CODEWORD

The Panel was concerned that the initial Court orders could result in the scheme being approved by a small number of shareholders because the 75% majority relates only to shareholders who vote on the proposal. For example, if only 10% of the total voting rights were exercised, the proposal could proceed with the support of only 7.5% of the total voting rights.

No single shareholder would move to a voting position which might have a control consequence in respect of the continuing or surviving company (in the sense that any single holder would have over 20% of the voting rights in the surviving company (Dominion Income)) but the collective group of PF31 shareholders would have only 24.1% of the voting power in Dominion Income, and Newmarket shareholders would have only 6.5% of the voting power.

The Panel decided to ask the High Court to amend its initial orders so that the amalgamation required the approval of 75% of those eligible to vote and voting in each company, and also a simple majority of the total voting rights in each company.

This was in accordance with the broad principles of the Code. A takeover cannot succeed without the offer being accepted by the holders of more than 50% of the voting rights in the target company. A positive vote by holders of a majority of the total voting rights in the company was a reasonable equivalent to the Code’s requirement for the positive act of acceptances by the same majority of shareholders where change of legal control occurs by means of a takeover offer under the Code.

There is an argument that an amalgamation is in effect a compulsory acquisition, which, if it were a Code transaction, would require the dominant owner to obtain 90% of the total voting rights in the target company. However, the Panel recognised (a) that this amalgamation was a true merger with no single shareholder obtaining control of the amalgamated entity and (b) that shareholders in the two target companies were to receive shares and debentures in Dominion Income. No shareholder would be forced to take cash for their shares and cease to be a shareholder.

In these circumstances, the Panel was comfortable that, in addition to the special resolutions, approval by a simple majority of the holders of each company’s total voting rights was an appropriate minimum voting threshold.

The Panel applied to be heard in the High Court to have the Court’s initial orders amended. Dominion Group opposed the Panel’s application to be heard and opposed the amended orders the Panel was seeking.

The parties obtained an urgent Court fixture because Dominion Group’s documentation was about to be posted to shareholders. The matter was heard in the High Court in Auckland on 17 and 18 October 2006 before Stevens J.

High Court Decision

Stevens J issued an oral judgment on the afternoon of 18 October 2006. This was followed by his written reasons on 20 October 2006.^[1]

The first order made was that the Panel was granted leave to be heard on the application, being a person “interested” in the proposed amalgamation.

His Honour observed [para 53] that the approach of the Courts to questions of standing has tended over the years to follow a liberalising trend. Stevens J noted that the Court would be influenced by the nature of the issues for decision and the type of assistance available from the party seeking to be heard. The characteristics of that party, including its own objects, purposes, functions and expertise, would also be relevant. Each case would be considered on its merits and in the light of all the circumstances of the case. His Honour said:

“A reasonable touchstone seems to me to turn on the ability of the party seeking to be heard to provide relevant and meaningful assistance to the Court on the issues for decision. In other words, can it genuinely assist the Court on the matter for decision?”

Stevens J cited with approval a passage from Professor Joseph’s text on Constitutional and Administrative Law in New Zealand (2 ed, 2001) at 1008 which concluded with a quotation from Cooke J:

““Any tendency to consider the issue of standing in insolation [sic] from the nature of the complaint is resisted.” Standing was to be decided “on the totality of the facts.””

His Honour said [56]:

“In the context of an amalgamation under Part 15 of the Act, where the Court has a supervisory role, I consider that a similarly broad view should be taken to the question of standing. If one looks at the issues which the Court must consider under s236 of the Act, there may well be circumstances where it would be entirely appropriate for the Court to be assisted in how it might exercise the wide discretionary powers which arise with a body with the expertise of the Panel.”

He concluded [59]:

“In this case, the Court determining issues under s236 of the Act has a broad supervisory jurisdiction, and must consider a range of discretionary factors. I have been assisted by hearing from the Panel about matters within its area of expertise. I have had an opportunity to consider the additional factual material placed before me and the submissions and arguments of counsel, particularly where, as here, it is limited to a procedural issue. I also consider that, had this information and arguments (from both sides) been available to the Judge [Asher J] who considered the ex parte application and made the initial orders, it would have materially assisted him in the exercise of the Court’s supervisory jurisdiction. … Accordingly, I consider that the Panel should be granted leave to address matters of relevance to the principles which apply to an amalgamation under Part 15 of the Act.”

The second order made set aside one of the Court’s original orders relating to the quorum of voters required to vote on the amalgamation resolution. A new order was substituted requiring the amalgamation resolutions in each company to be approved by voters representing a majority of the total voting rights in each of the applicant companies. A third order set out arrangements to notify the Panel of the result of the voters’ poll.

His Honour addressed several issues in deciding that the Court could make new orders and set aside some of the Court’s original orders under s236 of the Act.

The first issue concerned the scope of the Court’s powers under Part 15 of the Act. Asher J made the initial orders on 21 September 2006 under s236 of the Act. The principles applied by Asher J in making the initial orders were as set out in Re C M Banks Ltd [1944] NZLR 248 and endorsed by the Court of Appeal in Weatherston v Waltus Property Investment Limited [2001] 2 NZLR 103.

The principles set out in Re C M Banks Ltd are that:

“The duty of the Court is to see (1) that there has been compliance with the statutory provisions as to meetings, resolutions, the application to the Court, and the like; (2) that the scheme has been fairly put before the class or classes concerned; and that if a circular or circulars have been sent out, as is usual, whether before or after the making of the application to the Court, they give all the information reasonably necessary to enable the recipients to judge and vote upon the proposals; (3) that the class is fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class they purport to represent; and (4) that the scheme is such that an intelligent and honest man of business, a member of the class concerned and acting in respect of his interest, might reasonably approve.”

The second issue concerned the powers of the Court to vary ex parte interlocutory orders. Stevens J cited r 259 of the High Court Rules. His Honour said that this was a review power which should be exercised first, rather than taking an appeal. The judgment noted that the approach of the Court in such a case was summarised in the case D B Baverstock Ltd v Haycock [1986] NZLR 342 where Henry J said at 344:

“It is common ground that the purpose of an application under r 264 [equivalent of current r 259] to rescind an ex parte order is to establish a hearing de novo in the presence of the defendant … The purpose of that is to enable a Judge to consider whether, on the basis of all the evidence and the arguments advanced, the interlocutory orders should stand. Ex parte orders are provisional by nature, being made on the basis of evidence and submissions from only one side, and for that reason are subject to review without inhibition.”

The third issue was whether the Court should amend or vary the initial orders.

Stevens J said there were a number of factors to be taken into account.

The first factor was the dispensation with the shareholder quorum, which His Honour said did not seem to have been considered in any depth (if at all) at the first hearing.

The second factor was the makeup of the shareholding in the Dominion companies. Stevens J noted that the widespread nature of the shareholding meant there was a real possibility that the amalgamation could come into effect through the votes of only a small number of shareholders in each company. His Honour said that his concern was exacerbated by the fact that the proposal was being advanced by the managers, with no significant or focussed shareholder interest monitoring the amalgamation. A further factor was the change of control of the three amalgamating companies. His Honour said [74]:

“The applicant companies submitted that there would not be a change of control with this amalgamation. However, I consider that, viewed as a matter of substance, there will be a change of control of voting rights in outcome following amalgamation. The shareholders in one of the applicant companies will plainly have diminished rights in respect of particular investments they originally had, as compared with their new (amalgamated) investments. Mr Dobson cited as an example a body of shareholders in one of the applicant companies who may have control now by virtue of a voting pact. Post amalgamation, such control could have disappeared, thus demonstrating the change in voting control which would result from the amalgamation. Accordingly, I consider (as did the Panel) that in a substantive sense the proposal to amalgamate would involve a change of voting control.”

His Honour went on to say [75] that he considered a procedure setting a majority of voting shareholders was appropriate in all the circumstances of the case. He added [76] that it would be unsatisfactory to not amend the initial orders but rather wait until the shareholders had voted. Stevens J said he considered that shareholders should receive notice of any additional orders at the same time, or as close as possible, to the distribution of the shareholders’ information package.

A further order made by Stevens J required the Dominion Group to notify the Panel forthwith with the results of the votes in each company and whether the Group intended to pursue their application for final orders. The Panel was then given 3 working days of such notification, or by 17 November 2006, whichever was the latest, to fi le an application for leave to appear and be heard on the application for final orders.