In the first case since the Takeovers Panel signalled its change in attitude to schemes of arrangements and amalgamations involving code companies, the Court of Appeal expresses its preliminary views on the Panel's right to be heard.
In May this year the Takeovers Panel indicated that pending review of the Companies Act to "incorporate the principles of the Takeovers Code", it would seek to be heard by the High Court in cases of proposed schemes of arrangement involving code companies.
This case1 involved a proposed scheme of amalgamation of three property investment companies (all members of the same group) under Part 15 of the Companies Act 1993 (the Act). Under the proposal, Property Fund Thirty-One Ltd and Dominion Newmarket Properties Ltd are to become amalgamated in Dominion Income Property Fund Ltd (Dominion). Dominion will own all the properties presently owned by the other amalgamating companies and the investors in those companies will become owners of shares and debentures in Dominion.
Initial orders were granted by the High Court on the application of the amalgamating companies setting out the approval steps required for the amalgamation to proceed. These included an order requiring a special resolution (by a postal vote) of the shareholders in each company. A further order stated that there would be no need for a quorum of shareholders for the voting on the special resolutions (Order 6).
On being notified of the proposed amalgamation, the Panel filed an application with the High Court for a variation of the approval mechanisms proposed by the court. In particular the Panel requested that the initial orders be amended to require the special resolutions to be approved by those shareholders entitled to vote representing a majority of the total voting rights of each of the amalgamating companies. The Panel said it was concerned that under the agreed mechanisms the amalgamations could potentially be approved by a very small number of shareholders in each company. It also asked to be notified of the results of the voting so that it could apply for leave to be heard on the application for the final approval.
The High Court granted both orders requested by the Panel but the amalgamating companies challenged these orders on appeal to the Court of Appeal on the basis that:
The Court of Appeal allowed the appeal and reinstated the initial High Court orders (subject to some necessary amendments to the original dates). However, it retained the additional order granted by the High Court requiring the Panel to be notified of the outcome of the shareholder votes so that it can be heard on the application for final approval (subject to the new requirement that the Panel now only has two working days to give notice that it wishes to be heard).
The Court of Appeal acknowledged that the amalgamation proposal did not come under the Takeovers Code since it did not involve the acquisition by any person or group of associated persons of more than 20% of the voting rights of the code companies involved.
The argument put forward by the Panel that the amalgamation "would produce an effect which is economically the same (or practically the same)" as a takeover under the Code was not regarded by the court as a "controlling consideration". The court noted that "the law generally does not yet equate form and substance". It also noted that in practical terms Dominion would be controlled by the same group of shareholders that currently control the other amalgamating companies.
However no definitive ruling was given on whether the amalgamation was a "takeover" for the purposes of the Takeovers Act due to the time pressure under which the decision was given and the fact that they did not see it as critical in the context of the case as a whole. The court did note that it was inclined to agree that the amalgamation was not a takeover.
The court considered that the arguments for and against the initial approval mechanism were closely balanced but decided in favour of reinstating the initial orders for the following reasons:
The Court of Appeal made no definitive ruling on the question of whether the Panel had the right to be heard on the amalgamation proposal given that the appeal was allowed on its merits. However the Court did express the view that it was "at least well arguable that the Panel did have standing". It noted that "given that Part 13 and Part 15 amalgamations may engage the Takeovers Code and are sometimes used as devices to avoid the Code, we are inclined to think that the proposed amalgamation was legitimately a matter of interest to the Panel under section 8 of the Takeovers Act."
On the basis of this legitimate interest the court noted that it was also inclined to think that it was open to the High Court to treat the Panel as "interested" for the purposes of section 236(2) of the Act.
Again, the court declined to express a definitive view on this point but it did note that it "tentatively" thought the Panel's participation in the hearing was within its powers.
On this point, the Court of Appeal considered that there was no procedural objection to the High Court reviewing and supplementing the initial orders. It considers that section 236(2) of the Act contemplates further orders and implies a power to revise orders since it permits an initial order to be made at the instance of "interested parties." There was no need to use the High Court Rules (as in this case) to authorise new or amended orders.
For an update on the Takeovers Panel's proposals to remove schemes and amalgamations from the Takeovers Code and instead include the principles of the Code in Parts 13 and 15 of the Companies Act 1993 see the section on Recent Developments in this issue of Commercial Quarterly .
Also note that in the Takeovers Panel's press release on this case it notes that "Any code companies contemplating entering into schemes of arrangement are encouraged to discuss their intentions with the Panel at an early date." To view a copy of this release visit the Takeovers Panel's website at http://www.takeovers.govt.nzor click here .
 Dominion Income Property Fund Limited and Ors v Takeovers Panel (Unreported, 26 October 2006, Court of Appeal CA229/06)
For more information on any of the cases, articles and features in Commercial Quarterly, please email Diane Graham or call her on 64 9 916 8849.
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