Latest on the Takeovers Panel's moves to amend provisions of the Companies Act relating to schemes of arrangement and amalgamations

Since the last issue of Commercial Quarterly the Takeovers Panel has been very active in its attempt to amend the provisions of the Companies Act relating to schemes of arrangement and amalgamations to effect acquisitions of Takeovers Code companies.

Submissions to Select Committee and Minister of Commerce

On 24 August, the Takeovers Panel appeared before the Commerce Select Committee hearing on the Business Law Reform Bill to press the committee to include in the Bill the Panel's proposed reforms of certain provisions of the Companies Act 1993 and the Takeovers Code.

The Panel also made a separate submission to the Minister of Commerce on its recommendations.

The Panel recommends that the provisions in the Takeovers Code for schemes and amalgamations should be removed from the Code and instead be incorporated as part of the Companies Act provisions in Parts XIII and XV of the Companies Act. In particular the Panel has recommended that:

• Part XIII of the Companies Act, which deals with amalgamations, be amended to require that:
  
  
• parties to a proposed amalgamation must obtain the approval of the Panel to the amalgamation process; and
  
  
• the Panel, in giving approval for an amalgamation process, shall take into account the principles of the Takeovers Code; and
  
  
• Part XV of the Companies Act, which deals with schemes of arrangement, be amended to require that:
  
  
  • the courts take into account the principles of the Takeovers Code when deciding the requirements for approval of a scheme of arrangement, including the level of shareholder approval required and the information to be provided to shareholders; and
    
    
  • before approving a scheme of arrangement the court receives and takes into account recommendations from the Panel as to the requirements to be met for the scheme of arrangement to be approved.
    

The Commerce Select Committee rejected the Takeovers Panel's last minute proposal to add its measures to the Bill. The committee noted that it considered the changes were beyond the scope of the Bill and would be more appropriately addressed in future legislation.

Subsequently it was reported that a Supplementary Order Paper (SOP) to the Business Law Reform Bill addressing the Panel's recommendations was to be presented to Cabinet on Monday 13 November. This was followed by a second report that the SOP was not to be presented because it had failed to gain the support of the National Party on the basis that it would have circumvented due process. The consent of all the political parties was necessary because the amendments to the Business Law Reform Bill requested by the Panel were beyond the scope of the Bill.

A New Zealand Herald article¹ reported the Commerce Minister, Lianne Dalziel as saying:
"[the amendments to the Business Law Reform Bill] would have gone part way to addressing the Takeovers Panel's concerns….It would have created new regulation-making powers, meaning shareholders could have received additional information about a proposed amalgamation…It would have also required the court to take account matters specified in regulations about whether an amalgamation proposal would have unfairly prejudiced a shareholder and whether a proposed scheme of arrangement should be approved."

Commentary

We do not believe that amendments of this nature should be introduced without an opportunity for these substantive matters of company law reform to be subject to a proper process of analysis and consultation. Our particular concerns on the Takeovers Panel's recommendations are:

• The proposed amendments are not "closing a loophole" in the current regime. Rather, they would result in fundamental changes to principles of company law that have been established over many years with the benefit of case law from New Zealand, Australia, the United Kingdom and Canada. In our view, changes of that type should be subject to proper scrutiny, including analysis of their likely economic effects and a proper opportunity for consultation with interested parties. None of that occurred in respect of the changes that we understand were to be proposed in the SOP. There was, however, an extensive period of analysis and public debate preceding the introduction of the Takeovers Act and Code. That resulted in a deliberate decision to retain the amalgamation and scheme of arrangement provisions in their current form.
  
  
• The proposed changes are unnecessary. The courts already have a supervisory role and a discretion to set voting thresholds and procedures to protect the interests of shareholders in schemes of arrangement. These issues were addressed by the Court of Appeal in a decision released in October in the Dominion Funds case². The Court of Appeal confirmed that the Takeovers Panel can be heard on these matters and that in appropriate cases the court will take into account the matters raised by the Panel. Significantly, however, the Court of Appeal did not accept the Panel's view that Takeovers Code thresholds should apply to all amalgamations and schemes of arrangement.
  
  
• The proposed changes would also put New Zealand out-of-step with the Australian law on this issue. After a period of lengthy debate on the issue, the Australian courts recognise the benefits of the scheme of arrangement procedures and allow arrangements to proceed under the normal rules (i.e. a 75% voting majority) even in circumstances where the same transaction could have been structured as a takeover.
  
  
• The proposed changes would confer disproportionate power on a small number of shareholders who would effectively be able to veto transactions that are supported by the vast majority of shareholders. They are, in particular, contrary to the interests of small shareholders.
  
  
• There is no urgency. The law relating to amalgamations and schemes of arrangement has been unchanged since the introduction of the Companies Act 1993. Over that period many beneficial transactions have successfully been completed under Court supervision. There is no evidence to suggest that the court procedures have been abused or that unfair or prejudicial transactions are being approved. This point is also discussed in the Court of Appeal's decision in Dominion Funds.

For further commentary, please refer to Bell Gully's submissions on the Takeover Panel's consultation paper released earlier this year on this topic.

 

¹ "Officials try again to close the Takeovers Code loophole", Adam Bennett and Christopher Niesche, The New Zealand Herald, 13 November 2006.

² Dominion Income Property Fund Limited and Ors v Takeovers Panel (Unreported, 26 October 2006, Court of Appeal CA229/06). For a commentary on this case, please refer to the In the courts section of this issue of Commercial Quarterly.

Enquiries and information

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.