OBJECTIVES

48. The objective of competition for changing corporate control, whether through Code takeovers, schemes of arrangement or amalgamations, is to maximise the returns on available resources, which improves the welfare of society. The Code and Parts 13 and 15 of the Companies Act provide for different mechanisms to effect changes in corporate control.
49. With this broad objective in mind, to determine whether the current regime or alternatives would be of net benefit to society, options are assessed against the objectives in section 20 of the Takeovers Act. The objectives of the Takeovers Act are set out below and highlight the sometimes competing goals of efficiency, and procedural and substantive fairness. All those making submissions on the Panel's 2007 discussion paper generally accepted that the section 20 objectives provide an appropriate benchmark against which to assess options for solving the problem.⁸

Objectives of Takeovers Code

50. Section 20 sets out the following objectives for a takeovers code:
    1. Encouraging the efficient allocation of resources (this objective requires an informed market with many buyers and sellers, clear property rights, and minimum barriers to trade);
    2. Encouraging competition for the control of specified companies (i.e., Code companies. This objective requires that there are no or low barriers to entry or exit and low transaction costs);
    3. Assisting in ensuring that the holders of securities in a takeover are treated fairly (this objective is interpreted as requiring equal opportunities to participate in a change of control; equivalent consideration for shares; appropriate shareholder support thresholds; and no compulsory taking of shares except for very good reason);
    4. Promoting the international competitiveness of New Zealand's capital markets (this objective requires reduced transaction costs and risk perceptions through encouraging confidence in the integrity of the New Zealand market);
    5. Recognising that the holders of securities must ultimately decide for themselves the merits of a takeover offer (this objective requires individual shareholders having access to adequate information and being given sufficient time to consider a takeover offer);
    6. Maintaining a proper relation between the costs of compliance with the Code and the benefits resulting from its existence (this objective requires knowledge of the costs and benefits).

OPTIONS

Option 1 - the Panel's Preferred Option - Court approval required for amalgamations and schemes of arrangement, with Panel input

51. The Panel's preferred option (referred to hereafter as the preferred option) is that the Court is the supervisor of all amalgamations and schemes of arrangement involving Code companies, and the Panel provides input into those decisions where voting rights in a Code company are affected in any way by the scheme or amalgamation. The Panel's main role would be in providing a statement to the promoter of such a scheme or amalgamation, for producing to the Court, that the Panel has "no objection" to the proposed reconstruction.
52. The Panel will develop and publish information about the criteria it would apply for the giving of a "no-objection" statement. Although the policy development on these criteria is yet to be undertaken, they are expected to include the following:
    • the information proposed to be given to shareholders must meet disclosure standards similar to those required by the Code (including an independent adviser's report prepared by an adviser approved by the Panel); and
    • any interest classes amongst the shareholders must be satisfactorily identified in accordance with guidance on determining interest classes that will be included in Part 15 of the Companies Act (see paragraph 57, below) for the purposes of shareholders voting on the scheme.
53. The Panel will also publish guidance for the market on the timing of the giving of "no-objection" statements vis-à-vis the Court processes for schemes, on how to obtain a "no-objection" statement, and on any fees for making "no-objection" statement applications. Promoters of the scheme would be encouraged to liaise closely with the Panel over these issues before applying to the Court for initial orders for the scheme.
54. To achieve this, a provision in terms similar to section 411(17) of the Australian Corporations Act 2001 (Cth) would be inserted into Part 15 of the Companies Act. ⁹ This provision would prevent the Court from approving a scheme that would have any effect on the voting rights of a Code company unless:
    • the Court is satisfied that the shareholders of any such Code company would not be adversely affected by the transaction not being undertaken under the Takeovers Code, ¹⁰ or
    • there is produced to the Court a statement in writing by the Panel stating that the Panel has no objection to the scheme of arrangement.
    However, the Court need not approve a scheme even though a statement by the Panel, stating that the Panel has no objection to the scheme, has been produced to the Court.
55. It is intended that the existing common law tests that are applied by the Court for approving a scheme would be preserved. ¹¹ Accordingly, the new provision would create an additional threshold to be satisfied by the promoters of a scheme. This is in accord with how the provision works in Australia. ¹²
56. The voting thresholds for the shareholder resolutions (as referred to in section 236(2)(b) of the Companies Act) ¹³ would be stipulated so that for the resolutions to be passed -
    1. Those voting in favour represent 75% of the votes cast on the resolution at each meeting of shareholders (see sub-paragraph (c));
    2. Those voting in favour represent a majority of the shares eligible to be voted (i.e., more than 50% of total voting rights of the company);
    3. The voting threshold in sub-paragraph (a) must be obtained at each meeting of each group of shareholders (as determined by the Court under section 236(2)(b) of the Companies Act as being an interest class for the purposes of voting on the resolution).¹⁴
57. Legislative guidance on the principles to be applied by the Court in determining which groups of shareholders constitute the interest classes in respect of which separate meetings should be ordered, would be included in Part 15 of the Companies Act. This would result in codifying the common law on interest groups at least to some extent.
58. For example, the common law principles include the following:
    • a class will be determined by finding a different state of facts existing among different shareholders which may differently affect their minds and their judgement.¹⁵
    • The Court must address whether the rights and entitlements of the different groups, viewed in the totality of the scheme's context, are so dissimilar as to make it impossible for them to consult together with a view to their common interest.¹⁶
    • The classes are to be constituted depending upon the similarity or dissimilarity of the shareholders' rights against the company and the way in which those rights are affected by the scheme, and not upon the similarity or dissimilarity of their private interests arising from matters extraneous to such rights.¹⁷
    • Where the scheme produces a takeover, clearly the offeror and its associates have different interests from the other target company shareholders and must vote at a separate meeting.¹⁸
    • The question of whether separate class meetings are required depends not only upon the distinct features of one group of members as against another, but upon an analysis of the effect of those differences upon both the rights to be varied under the scheme, and the new rights given by the scheme to those whose rights were to be varied.¹⁹
59. The use of the Part 13 long form amalgamation, under section 221 of the Companies Act, would be prohibited where an amalgamating company was a Code company. However, short form amalgamations that relate only to wholly owned subsidiaries, under section 222, would still be available.
60. Where the Panel gave a no objection statement, any Code companies involved in the scheme would be exempted from the application of the Code. ²⁰
61. In order to ensure that the preferred option is effective and efficient in practice, it is hoped that a wide range of interested parties will participate fully during the Select Committee process, after the Bill is introduced into the House.

Option 2: Statutory exemption from Code

62. This option was to amend the Takeovers Act and the Code to exempt from the Code schemes and amalgamations involving a Code company. The Companies Act would also be amended so that the Panel was involved in the processes as described under Option 1 in the 2007 discussion paper.
63. The responsibilities of the Ministry of Economic Development (MED) and the Panel would be expanded to become proactive in investigating complaints about schemes and amalgamations in relation to compliance with the requirements of the Companies Act, particularly where Code companies are involved.

Why not the preferred option?

64. Option 2 is now partially incorporated into the preferred option, in relation to the proposed exemption from the application of the Code where the Panel gave a "no-objection" statement.
65. There is no need to increase MED's role if the Panel assumes the role, consistent with its expertise, that ASIC has in Australia under section 411(17) of the Corporations Act. Several of the submissions on the Panel's 2007 discussion paper suggested that MED's role should not be increased. Several of the submitters agreed that the Panel is the appropriate regulator where Code companies are involved.

Option 3: Align Companies Act's thresholds and disclosures with the Code

66. This option proposed amending the Companies Act so that:
    1. shareholder approval thresholds in respect of schemes and amalgamations are specified in the Companies Act and are consistent with the requirements of the Code, where Code companies are involved, for similar changes of control; and
    2. any scheme or amalgamation proposal, involving the change of control of a Code company, must contain the same information as would be provided in respect of a Code offer with a similar outcome.
67. Option 3 had six sub-options. That is, the following three options could be with or without separate approval by ordinary resolution of non-interested shareholders. ²¹ All six sub-options would include a requirement that the scheme or amalgamation proposal provided to shareholders must contain the same information as would be provided in respect of a Code offer:
    1. an independent report for shareholders on the merits of the transaction, to be prepared by an independent adviser approved by the Panel;
    2. disclosure of key assumptions used in the valuation of any asset or prospective financial information about the target company;
    3. disclosure about which shareholders have already agreed to vote in favour of the proposal, the material terms of the agreement, and details of the ownership of equity securities in the amalgamating companies by the directors of the companies involved in the proposal and by all substantial security holders ²² of the companies involved in the proposal;
    4. disclosure about the persons involved in the formulation of the proposal, and their and their associates' ownership of voting securities in any of the companies involved in the proposal;
    5. for an amalgamation or scheme with the type of transaction described in sub-paragraph (b) under Option 3C below, a statement of the general nature of any material changes likely to be made to the business activities of the amalgamated company and its subsidiaries, if the proposal is approved by shareholders.

Option 3A Approval level set at 50% of voting rights

68. For the approval threshold to be universal, and consistent with the Code's requirement for control, an appropriate approval threshold could be a positive vote representing more than 50% of total voting rights of the target company.

Option 3B Approval level set at 75% of voting rights

69. Approval by Option 3A's 50% of total voting rights, for what is effectively a compulsory acquisition, might be considered too light, while a requirement for approval by 90% of total voting rights might be considered impossible to achieve. Therefore, a median-ranged percentage, such as 75% of total voting rights, might be considered the most appropriate equivalence to the Code thresholds.

Option 3C Approval level set by type of takeover

70. If the approval thresholds were to be tailored to the particular type of transaction, and prescribed in law, the following gradations in approval levels might be appropriate (in conjunction with a special resolution of each company):
    1. for a full cash takeover, or where scrip is provided as consideration and the target company shareholders become very minor shareholders in the bidding company, by a 90% majority of total voting rights of the target company;
    2. for a merger of shareholders, where the participating companies' shareholders will end up with a control influence in the continuing company roughly proportionate (taking account of the dilutionary effects of the amalgamation) to their former position in the amalgamating companies, a 50% majority of total voting rights, for each of the companies involved in the proposal;
    3. for a reconstruction involving no or minimal change in effective control, no special voting requirements other than the usual special resolution.

Why not the preferred option?

71. The Panel felt that prescribing the information to be provided to shareholders in relation to a scheme or amalgamation would ensure that shareholders are provided with adequate information to decide for themselves the merits of the transaction.
72. However, while options 3B, and 3C could support the objective that holders of securities are treated fairly in takeovers, because of the potentially high shareholder voting thresholds, selecting the appropriate alternatives under Option 3C, especially in complex transactions, would involve value judgements, and thus some authoritative exercise of discretion to determine which category a proposal should fall into. A mechanism (such as the Court's discretion, the Panel's discretion, or some other body's discretion) would be required to fill this role. Given the number of variables, the complex array of transactions that can be undertaken under the Companies Act, and the level of uncertainty, none of the sub-options is preferred by the Panel. A few of the submissions on the Panel's discussion paper supported Option 3, but there was no overwhelming support for any one of the sub-options and concerns were expressed about the inherent uncertainty attached to them.

Option 4: Prohibit Part 13 amalgamations in respect of Code companies

73. Under this alternative it was proposed that the reconstruction provisions of the Companies Act would be amended so that amalgamations under Part 13 of the Companies Act cannot be undertaken at all if a Code company is involved. This would move the statutory regime in New Zealand closer to that in Australia, where amalgamations without Court supervision are not included in the Corporations Act. That is, in Australia, to achieve an amalgamation (as provided for in New Zealand in Part 13 of the Companies Act), it must be undertaken as a Court-approved scheme.
74. Option 4 would mean that, to achieve a change of control of a Code company, the mechanisms under the Code or the scheme mechanism under Part 15 of the Companies Act would have to be used.

Why not the preferred option?

75. Option 4 is now largely incorporated into the Panel's preferred option. Removing the availability of Part 13 of the Companies Act for Code companies would not prevent amalgamations being undertaken under Part 15 of the Companies Act by way of a scheme. The Court of Appeal has recently confirmed that an amalgamation undertaken under Part 15 achieves the same legal effect for the companies as one undertaken under Part 13.⁷⁵
76. As a stand alone option, Option 4 is not optimal, because Part 15 does not contain the same protections as Part 13 has in the way of minority buy-out rights. Although Part 15 of the Companies Act provides some statutory protection for shareholders, under its current form there is no one to put the case for dissentient shareholders that they should not have to be bound by the scheme. Nor can the Court currently take the Code into account in deciding whether to approve the transaction. Removal of Part 13 of the Companies Act without further amendment to Part 15 would potentially disadvantage shareholders, thereby resulting in inconsistency with the objective of fair treatment of shareholders.

Option 5: Prohibit schemes and amalgamations in respect of Code companies

77. Option 5 proposed the amending of the reconstruction provisions of the Companies Act so that neither amalgamations nor schemes, under Parts 13 or 15 of the Companies Act, could be used where Code companies are involved, except with the permission of the Panel in circumstances where the use of the reconstruction provisions was clearly warranted.
78. It would mean that if bidders wished to achieve a change of control of a Code company they could only use the takeover mechanisms under the Code, unless otherwise permitted by the Panel.

Why not the preferred option?

79. Option 5 envisages a complete ban on schemes and amalgamations under Parts 13 and 15 of the Companies Act unless the Panel permits their use. The Panel believes that a ban, subject to a Panel override of the ban, is heavy-handed and would put a heavy compliance burden on proponents of a scheme or amalgamation. The underlying premise of this option is that schemes and amalgamations are used to avoid the Code. The Panel accepts that this is not necessarily the case and that it can be commercially sensible to structure a transaction as a scheme or an amalgamation.
80. Although Option 5 was favoured by several of the respondents to the Panel's 2007 discussion paper (albeit in conjunction with elements of other options) some respondents were concerned at the level of discretion that would be left to the Panel, and that this would lead to uncertainty.
81. The Panel believes that it is not appropriate for it to be the arbiter of whether a transaction can be undertaken as a scheme or an amalgamation. The Panel believes that the arbiter of this question should be the Court (with the Panel's input).

Analysis of Preferred Option

Advantages

82. The preferred option (Court approval required for amalgamations and schemes, with Panel input) provides the flexibility advocated for by market participants of allowing the use of the Part 15 scheme of arrangement procedure. Section 238 of the Companies Act preserves the ability to undertake an amalgamation under Part 15, so the preferred option does not prevent amalgamations.²⁴
83. The preferred option would resolve the concerns of several of the respondents to the Panel's 2007 discussion paper about the quality of information to be provided to shareholders under a Part 15 scheme of arrangement. The Panel's role would ensure that the information was balanced by including advice from an independent adviser approved by the Panel. In addition the Court would have the assistance of the Panel's input in a role akin to that of amicus, in those cases where the Panel decided to appear. The Panel would clearly have standing under section 236(2) of the Companies Act to appear and be heard, in view of its role with the "no-objection" statement.
84. If the Panel chose to not appear, the Court would have the assistance of the Panel's "no-objection" statement. However, as the final decision maker, the Court could decide to not approve a scheme even though the Panel had provided a "no-objection" statement. The normal appeals process would provide an avenue for the scheme's promoters to have the merits of such a decision reviewed, if they believed it was wrong.
85. If promoters of a scheme that affected the voting rights in a Code company applied for the Court's approval of the scheme without obtaining a "no-objection" statement, the Panel would very likely oppose the application. The final decision-maker would still be the Court. It is conceivable that the Panel may oppose a scheme but the Court still approve it.
86. Providing guidance in the legislation on the voting thresholds to be met, and on determining the interest classes for voting on the resolution, would provide certainty for the market and clarity for the Court. Again, the Court would be assisted by the Panel's "no-objection" statement which would have been given on the basis of the Panel having been satisfied as to the manner in which the scheme promoters were to classify the voting interest groups for shareholders.
87. The evidence available to the Panel when preparing the 2007 discussion paper indicated that the vast majority of companies in New Zealand are not Code companies. The proposal, therefore, to ban the use of section 221 amalgamations where Code companies are involved would be of limited impact overall. It would not unduly adversely affect the companies that are Code companies because they could still amalgamate, with Court supervision under Part 15 of the Companies Act, ²⁵ and it would have no impact at all on most New Zealand companies.
88. Once the Takeovers Code came into effect in 2001, the market accepted that a scheme may not be feasible without an exemption from the Panel if the fundamental rule of the Code would be triggered as a result of the scheme. The Panel considered three such exemptions in the four years leading up to the Sky/INL scheme of arrangement. In response to the Panel's regulation of the terms of the schemes that fell within the jurisdiction of the Code, scheme proponents, beginning with Sky/INL in 2005, structured transactions to have the Court suspend voting rights, thereby taking the scheme out of the Code's jurisdiction. The Panel understands from anecdotal evidence that Part 15 of the Companies Act has generally been used in preference to Part 13 for amalgamations in order to avoid the minority buy-out rights available under section 110 of the Companies Act for dissentient shareholders under a Part 13 amalgamation.
89. The Panel became involved in the Dominion Income Property Fund Limited (Dominion) scheme of arrangement, in October 2006, having issued two discussion documents earlier that year outlining its concerns with the Companies Act mechanisms being used as a way to avoid the Code. The Panel appeared in the High Court and Court of Appeal in the Dominion case, putting its views on the voting thresholds the Court should specify for the shareholders' approval of the scheme - all three companies involved in the scheme were Code companies. Thereafter, all significant transactions undertaken using the Companies Act reconstruction provisions, where the transaction was structured so that the Code would not apply, have been undertaken as Part 13 amalgamations.²⁶
90. The Panel anticipates that, under the preferred option, the promoters of company takeovers and reconstructions would make their decision on the mechanism for undertaking changes of control based on the most efficient method of achieving the desired outcome, which may be a takeover or may be achieved as an arrangement or an amalgamation under Part 15 of the Companies Act, (having first obtained a "no-objection" statement from the Panel).
91. The preferred option would also align New Zealand's takeovers law more closely with that in Australia. While alignment with Australia was not one of the stated policy objectives, section 24 of the Takeovers Act does require the Minister to have regard, as far as practicable, to co-ordination of business law between Australia and New Zealand when recommending changes to the Takeovers Code.²⁷

Disadvantages

92. The disadvantages of the preferred option fall mainly on prospective acquirers of control of Code companies. It raises the bar for these acquirers in the sense that they either would now need to comply with the requirements of the Code (involving the scrutiny and enforcement role of the Panel and achieving acceptances by 90% of the shareholders of the target company in order to compulsorily acquire any outstanding shares), or obtain a "no-objection" statement from the Panel to undertake a scheme under Part 15 of the Companies Act. The latter would mean increased interaction with the Panel and potentially payment of fees to the Panel if considering applications for the giving of a "no-objection" statement became a chargeable activity by the Panel.²⁸
93. It is unlikely that there would be a significant increase in the costs associated with complying with the Panel's requirements for the information to be provided to shareholders, such as obtaining an independent adviser's report from an adviser approved by the Panel. ²⁹ Currently, under a Part 15 scheme, the promoters of the scheme must provide all the information reasonably necessary to enable the recipients to judge and vote upon the proposal. This usually involves an adviser's report - however, currently, it is the promoters who alone determine whether to have a report prepared and determine who will prepare it. Unless shares or other securities are to be offered to the shareholders under the scheme, (in which case the Securities Act must be complied with, requiring registration of a prospectus and the preparation of an investment statement), it is the promoters of the scheme who alone determine the content of the information to be given to the shareholders.
94. While the Court's approval of a scheme must be obtained before the scheme can proceed, there is currently no advocate to draw to the Court's attention any shortcomings in the information for shareholders. It may be that the Panel's scrutiny of the information proposed to be provided to shareholders would result in additional costs to scheme promoters in ensuring the information disclosure is satisfactory to the Panel.
95. However, the information costs described above would be mitigated to the extent that a listed company would have structured the transaction as a Part 13 amalgamation, as it would then have been required by the Listing Rules to provide an independent appraisal report for the shareholders. In addition, the Code's disclosure rules are quite prescriptive. In that sense, they provide certainty. Under the Code, if the disclosure rules are complied with then the disclosure standard is automatically met. The current common law rules for disclosure in relation to a scheme are outcome based; all the information "reasonably necessary". If the Panel gives a "no-objection" statement for a scheme, the promoters and the Court might feel comfortable that the standard provided by the common law had been met. Certainty has its own value.
96. To the extent that the preferred option may increase the costs for promoters of undertaking a scheme, the preferred option may have a negative impact on the efficient allocation of resources.
97. A further potential disadvantage for acquirers under the preferred option is that it increases the third party oversight of transactions involving Code companies. The purely statutory amalgamation process under section 221 of Part 13 of the Companies Act (which involves little in the way of regulatory oversight) would no longer be available. In addition, for a scheme under Part 15 of the Companies Act, there would be not only Court supervision but also interaction with the Panel which would scrutinise the information proposed to be provided to shareholders.
98. Accordingly, to the extent that the preferred option would raise the barriers for undertaking takeovers and reconstructions outside of the Code, the preferred option may have a negative impact on the competition for control of Code companies.
99. However, the preferred option would result in increased protections for shareholders, which the Panel views as improving the fair treatment of shareholders and increasing shareholder autonomy (the latter being a principle that subsists in the objective that holders of securities must ultimately decide for themselves the merits of a takeover offer). The Panel believes that these outcomes would also encourage confidence in the integrity of the New Zealand market for potential investors. The Panel views these outcomes as outweighing any disadvantages that may arise from an increase in costs and barriers for the use of the Companies Act reconstruction provisions.
100. Notwithstanding the higher hurdles to be negotiated by acquirers under the preferred option, an acquirer still could achieve 100% ownership of a Code company through a Part 15 scheme without having to reach the Code's 90% compulsory acquisition threshold. All of the commercial benefits to the promoters of schemes and amalgamations would still be available under the preferred option. Although the more than 50% of total voting rights threshold appears quite low (to those who believe that 90% should have to be achieved to require all shareholders to be bound by a scheme), the requirement of voting in interest classes would ensure that a majority of shareholders with no "interest" in the scheme proposal voted to approve the scheme.
101. The respondents who favoured the status quo argued that it is too difficult to shake shareholders from their apathy to make the more than 50% of total voting rights threshold achievable. However, it is questionable whether low shareholder voting turn out is rightly labelled as 'apathy'. For example, low voter turn out may be due to factors such as low quality, insipid or confusing information that fails to convey the significance of the proposal for the average retail investor.
102. Two very recent transactions demonstrate that assumptions about shareholder apathy are not universally correct: the recent Canada Pension Plan Investment Board (CPPIB) partial takeover offer for Auckland International Airport Limited (AIAL) achieved a voter turn out representing greater than 80% of AIAL's total voting rights. The Dominion scheme also achieved support by more than 50% of total voting rights of each of the three Code companies involved in the scheme. Although voter turn out of less than 50% is not uncommon for voting on a scheme or amalgamation, these recent cases show that high shareholder participation can be achieved when promoters are committed to galvanising shareholder participation.
103. While it is accepted by the Panel that the preferred option may result in an increase in the costs of utilising the Companies Act reconstruction provisions, the main concern of respondents was, generally, not cost but to ensure that the flexibility of the use of the reconstruction provisions was not removed from the market. The preferred option achieves that by preserving the ability to undertake a scheme of arrangement, or an amalgamation by way of a scheme, under Part 15 of the Companies Act.
104. The preferred option would likely require additional funding for the Panel to give it the resources necessary to undertake the tasks envisaged, including the developing of policies and procedures in the initial set up phase. The Panel already has access to the use of its Litigation Fund for appearing in Court for schemes and does not envisage the need, at this point, for the Litigation Fund itself to be increased.

Footnotes

8. However, a number of respondents argued that the status quo should remain (their major concern was that the ability to undertake schemes and amalgamations under the Companies Act should not be removed). These views are discussed more fully in the Consultation section of this paper.
9. Section 411(17) of the Australian Corporations Act 2001 (Cth) provides that:
   (17) The Court must not approve a compromise or arrangement under this section unless:
   1. it is satisfied that the compromise or arrangement has not been proposed for the purpose of enabling any person to avoid the operation of any of the provisions of Chapter 6 [i.e., the takeover provisions]; or
   2. there is produced to the Court a statement in writing by ASIC stating that ASIC has no objection to the compromise or arrangement;
      but the Court need not approve a compromise or arrangement merely because a statement by ASIC stating that ASIC has no objection to the compromise or arrangement has been produced to the Court as mentioned in paragraph (b).
10. The Panel proposes using some different wording to that used in section 411(17) of the Corporations Act, in order to ensure a proper fit for the New Zealand Code and for the local reconstructions context. For example, in relation to the Code, the focus is on 'voting rights', while in Australia the takeovers regime focuses on 'relevant interests'. In addition, despite the wording of section 411(17), ASIC has found that it is more relevant to weigh up the outcome of a proposed scheme, rather than the purpose of using the scheme process, when considering whether to give a no objection statement. Moreover, the New Zealand Panel wants to ensure that transactions such as simple capital reductions (for example the 2007 'Yellow Pages' capital return for Telecom Limited's shareholders) are not inadvertently caught by the proposed new requirements.
11. See CM Banks Limited [1944] NZLR 248: the Court has a duty to ensure that:
    1. There has been compliance with the statutory provisions;
    2. The scheme has been fairly put before the class or classes of shareholders concerned;
    3. The class of shareholders is fairly represented by those who attended and that the statutory majority is acting bona fide; and
    4. The scheme is such that an intelligent and honest business person, a member of the class concerned and acting in respect of that interest, might reasonably approve.
12. See, e.g., Re Coles (No 2) (2007) 65 ACSR 494.
13. Section 236(2) of the Companies Act enables the Court to make initial orders relating to the scheme proposal that is to be put to the shareholders. Under section 236(2)(b) those orders can include directions from the Court on the holding of a meeting or meetings of shareholders or any class of shareholders to consider and, if thought fit, to approve the scheme proposal.
14. Accordingly, the voting threshold is twofold: Not only must the resolution be supported by 75% of the votes cast at a meeting of each group of shareholders that constitutes an interest class, but also the votes so cast must, in total, represent more than 50% of the total voting rights of the company.
15. Sovereign Life Assurance Company Dodd [1892] 2 QB 573, at 580.
16. Re HIH Casualty and General Insurance Limited Ors (2006) 57 ACSR 791, at 808, quoting Re Hills Motorway Limited (2002) 43 ACSR 101, at 104.
17. UDL Argos Engineering & Heavy Industries Co Limited v Li Oi Lin [2001] 3 HKLRD 634, as referred to in HIH Casualty and General Insurance Limited, at 809.
18. Re Archaean Gold NL (1997) 23 ACSR 143, at 148.
19. Re Australian Co-operative Foods Limited (2001) 38 ACSR 71 at 88.
20. The preferred option is thus a combination of Options 1, 2 and 4 from the Panel's 2007 discussion paper with some additional modifications based on the submissions received and further research undertaken.
21. "Interested shareholders" could be excluded from voting on a scheme or amalgamation, that is, the voting rights attached to shares held by parties associated with the formulation and promotion of the proposal could be excluded from the vote.
22. i.e., those holding or controlling 5% or more of the shares.
23. Elders New Zealand Limited v PGG Wrightson Limited [2007] NZCA 596 (CA277/06).
24. The Court of Appeal decision in Elders New Zealand Limited v PGG Wrightson Limited [2007] NZCA 596 (CA277/06), at paragraph [29] confirms that an amalgamation approved by the Court under Part 15 of the Companies Act has the consequences described in Part 13's section 219, that two or more companies may amalgamate and continue as one company.
25. The Panel notes that one of the law firms had submitted that by prohibiting Part 13 amalgamations for Code companies, the section 110 minority buy-out right, which guarantees a level of protection for dissentient minorities, would be removed. However, under the Panel's preferred option, the Panel, acting as amicus, could assist with ensuring that protections for dissentient minorities were made available.
26. The Panel notes that one law firm has submitted that removing the flexibility under the status quo would result in an increase in control transactions structured in other ways, e.g., liquidations or major transactions. While the Panel acknowledges that such an outcome is possible, the Panel is not aware of any evidence of an increase in the use of such transactions between 2001 when the Code came into effect and 2005 when the Sky/INL scheme was structured so that the Code would not apply to it.
27. The Panel has noted one law firm's comments that the provisions of the Australian legislation in relation to takeovers does not take automatic precedence over the provisions of the Australian legislation that relate to schemes. The Panel accepts this. It is entirely consistent with the preferred option. The Panel also noted a submission by another law firm that ASIC has taken a "hands-off" approach to regulation by relying on the Court process set down in the legislation and that this has created an environment of confidence where schemes are used freely. However, the Panel's communications with ASIC and Australian practitioners make it very clear that ASIC takes a very "hands-on" approach in terms of market participants having to meet ASIC's requirements for the giving of "no-objection" statements for the use of schemes.
28. In order to become a chargeable activity, an amendment would have to be made to section 8 of the Takeovers Act to include, as a function of the Panel, its role in relation to schemes. The Takeovers (Fees) Regulations 2001 would also need to be amended to accommodate the Panel's new role.
29. Many adviser applications are approved by the Panel for under, or around, $1000. However, the cost can be as much as around $5000 - $6,000 if the application involves difficult issues relating to potential conflicts of interest, requiring multiple inquiries by the Panel to resolve, or where the applicant seeks a reconsideration of a Panel decision to turn down an application. Generally, the cost of an adviser approval by the Panel equates to a very small percentage of the cost to the bidder of obtaining an independent adviser's report under the Code.