CODEWORD

Last year the Panel formulated a policy on exemptions for schemes of arrangement effected under the Companies Act 1993. The policy explains the circumstances in which applications for exemption for these schemes are likely to be declined and circumstances where the Panel may grant an exemption.

Applications for exemption likely to be declined

If an exemption application relates to a scheme of arrangement that is for all intents and purposes a takeover, particularly if it involves expulsion of minorities, the Panel will treat the transaction as a takeover when it considers the application. The Panel is likely to decline such an application so that target company shareholders are not denied the benefit of the full protections of the Code.

Circumstances where exemption may be approved

An exemption to facilitate the use of a scheme of arrangement may be appropriate where there are clear and compelling reasons why the proposed transaction should not be structured as a takeover, or completed using one of the mechanisms permitted under the Code.

Applicants for an exemption must provide strong arguments as to why it is proposed to use a scheme of arrangement rather than using the Code. There must be genuine reasons for using a scheme for the Panel to favourably consider granting an exemption. The Panel needs to be satisfied that the scheme is not being promoted in order to avoid the disciplines and protections of the Code.

Any exemption granted by the Panel would be framed so as to preserve as far as possible the objectives of the Code and the disciplines of a Code offer.

The Panel may require as a condition of exemption certain voting thresholds for shareholder approval of the proposed scheme. Generally the following voting thresholds applied as conditions of exemption would be:

• 75% of votes cast by those entitled to vote and who vote at the meeting, including by proxy, and being more than 50% of the total voting rights of the target company; and
• 50% by number of shareholders who are entitled to vote, and who vote at the meeting, including by proxy.

However there may be circumstances where the Panel imposes different, more appropriate, voting thresholds.

The Panel will be concerned to ensure that shareholders are given adequate information about the proposed transaction. It will require, at least, that:

• information provided to shareholders should be equivalent to that which would have been provided under a Code offer; and
• an independent adviser approved by the Panel should report on the merits of the scheme of arrangement to shareholders of the scheme company who are entitled to vote on the proposal.

Applicants for exemption should indicate their intentions in respect of the proposed transaction to the Panel early in the planning process. The exemption application should be sent to the Panel for consideration well before the application to approve the scheme is made to the Court.

The full policy statement can be viewed on the Panel’s website www.takeovers.govt.nz.