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7 November 2006
The Panel has recently been involved in proceedings in the High Court and the Court of Appeal in relation to a scheme of arrangement being promoted by the Dominion Funds group of companies under Part XV of the Companies Act. The Panel believes the decisions of the Courts have important implications for participants in the market for corporate control in New Zealand.
The companies amalgamating are Dominion Income Property Fund Limited, Property Fund Thirty-One Limited, and Dominion Newmarket Properties Limited with Dominion Income being the surviving company.
All three companies involved in the amalgamation are code companies for the purposes of the Takeovers Code.
The amalgamation is of considerable interest to the Panel as a transaction bringing about the change of ownership of several code companies. The Panel indicated its wider interest in such transactions in a statement made in May 2006, following the Transpacific / Waste Management "amalgamation", that in future it would seek to be heard when the Court was considering approving schemes of arrangement involving code companies.
An amalgamation effected under Part XV of the Companies Act requires approval by the High Court. In the case of the Dominion group amalgamation the High Court in Auckland made initial orders on 22 September 2006 approving (for the purposes of allowing the scheme to be put to shareholders) a number of procedural aspects of the scheme.
The Panel became aware of the amalgamation on 25 September 2006 when it was served with notice of the proceedings by the promoters of the scheme.
The Panel noted that the approval threshold required of the shareholders in each company, being a special resolution of those voting by postal vote, could result (depending on the Court's final orders) in the amalgamations being approved by a very small number of shareholders in each company.
The Panel is concerned that there should be some analogy between the Code protections for shareholders, and the appropriate process for approval of such business transformations as would be involved in this case. Accordingly, the Panel formed the view that the scheme should require the support of a majority of the shareholders in each company. The Panel formed no view on the merits of the scheme itself.
The Panel applied to the High Court in Auckland for leave to be heard as to the adequacy of the initial orders relating to the process to be followed, submitting that the Court should amend its earlier initial orders to include this additional voting requirement. The matter was heard by the High Court in Auckland on 17 and 18 October. The Court granted the orders requested by the Panel.
The promoters of the scheme appealed the High Court's decision and the matter was heard by the Court of Appeal on Thursday 26 October 2006
The promoters challenged the Panel's entitlement to intervene in their Court proceedings. The Court of Appeal was not inclined to express a final view on the issue of the Panel's standing in the circumstances of urgency that pertained to the delivery of its Judgment. However, it held that the High Court was probably right to hear from the Panel and thought that the proposed amalgamation was legitimately a matter of interest to the Panel.
The Court of Appeal reversed the order made by the High Court to require approval of the scheme by the holders of a majority of the voting rights in each company. The principal reason given by the Court for its decision was a practical concern (based on evidence, including that of earlier schemes promoted by Dominion Group) that the scheme could receive overwhelming shareholder approval but fail to secure support from the holders of a majority of the voting rights in each amalgamating company. The Court also observed that this appeared to be an orthodox amalgamation and not a device to avoid the Code.
Pursuant to one of the new orders made by the High Court in Auckland on 18 October, and modified by the Court of Appeal, the Panel has to be advised of the outcome of the shareholder vote on the scheme as quickly as possible after voting has concluded and will then have 2 business days in which to give notice whether it wishes to apply to be heard at the time the High Court is considering its final approval of the scheme.
The Panel has recommended changes to the law in relation to schemes and amalgamations effected under the Companies Act. These recommendations are currently with the Minister of Commerce. In the meantime the Panel intends to continue to seek to be heard by the Court on schemes of arrangement involving code companies.
Any code companies contemplating entering into schemes of arrangement are encouraged to discuss their intentions with the Panel at an early date.