its assets ahead of the timetable already set out in its Information Memorandum of April 2002.
The first issue determined at the section 32 meeting was whether such refusal to register transfers constituted defensive tactics other than in compliance with the Code.
 At 5.00 p.m. on Friday 10 May 2002 the Panel was advised that EIL/TPC was making a further complaint that evening in relation to certain actions by the board of OPL concerning the asset sale process. It was alleged that OPL was accelerating the sales process for its assets in a manner that again constituted defensive tactics for the purposes of rule 38 of the Code. OPL had given notice to bidders at 2.14 p.m. on 10 May 2002 that it was prepared to receive final bids as to price for its assets at 5.00 p.m. that day, instead of just indicative non-binding bids as had been described in the Information Memorandum.
 The Panel met at 7.00 p.m. on Friday 10 May 2002. It took advice from Counsel. After considering the allegation the Panel considered that the directors of OPL may have taken or permitted or may take or permit action in relation to the asset sales process that could effectively result in the Code offer on behalf of EIL/TPC being frustrated. The Panel decided to convene a meeting of the Panel on Friday 17 May 2002, for the purpose of determining whether to exercise its powers under section 32 in relation to the matter. The Panel also decided to issue interim restraining orders under section 32(2) to prevent the directors of OPL from acting in a way that was inconsistent with the original timetable for the assets sale. This order will expire at 5.00 p.m. on 19 May 2002. The Chairman of OPL was advised of the making of the restraining order at 8.05 p.m. on 10 May 2002 and a formal notice of meeting was sent out later that evening.
The second issue determined at the section 32 meeting was whether an acceleration of the asset sale process would be other than in compliance with the Code.
 On Saturday 11 May 2002 EIL/TPC distributed the offer document for their full offer for all the shares in OPL dated 8 May 2002 at a price of 3.10 per share. On the same day One Otago Limited ("OneOL"), a subsidiary of DEL, gave notice of its intention to make a full takeover for OPL at a price of $3.15 per share. This followed an informal offer OneOL had made for a first 20% of the shares of OPL dated 7 May 2002.
 On Monday 13 May 2002 the Panel received a request from OneOL for leave to appear and be represented at the Panel's meeting on Friday 17 May 2002. The Panel agreed to this request at a meeting on 14 May 2002 and advised the parties accordingly.
 On Monday 13 May 2002 the Panel received a further request from EIL/TPC that the Panel issue restraining orders in relation to a proposed notice of a meeting of OPL shareholders to be called by that company for 6 June 2002, to approve amendments to the constitution that could have a bearing on takeover offers. The Panel met to consider this request at 4.00 p.m. on Tuesday 14 May 2002. The Panel took advice from Counsel. The Panel considered that the directors of OPL may have taken or permitted or may take or permit action in relation to the affairs of the company that could effectively result in the Code offer made by EIL/TPC being frustrated. The Panel accordingly decided to consider this matter at the meeting of the Panel being called for Friday 17 May 2002. The Panel decided not to make any interim restraining orders.
The third issue determined by the Panel at the section 32 meeting was whether such notice of meeting was otherwise than in compliance with the Code.
 The Panel routinely reviews takeover offer documents and notices. On Wednesday 15 May 2002 the Panel executive observed that the takeover notice given by OneOL and the takeover offer made by EIL/TPC both included clauses in the acceptance and transfer form that specified that, by executing the acceptance form, the seller was appointing the bidder as an attorney to, among other things, exercise the voting rights attached to the shares. On Wednesday afternoon the Panel met again. It took advice from Counsel. It took into account urgent comments received from the legal representatives of EIL/TPC and OneOL. The Panel considered that EIL/TPC and OneOL/DEL may have acted or may be acting or may intend not to act in compliance with the Code by obtaining voting rights in OPL without complying with the fundamental rule. The Panel decided to convene a meeting, at the same time as that already convened for Friday 17 May 2002, at which to consider whether it should exercise its powers in relation to the matter. The Panel also decided to issue interim restraining orders to restrain EIL/TPC from asserting an entitlement to exercise voting rights, or exercising voting rights in Otago Power Limited obtained as a result of acceptances completed in respect of the offer despatched to shareholders on or about 11 May 2002, that EIL/TPC may have or may receive from shareholders. These decisions were conveyed to the parties at around 1.00 p.m. on Thursday 16 May 2002. The interim restraining order expires at 5.00 p.m. on 19 May 2002.
The fourth issue determined by the Panel at the section 32 meeting was whether such acquisition of voting rights was not in accordance with the Code.
 By way of procedure the Panel provided the original complaint by EIL/TPC to OPL for comment by 4.00 p.m. on Tuesday 14 May 2002. Those submissions in turn were provided to EIL/TPC and OneOL with a request for any submissions in response by 9.00 a.m. on Thursday 16 May 2002. Those further submissions were provided to OPL who were given until 4.00 p.m. on Thursday 16 May 2002 to provide any final comment. In relation to the fourth matter the affected parties were asked for submissions by 5.00 p.m. on Thursday 16 May 2002.
First Issue - Does refusal to register transfers amount to defensive conduct?
 Rule 38 of the Code provides as follows:
(1) If a code company has received a takeover notice or has reason to believe that a bona fide offer is imminent, the directors of the company must not take or permit any action, in relation to the affairs of the code company, that could effectively result in -
(a) an offer being frustrated; or
(b) the holders of equity securities of the code company being denied an opportunity to decide on the merits of an offer.
(2) Subclause (1) does not prevent the directors of a code company taking steps to encourage competing bona fide offers from other persons.
(3) Subclause (1) is subject to rule 39.
The Panel first considered whether the refusal by the directors of OPL to register transfers could effectively result either in the EIL/TPC offer being frustrated, or in the holders of the equity securities of OPL being denied an opportunity to decide on the merits of an offer, for the purposes of rule 38(1).
 The Panel considers that the announced refusal to register share transfers taints at the very least the OPL shareholders' perception of the bidders' ability to consummate their takeover, and creates a significant uncertainty in the minds of shareholders. Contractually, EIL/TPC could pay for shares being sold to it without being assured of being able to get legal ownership via registration of transfers, but it would clearly be commercially imprudent for it to do so. The doubt about being paid would have an adverse impact on the bidders' initiatives with OPL shareholders. The Panel is mindful that in terms of the initial offer for 20% of the shares in OPL the bidders recognised the prospect of significant delay in achieving registration but while this might mean that the refusal to transfer does not constitute frustration in the strict contractual sense, in the view of the Panel, there is in the commercial sense, nonetheless an effective frustration of the Code offer.
 Even if the directors' decision not to register transfers applied only to the first 20% of OPL shares acquired by EIL/TPC (i.e. outside the terms of its Code offer), there was at the very least an impression or expectation given that the same treatment would apply to any shares acquired under the Code offer, and the adverse impact applies to and therefore could effectively frustrate the Code offer.
 The Panel next considered whether the OPL Board had any valid grounds for refusing to register. Section 84 of the Companies Act 1993 imposes an obligation on companies to forthwith enter the names of transferees on the share register as holders of the shares, except in narrowly defined circumstances including where the constitution expressly permits the Board to refuse or delay registration.
 The ground advanced on behalf of OPL for refusing to register relies on the express provisions of the constitution which only permit directors to register transfers of rebate shares to persons who are "consumers". The company contends that its shares are currently rebate shares. "Consumer" is defined in clause 2.1 of the constitution as meaning:
a person who is connected to the network owned by the company and
who is directly or indirectly paying for the use of that network but excludes a Trader or other person who has entered into a use of systems agreement with the company for the purposes of selling or delivering energy.
"Rebate shares" are defined to mean:
a share issued to a Consumer and which entitles that Consumer (but not a Trader) to a rebate in respect of services.
The Panel was told that rebate shares are issued to and held by shareholders in proportion to electricity usage.
Under the constitution there is an upper limit of 2 million on the number of rebate shares ("the cap") that can be held by any single shareholder (clause 7.1), and requirements for transfer or surrender of rebate shares if a holder ceases to be a consumer or exceeds the cap (clause 9.1). Only the holders of rebate shares are entitled to any rebates payable by the company (Clause 6.1 (a)).
 The Panel notes that in relation to a meeting of the OPL Board meeting held at 12.55 p.m. on 9 May 2002 on whether it should register the 20% shares acquired by EIL/TPC, the minutes do not record the Board considering a refusal to register on the basis that the purchasers were not consumers at all, and implicitly recognised that the purchasers could qualify as consumers by delivering an ICP number. In evaluating reasons for resisting registration, the minutes suggest the Board gave primacy to their stated objective of keeping faith with the asset sale process, and cited other grounds that appear not to relate to any possible constraint on registration in the company's constitution. The resolution to refuse registration relied simply on clause 3.4 of the constitution, which provides that a decision of the Board on any person's entitlement to become a shareholder shall be conclusive and binding.
 The Panel does not accept that the Board is entitled to imply any additional requirements on consumers seeking to register shares, assuming that they are rebate shares. The constitution does not permit a judgement as to the "genuineness" of their status as consumer. This is notwithstanding the provisions of clause 3.4 of the constitution, referred to above, which of course must be read subject to the provisions of section 84 of the Companies Act 1993.
 At the hearing, it was conceded by OPL that the EIL/TPC companies had conformed with the bare requirement to register as consumers, notwithstanding the OPL Board having apparent reservations as to the "genuineness" of their purpose in doing so.
 It was also suggested that the Board was entitled to take into account a concern that because the initial share purchases by the four entities used by EIL/TPC to acquire shares were an aspect of a takeover offer and because the shareholding cap applying to rebate shares would not entitle them to acquire more than 50%, then such concern would justify a refusal to register shares where the declared purpose for the acquisitions could never be achieved. In response, it was submitted for EIL/TPC first, that the cap had not yet been reached, and secondly that even if it had been, the existence of the shareholding cap was not an express provision that precluded registration as required by section 84 of the Companies Act 1993 but a procedural right on the part of the company to compel a transfer or surrender which followed from the cap being exceeded. EIL/TPC submitted that in respect of shares for which it is registered as the owner, but which take it beyond the cap, the power of the Board to require a surrender of shares is not of itself a reason to refuse registration in the first place. The Panel is inclined to accept that position.
 Accordingly, the Panel finds that rejecting the EIL/TPC companies' status as "consumers"does not justify the OPL Board's refusal to register their transfers.
 There is however a further ground for challenging the Board's grounds for refusing to register transfers to EIL/TPC, which may have significant ramifications when considering the other issues before the Panel. It is argued that the company's shares are currently not rebate shares, but ordinary shares, in respect of which the constitution does not provide any restriction on the identity of those entitled to be registered. The company was formed under the predecessor of the Co-operative Companies Act 1996, with the apparent intention that it would be owned by consumers of the electricity sold by the company, and transmitted to such consumers through a lines network also owned by it. Profits could most efficiently be distributed by way of rebates, reflecting the charges for the services supplied to each consumer, from the company. The class of rebate shares was apparently created with the restrictions described above, to conform with the co-operative companies model and to ensure that the profits were proportionately returned to the consumers contributing to them.
 Clause 5.1 of the constitution provides that the Board may issue rebate shares, ordinary shares, preference shares, deferred shares, convertible shares, options, or such other types as the Board considers appropriate. "Ordinary" shares are not defined in the constitution but can reasonably be assumed to have the generic characteristics of equity securities as provided under section 36 of the Companies Act 1993, in particular the right to an equal share in dividends authorised by the Board (s.36(1)(b)).
 In contrast to the constraint on ownership of rebate shares in clause 3.1 of the constitution, clause 3.2 provides that any person shall be entitled to be the holder of Preference shares, Dividend shares, and other shares issued by the company which the Board determines shall not be subject to any restriction on transfer. The Panel notes that clause 5.1 of the constitution does not specifically empower the Board to issue Dividend shares. Such shares were to issue on conversion of preference shares in terms of a provision in the constitution, since revoked, that empowered the company to require the holders of preference shares to accept conversion of them to Dividend shares. To the extent that a critical difference between rebate and ordinary shares is that the former give an entitlement to distributions reflecting extent of business conducted with the company and the latter give an entitlement to dividends calculated on a return per share, Dividend shares may well be a subset of ordinary shares.
 The distinction between rebate and ordinary shares became material in 1998 when further statutory reforms of the electricity industry required the separation of lines network businesses from the generation and retailing of electricity. OPL sold its retailing business, retaining its lines business. Electricity was thereafter sold to the consumers by the retailer, who utilised the company's lines network and added the cost that the company charged it for conveying electricity, to the charges for that supply. The Panel was told that the retailer refused to provide details of the volume of usage by consumers, so it became impossible for the company to calculate rebates proportional to the volume of usage. The company accordingly commenced and has since distributed profits by way of dividends on a cents per share basis consistent with the requirements of the Companies Act 1993 that distributions be made pro-rata to all shareholders. Whereas previously rebates were not paid to "dries" (i.e. those with a connection as consumers but not currently receiving power), no distinction has since been drawn on the basis of qualifying electricity usage and all shareholders - whether dries or not - have been receiving dividends. The constitution gives the directors the right, at their discretion, as to whether to classify and reclassify shares.
 The company's audited financial statements show that significant imputation credits were applied in payment of dividends in the 2000 financial year, which would not have arisen had distribution been by way of rebates. The directors' formal reporting to shareholders in their financial statements shows a progressive reclassification from rebate shares to ordinary shares which are accounted for in separate categories. The latest financial statements for the year ending 31 March 2001 show the last transfer of a residual 1210 "ordinary (rebate) shares" at $1 per share to "ordinary shares" at 25 cents per share, accounting for all the issued capital as being in this latter category. The directors confirm that there has been no adjustment to the number of shares allocated relative to usage since 1998. Notwithstanding that the company can now reflect levels of usage, no adjustment has been suggested in recent months.
 It was submitted for the Directors that the audited financial statements are wrong and that the classification as ordinary shares results from sloppy or confused thinking. The directors have thought that they could use the terms interchangeably. They further say that the transformation from one class of shares to another could not be done without shareholder approval, which has not been sought or obtained. The Panel does not accept there is such a requirement. Clause 5.8 (g) of the constitution treats reclassification by the Board of ordinary shares to rebate shares and vice versa as one of a number of alterations that are excluded from the types of alteration to class rights requiring shareholder approval. Indeed, the Board's own conduct in considering reclassification of shares in January and April 2002 demonstrates reliance on clause 5.8(g) and the absence of any requirement for shareholder consent.
 The Directors of OPL also submit in support of their position that there has been no reclassification from rebate to ordinary shares, that such a change was not necessary because dividends can be paid on rebate shares, thereby obviating the need for reclassification when change was forced on the company in 1998. This submission depends on clause 10.1 of the constitution which specifies as follows:-
10.1 Power to pay a dividend and rebate
Subject to the Board being satisfied that the company will meet the solvency test after the dividend or rebate being authorised by the Board is made the Board may pay a dividend or rebate to any shareholder or other persons entitled thereto. Dividends and rebates shall be paid in accordance with the terms of issue of the securities then on issue. The Board may pay Rebates toward holders of Rebate Shares on such basis as is determined by the Board from time to time PROVIDED THAT any distribution of rebates must be fair and equitable as between shareholders. [Whilst the use of "R" in "Rebates" in the third to last line might suggest it is a defined term, there is no such definition.]
 The Panel does not accept that the form of words "may pay a dividend or rebate to any shareholder" creates a flexibility for the Board to distribute profits by whatever means it chooses, irrespective of the classification of the shares at the time. Certainly it is contrary to the scheme of the other relevant provisions in the constitution (and indeed the last sentence in this clause) that the apparent flexibility be interpreted to entitle the Board to pay a rebate to ordinary shareholders, instead of a dividend. The common-sense interpretation is that if a dividend is contemplated, it is payable to ordinary shareholders and if a rebate is contemplated, it is payable to rebate shareholders. The distinctly different modes of accounting to shareholders for profits justifies separate classes of shares, and practically determines what the classification will be. The constitution provides that they are different, and the directors' formal presentation of the company's position in the financial statements cannot be disavowed.
 The Panel accepts that classification of the company's shares may have been the subject of only cursory and possibly muddled thinking since 1998. For instance the notes in the 2001 financial statement where the classification is of ordinary shares state:
the shares are not tradeable. Ordinary shares have one vote for each share held, but a holder will not be able to exercise more than 10% of the total votes cast at a meeting of the company.
 The first and last of these characteristics are of rebate, rather than ordinary shares. It appears that the classification issue has only been revisited with any meaningful degree of analysis once it had significance as an aspect of the company's refusal to register transfers to EIL/TPC. A very helpful summation of the position pertaining shortly before potential takeover issues arose is set out in an explanatory memorandum prepared for shareholders in January 2002 by OPL's advisers, PricewaterhouseCoopers, in respect of the proposal to sell the company's assets. It reports as follows:
2.3.1 Capital Structure
OPL's capital structure currently consists of ordinary shares only. Previously existing preference shares which carried a fixed rate of return have been entirely redeemed. ……
Whilst OPL's constitution distinguishes between rebate shareholders and other shareholders all shareholders are currently considered to be of the same class. Rebate shares may only be held by a consumer (i.e. a person who is connected to the network and using the services of the company) or a person approved by the Board who is taking or will take services from the company. It is a decision for the Board as to whether shares are rebate or of another type. The Board therefore has a discretion over the composition of the membership of OPL.
In a subsequent paragraph (2.4, page 7) the report continued:-
The Board has resolved that if OPL continues as a distribution business with a co-operative structure that it will, now that the ability exists to do so, return to a rebate or discount structure on lines charges for those shareholders that are connected to the network. OPL intends to pay a dividend in the current year, but thereafter, will revert to the former philosophy of co-relating returns with electricity usage.
 These comments reflect a recent change in the relationship with the electricity retailer that enables OPL to access details of the extent of electricity usage by each consumer. The company was therefore pursuing the prospect of reverting to distributions by way of rebates, but had deferred any such change until Inland Revenue clearance was given for the proposed mode of processing rebates. A firm decision was made to account to shareholders by way of dividend for the year ended 31 March 2002, and initiatives to obtain an IRD clearance ceased in February 2002 after the shareholders had resolved to pursue a sale of the company's assets. The minutes of an OPL Board meeting on 30 April 2002 at which the EIL/TPC takeover bid was first discussed make reference to the shareholding cap preventing any one shareholder holding more than 2 million rebate shares, and later record:-
During the course of discussion, it was moved by Mr Lawson and seconded by Mr McKeown that the Directors reaffirm their previous decision that all the shares of the company on issue are all rebate shares - Carried.
 The Panel was not provided with any specific evidence of the "previous decision" to classify all shares on issue as rebate shares, but assumes that it is the apparent decision made in January 2002, to revert to distributions by means of rebate as a consequence of recently available data on usage from the electricity retailer. However, that decision which was to apply only after 31 March 2002, was conditional on Inland Revenue clearance, and would not be pursued if the shareholders resolved to pursue a sale of the company's assets, as they so did resolve.
 The decision was conditional and prospective, did not effect a reclassification of the shares at the time, and was hardly capable of "reaffirmation" in April when neither of the material conditions had ensued. If the Panel were wrong in this finding and there was an independent reclassification of the shares as rebate shares on 30 April 2002, the Panel would want to consider whether that constituted defensive tactics contrary to rule 38. It does not consider it necessary to do so.
 The Panel does not overlook clause 3.3 of the constitution which provides that the decision of the Board as to classification of shares is binding on all shareholders of the company and any proposed transferee. Without questioning the enforceability of that provision in specific dealings between the company and a shareholder, the company cannot exclude the jurisdiction of either the court or the Panel to consider the correctness of conduct, in this instance in the context of alleged non compliance with the Code.
 Section 33 of the Co-operative Companies Act 1996 provides that only transacting shareholders (i.e. rebate shareholders in the OPL context) may vote, unless the constitution provides otherwise. Clause 14.2 of the OPL constitution provides that Deferred shares, and in most situations Preference shares, have no voting rights. Otherwise, clause 5.2 provides that the Board may confer voting rights, effectively as it sees fit. The financial statements record a usual voting entitlement for ordinary shares.
 For all the reasons set out above, the Panel takes the view that the company's shares are currently ordinary shares, so that there is no provision in the constitution that would justify a refusal to register transfers. Although the concept of defensive tactics implies a strategy motivated by a wish to disrupt or impede a potential or existing offer, the terms of rule 38 do not require any finding on motivation or intention. The test is solely the potential consequences of the target company's conduct, in terms of whether its action could effectively result in the offer being frustrated. The directors' evident desire to ensure the best return to shareholders and their concern that this might be jeopardised if a takeover offer for the shares was able to pre-empt the bidding process already underway in respect of OPL's assets, represents the material context in which they have made their decisions, but is not in the end determinative of whether such conduct is not in compliance with the Code.
 The Panel is not satisfied that the company has complied with rule 38 of the Code, because the refusal to register transfers when its constitution did not require that refusal could effectively result in the EIL/TPC offer being frustrated.
 The Panel orders, under section 33(d) of the Takeovers Act 1993, that OPL be restrained from taking any action that is or that may be reasonably expected to constitute a contravention of the Takeovers Code, namely that OPL be restrained from refusing to register transfers presented to it for registration by or on behalf of EIL/TPC, or One Otago Limited.
 The Panel is mindful of its power under section 33(h) to make additional orders directing relevant actions to be taken for the purpose of securing compliance with other orders made. The approach of the Panel is not to intervene in takeovers more than is necessary to ensure compliance. Given the overall effect of this and the remaining aspects of this decision, and the Panel's expectation that all those involved will respect the effect of the orders made, the Panel does not make any such further order on this aspect of the matter.
 At 2.14 p.m. on 10 May 2002 (less than 3 hours before indicative bids were due) the bidders received a document headed 'Notice to All Bidders' which included the following statement;
Some bidders may wish to consider their position as under the information memorandum OPL is entitled to accept any bids notwithstanding that this may not be in accordance with the sales programme.
Bidders should also take the above into account and in particular may wish to consider lodging bids on the basis that:
 The Panel was concerned that any acceleration of the timetable for the asset sale of OPL could effectively result in the Code offer on behalf of EIL/TPC being frustrated and/or the holders of equity securities in OPL being denied the opportunity to decide on the merits of the offer. EIL/TPC's submissions included this point.
 OneOL argued that if the Board of OPL has available to it an offer to purchase the electricity network assets at a price which can be established as being likely to result in a return to shareholders on liquidation of OPL that is superior to the price under any Code offer then the Board of OPL should not be restrained from acceptance of such an offer for the assets. OneOL also advised that the Directors of OPL presently have available to them a bid or bids for the electricity network assets which are superior to the prices under the takeover offers. Consequently OneOL argued that it was not appropriate that the Panel should make a determination that a sale of the electricity assets concluded prior to 10 June 2002 would not comply with the Code or that the interim restraining order presently enforced should be continued beyond 19 May 2002.
 At its s 32 meeting on 17 May 2002, the Panel received an undertaking from Messrs Garvan, Wilson and Lawson, as Directors of Otago Power Limited, that Otago Power would follow the sales process and timetable in the Information Memorandum and will not enter into any conditional or unconditional agreement to sell the assets of OPL before 10 June 2002. EIL/TPC agreed that on the basis of the undertaking, they did not wish to pursue this issue any further.
 In view of the OPL directors' undertaking, the Panel is satisfied that the directors of OPL intend to comply with the Code in this regard. The Panel's interim restraining order, in respect of this issue, will expire at 5.00 p.m. on 19 May 2002.
 On 13 May 2002 EIL/TPC complained to the Panel in respect of OPL's intention to call a meeting of shareholders to consider a change to the company's constitution. The explanatory note to the draft notice of meeting stated that the constitution of OPL contains restrictive provisions under which it would be difficult for a person to make a takeover bid for the shares in OPL. The proposed resolutions purported to remove some of those restrictive provisions in the constitution. The Board proposed that the implementation of such changes, if approved, would be deferred, initially until 20 June 2002, and thereafter at the Board's discretion. The effect of this was potentially to disrupt the timing of a takeover, and had implications for the competitive positions of bidders in the asset sale process as against those mounting takeover offers.
 EIL/TPC submitted to the Panel that they and OneOL are entitled as of right to have share transfers registered. They argued that there was no need for the proposed changes to the constitution intended to achieve that result.
 At the s 32 meeting on 17 May 2002 the Panel noted that its decision on 14 May 2002 to convene that meeting had been made having regard to the terms of a document described as the "Final Draft Notice of Meeting" as sent on 10 May 2002 to all bidders. However a revised draft had been proposed by the time of the Panel hearing on 17 May 2002 which removed or modified many of the elements of concern which had arisen with the previous draft. Significantly the discretions reserved to the directors in the previous draft which permitted the directors to defer the introduction of the amendments to the constitution to a date later than 20 May 2002 had been removed. With the consent of all parties the Panel considered the revised draft notice.
 The Panel considers that the revised draft notice of meeting does not raise issues of possible non-compliance with rule 38 of the Code because the restrictions in the previous draft which appeared to be of a nature which could frustrate EIL/TPC's offer were no longer proposed. The Panel has therefore determined that it is satisfied that OPL intend to act in compliance with the Code in respect of this third issue.
 OPL considered that the provisions in the acceptance and transfer form being used by EIL/TPC and that to similar effect which OneOL intended to use, did not comply with the Code because they involved the acquisition of voting rights in the company's securities contrary to the fundamental rule (rule 6).
 OneOL agreed with OPL that use by OneOL of its proposed form would not comply with the fundamental rule, from the rather more comfortable position of being able (with the consent of the company) to amend the relevant provision in the acceptance form it would use, before dispatch of its offer to shareholders.
 EIL/TPC submitted that both as a matter of interpretation of the terms in its acceptance and transfer form, and as a matter of construction of applicable provisions of the Code, the transfer of voting rights was permissible, and complies with the Code. It was important in EIL/TPC's arguments that it did not intend transfer of any voting rights to occur until its offer was unconditional. Interpreting the terms of the acceptance and transfer form, it argued this arose because the form was a part of the offer, and therefore subject to the full terms of the offer. It was argued that those terms made it clear that any acceptances were conditional on the acquirer securing more than 50%.
 The Panel finds that on the ordinary meaning of the words used in the form, by signing the form a selling shareholder appoints the buyer as his or her attorney for voting the shares with immediate effect. The detailed terms of such power of attorney are introduced with the following words:-
by the sellers execution on the face of this form, the seller hereby enters into a power of attorney in favour of the buyer as follows:
 The Panel does not accept that any of the other provisions of the form qualify or contradict the ordinary meaning of the relevant parts of it. Nor is there any relevant cross reference to the detailed terms of offer that would render it subject to a qualification, such as that transfer of voting rights does not apply until the purchasers takeover offer is unconditional. The wording used in this acceptance form differs from usual market practice, which generally specifies that any power of attorney for voting purposes or proxy is not to operate until the takeover offer is unconditional.
 Nor is the Panel persuaded on a proper construction of the Code or on a proper construction of the terms of acceptance form used, by the arguments on behalf of EIL/TPC to the effect that acquisition of voting rights by power of attorney in respect of shares between 20 and 50% can occur and comply with the Code because they are being acquired as part of a full Code offer. Under rule 7(a) a full Code offer is for the acquisition of the voting securities of a Code company. Acquisition of voting rights under a power of attorney is an altogether different matter, not capable of being made compliant with the Code merely by being incorporated in a Code offer.
 Accordingly the Panel finds that use of the power of attorney to effect a transfer of voting rights to the bidders before the takeover offer is unconditional, does not comply with the fundamental rule.
 The Panel heard a range of views as to what was the most appropriate course by means of orders to deal with the non-compliance. OneOL submitted that such a lack of compliance with the fundamental rule invalidated the offer, was not capable of correction, and that EIL/TPC should be required to make a new Code compliant offer from the start of the process. At the moment EIL/TPC is in the market with its offer, whereas OneOL cannot dispatch the terms of its offer to shareholders until 25 May 2002. There would be a significant potential advantage to OneOL if its offer was available for acceptance by shareholders for a period when EIL/TPC were forced out to the bidding, especially where OneOL's offer was available to shareholders for a larger part of the period until the asset sale process is scheduled to be concluded.
 OPL was inclined to accept that the nature of the non-compliance could be cured by the grant of some appropriate exemption by the Panel, subject to the practical concern that all possible steps be taken to avoid or minimise confusion for shareholders who have already been presented with a complex array of documents in respect of the future of their shares. OPL's practical concerns were closely linked to the company's concern that takeover offers for the shares still be "live" when the Board received final bids on the asset sale process, due to occur on 10 June 2002. The Panel can find no rational justification for including, in whatever remedial steps are decided upon on this issue, a provision that requires EIL/TPC to extend their offer by a number of days, as a condition of remedying the non-compliance with the fundamental rule.
 For their part, EIL/TPC submitted that any non-compliance (which they denied) was adequately addressed by the Panel accepting their undertaking not to rely on the power of attorney transferring voting rights, and for them to communicate unequivocally to all shareholders that the terms of the transfer were a mistake, and that any shareholders accepting the offer remained free to exercise the voting rights attaching to them, until the EIL/TPC's offer was declared unconditional.
 The Code offer itself is compliant. It is the terms of the related appointment of a power of attorney that raises non-compliance. The Panel is not prepared to allow an acceptance form to be used in an otherwise Code complaint offer, when any aspect of the form does not comply with the fundamental rule. In the circumstances of this case however the Panel does not consider any useful purpose would be served by requiring the EIL/TPC bid to be withdrawn requiring them to start afresh.
 The Panel is not satisfied that EIL/TPC has complied with the Code namely by acquiring or attempting to acquire voting rights on the receipt of signed acceptance forms under their offers for shares in OPL, which acceptance forms would not comply with the fundamental rule of the Takeovers Code. Consistently the Panel would not have been satisfied that OneOL would have intended to comply with the Code for the same reason, if they despatched to shareholders the form of acceptance of which they have given the company notice.
 The Panel does not consider any order is necessary in respect of this element of non-compliance by OneOL, because OneOL has assured the Panel that it will vary the terms of its form before dispatch to shareholders so as to remove the objectionable element of it. It has the approval of OPL to do so.
 The Panel Orders under section 32(4) of the Takeovers Act 1993 in respect of the fourth issue that EIL/TPC be restrained from taking any action that is or that may reasonably be expected to constitute a contravention of the Takeovers Code, namely asserting an entitlement to acquire voting rights, or exercising voting rights in OPL obtained as a result of acceptances completed in respect of the takeover offer dispatched to shareholders on or about 11 May 2002, other than in the following circumstances:
(a) Where EIL/TPC has, by acceptance of the first 20% offer and subsequent registration of the share transfers obtained ownership of the underlying shares in which event it may exercise voting rights in respect of those underlying shares; or
(b) After its offer has become unconditional.
 For the purposes of securing compliance with its order, the Panel directs EIL/TPC to write to all OPL shareholders:
(a) Informing them that EIL/TPC do not have power to exercise voting rights which arise from acceptance by any shareholder of the EIL/TPC takeover offer until they receive acceptances in respect of more than 50% of OPL's shares, with an exception in respect of shareholders who have been paid as part of acquisition under EIL/TPC's offer for the first 20%.
(b) Specifying that all shareholders who accept their full takeover offer and have not been paid in respect of the first offer for 20% of OPL's shares remain entitled to exercise the voting rights attaching to their shares until advised that EIL/TPC's offer is unconditional.
(c) The wording of this communication by EIL/TPC to OPL shareholders is to be approved by the Panel prior to its despatch.
 Notwithstanding the length of this decision, numerous arguments raised with the Panel have not been expressly addressed. The parties can be assured that all matters put to them have indeed been taken into account.
 The Panel will address matters in relation to costs by correspondence with the parties.
DATED at Auckland this 19th day of May 2002
SIGNED for and on behalf of the Panel
by the Acting Chairperson
DAVID OLIVER JONES