Kiwi Income Property Trust/Sovereign Assurance Limited
In November 2004 Kiwi Income Property Trust (Kiwi) acquired
19.9% of the voting rights in Capital Properties Limited (Capital
Properties), a Code company. The 19.9% was acquired when
voting rights bought by Kiwi in a stand in the market were added
to the holdings of its associate Sovereign Assurance Company
Limited (Sovereign). Sovereign and Kiwi were related through
common upstream ownership of Kiwi's management company
and Sovereign.
Subsequently Sovereign bought more Capital Properties shares
on market, which increased the aggregate holdings of Kiwi and
Sovereign to just over 20%.
When notified of these acquisitions the Panel immediately
contacted Sovereign seeking an explanation. Sovereign
recognised its error and immediately sold down sufficient shares
to reduce the combined holding of Kiwi and Sovereign in Capital
Properties to below 20%.
Gould Holdings Limited and the Rutherford family
Designer Textiles (N.Z.) Limited (DTL) (now Pod Limited)
is a Code company. In February 2003 its major shareholder
was Gould Holdings Limited (GHL), an investment company
controlled by Mr George Gould, with a 24.69% stake.
Mr Gould had had a long association with the Rutherford family.
In the latter part of 2002 the members of the Rutherford family
sold their investment company, Amuri Securities Limited (ASL), to
GHL in exchange for shares and convertible notes in GHL. After
Mr Gould had subscribed for some additional capital in GHL the
Rutherford family held 21.24% of GHL while Mr Gould, through a
separate company Gould Investments Limited (GIL), held 78.76%.
The question of association between the Rutherford family and
Mr Gould arose in connection with various acquisitions of shares
in DTL itself by members of the family.
Several Rutherford family members had acquired direct
investments in DTL on a number of separate occasions and by
February 2003 these holdings amounted to some 8.8% of the
total voting rights in DTL. They were in addition to the 24.69%
held by GHL.
If the Rutherford family were associates of Mr Gould or GIL at the
time they had acquired these parcels of shares, the acquisitions
would have been in breach of the Code.
The Panel concluded that Mr Gould, GIL and GHL were associates
of the Rutherford family for a combination of reasons including:
- the time period over which Mr Gould had had a personal and business relationship with members of the Rutherford family, particularly through managerial and advisory relationships in Amuri Corporation Limited, South Eastern Utilities Limited,
ASL and finally GHL;
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- 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;
- 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 several members of the Rutherford family themselves had significant shareholdings in DTL.
All three elements (business, personal and ownership
relationships) of the extended definition of "associate" in rule
4(1)(d) were present in the relationship between Mr Gould and
the Rutherford family. A rule 4(1)(d) relationship does not need
to exhibit any agreement or arrangement relating to the control
of voting rights in the company.
The Panel determined that the associate status crystallised on 11
September 2002 (when the Rutherford family confirmed their
investment in GHL) and that consequently all acquisitions of DTL
securities by Rutherford family members after that date were in
breach of rule 6(1)(a). The parties at fault were required to divest
those holdings that had been acquired in breach of the Code.
The family members gave enforceable undertakings that the
relevant shares would be sold within six months of the Panel's
decision and subsequently confirmed that this had been done.
ABC Learning Centres Limited
The Panel recently granted an exemption when the issue of
association arose relating to Kidicorp Group Limited (Kidicorp).
This exemption involved merger transactions in Australia by ABC
Learning Centres Limited (ABC) with two Australian companies,
Child Care Centres Australia Limited (Child Care Centres) and
Peppercorn Management Group Limited (Peppercorn). Both
Child Care Centres and Peppercorn had interests in Kidicorp.
Peppercorn arguably controlled Child Care Centres.
In October 2004 the Panel granted an exemption to ABC and its
wholly-owned subsidiaries from rule 6(1) of the Code in respect
of any increase in their voting control in Kidicorp as a result of
the mergers.
The exemption was required because Child Care Centres, which
had a very modest shareholding in Kidicorp, was an associate
of the controlling shareholders of Kidicorp. A management
agreement between Kidicorp and Peppercorn, and a first right
of refusal agreement between the controlling shareholders of
Kidicorp and Child Care Centres, established the relationship.
Rule 6 of the Code prohibited ABC from acquiring control of
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