CODEWORD

The Takeovers Code has been operating for 10 months. It is timely to spell out how the Panel carries out its functions relating to the Code. 

Considers and grants exemptions from the Takeovers Code

From time to time there will be technical difficulties in complying with the Code which give rise to the need for exemptions. The Panel considers applications for exemption and grants exemptions that are appropriate but it is always concerned to ensure that the objectives of the Code are not compromised.

There are two types of exemptions.

• specific exemptions exempt a person from compliance with a particular provision or provisions of the Code; and
• class exemptions exempt any class of person, transaction or offer from compliance with any particular provision of the Code.

Where necessary exemptions will be subject to conditions that ensure that the underlying purpose and intent of the Code are fulfilled. The Act emphasises the importance of this policy by requiring the Panel to give reasons for granting an exemption. The Statement of Reasons must say why it is appropriate to grant the exemption and how the exemption is consistent with the objectives of the Code.

The Panel will resist granting exemptions relating to the various timing requirements of the Code. With a contested takeover it is important that there is a level playing field where the contestants know and can work within the requirements of the Code. The exemption process is not to be used as a tactical weapon in a contested takeover.

Class exemptions are a standard form of exemption applying to particular classes of transactions thereby reducing the need for specific exemptions.

The class exemptions which came into force on 1 July 2001 deal with buy-backs, allotments, lenders and receivers, proxies and corporate representatives, sharebrokers, underwriters, executors and trustees, nominee companies and bare trustees and intra-group transfers. There are now also class exemptions relating to trustee companies and to variations of full offers which are unconditional as to the level of acceptances.

An adviser seeking an exemption should consult with the Panel Executive at an early stage. Complete disclosure of all the circumstances at the outset will minimise delays and costs.

Appoints Independent Advisers

The Panel takes this task very seriously. There are two key requirements:

• the independent adviser must be, and must be seen to be, independent; and
• the independent adviser must have the appropriate qualifications to undertake the assignment.

The independent adviser’s report is of fundamental importance. It is required to be a report on the merits of the offer. The word “merits” is not defined but is used because of the breadth of its concept. The report is not just a valuation.

Different issues arise with independent reports for shareholder approval of acquisitions or allotments as opposed to reports on a takeover offer. There will also be different issues for full and partial offers.

Reports may be required both under the Code and under the Listing Rules of the New Zealand Stock Exchange (NZSE). The requirements are not the same although the reports may contain common elements. The merits of a proposal or an offer for the purposes of the Code need to be dealt with quite separately from the reporting requirements of the NZSE Listing Rules.

While the target company directors will expect their independent advisers to comply strictly with the Code, they are obliged to ensure that the advisers in fact do so.

To assist applicants the policy, an application outline and a practice note are published on our website www.takeovers.govt.nz. Incomplete applications can cause delays and added cost.

Enforces the Takeovers Code

The Panel is in a very strong position regarding enforcement. It has its own powers and if it is not satisfied that a party is complying with the Code it has the power to take the matter to Court or consent to other parties taking the matter to the Court. On the other hand the rights of other parties to apply to the Court under the Act are limited.

The Takeovers Act aims to ensure that those opposed to a particular takeover should not be able to use the Code and the litigation process to derail a takeover and frustrate the takeover process.

Where the Panel suspects a breach or intended breach of the Code it can call a meeting under section 32 of the Act to determine whether to exercise its powers.

Where a notice calling such a meeting has been given, a restraining order may be made which may remain in force for a period expiring on the second day after the date for which the meeting is convened.

If the Panel determines that it is not satisfied that the Code is being complied with, it can extend the restraining order for a further 21 days and apply to the Court for a wide range of orders. These include the disposal or forfeiture of shares, removal of voting rights, avoidance of agreements and payment of compensation.

Interested parties may also apply for court orders where the Panel makes a determination that it is not satisfied that the Code has been complied with. These parties include the NZSE (if the Code company is listed), the Code company concerned and shareholders and affected former shareholders of the Code company. However a party may only apply if the Panel has consented to the application or the party has asked the Panel to make an application to the Court and the Panel has not done so.

Interested parties may also apply to the court where they have asked the Panel to hold a meeting to determine whether to exercise its powers and the Panel does not do so within 14 days. If such a meeting is held and the Panel determines that it is satisfied that the Code is being complied with then those parties have no right to apply to the Court.

The Court may have regard to any Panel determination, and in determining the type of order to be made, the Court may have regard to any Panel recommendation, including a recommendation made at the Court’s request.

A person who breaches the Code or is a party to a breach of the Code may be ordered to pay a penalty not exceeding $500,000 in the case of a person not being a body corporate, or $5 million in the case of a body corporate.

Reviews takeover documents

Most takeover documents are required to be sent to the Panel. The Panel is not obliged to vet those documents, but the executive generally reviews them for compliance with the Code. In a case of non-compliance the Panel decides what action to take.

Documents should be forwarded promptly to the Panel as it may be possible for errors and omissions to be rectified before the offer is sent. The same applies with documents relating to shareholder meetings called in compliance with the Code.

Not all advisers pay sufficient attention to the specific information required in takeover documents. Accurate disclosure in accordance with the Code is important in both the offeror’s statement and the target company’s statement. Disclosure by all directors of the target company is important. Although a group of independent directors may be managing the process for the target company, other directors are not absolved from making full disclosure of all information which pertains to them and which the Code requires them to disclose.