Update on Takeovers Panel's reform proposals for schemes of arrangement

In late 2006 the Government failed to gain the necessary political support to include the Takeovers Panel's proposed reforms relating to code companies effecting a scheme of arrangement under the Companies Act as part of the Business Law Reform Bill. The Government has now referred the matter back to the Takeovers Panel for further review and consultation with the business community. The Takeovers Panel has also recently published its revised policy on the use of its exemption powers for schemes of arrangement.

Government requests Takeovers Panel to progress work on proposed legislative changes

In 2006 the Takeovers Panel took a number of steps to address its concerns over schemes of arrangements and amalgamations being used by code companies to avoid the provisions of the Takeovers Code when seeking to change the ownership or control of code companies. This included making recommendations to the Minister of Commerce for legislative changes to be made to the Companies Act and the Takeovers Code, and asking the Commerce Select Committee for those changes to be included as part of the 2006 Business Law Reform Bill.

However, the Commerce Select Committee rejected the Panel's last minute proposal to add its measures to the Bill, considering that the changes were beyond the scope of the Bill and would be more appropriately addressed in future legislation.

Further attempts to include a modified version of the Panel’s recommendations included in a Supplementary Order Paper to the 2006 Business Law Reform Bill also failed to gain the necessary political support.

The Government, by a formal request in March 2007, has now handed the matter back to the Panel to lead the required policy work on the Panel’s 2006 proposals. In making the referral, the Minister of Commerce, Lianne Dalziel, said the Panel had the necessary commercial expertise to advise her on this matter. 

The Panel has also been asked to prepare a Regulatory Impact Analysis (RIA) in accordance with the new regulatory impact analysis framework which took effect on 1 April 2007.  This will require the Panel to:

• demonstrate that the status quo is unsatisfactory;

• consider all feasible options;

• identify all environmental, economic, social (including health) and cultural costs, risks and benefits of each feasible option;

• quantify or otherwise assess each impact;

• indicate any assumptions or judgments made by policy makers; and

• indicate why the preferred option has been chosen over others.

The Panel has indicated that it will consult further with the commercial community before reporting back to the Minister.

For further information on the Takeovers Panel’s 2006 recommendations to the Minister of Commerce and to view Bell Gully’s comments on those recommendations see the Spring 2006 issue of Commercial Quarterly.

New exemption policy issued

The Takeovers Panel has issued a revised statement on the policy it is currently following in relation to its use of its exemption powers to facilitate changes of control of code companies effected through schemes of arrangement under Part XV of the Companies Act. This replaces its earlier statement issued on 1 July 2003 and follows on from a discussion document issued by the Panel in June 2006.

The policy statement is directed only at those schemes which cannot proceed without some form of exemption from the Takeovers Code. In such cases the Panel says it will consider each exemption application on its merits and in accordance with its published guidance note, Takeovers Panel’s Exemption Power (January 2005). The 2005 guidance note provides that, in considering an application, the Panel will consider whether compliance with the Code is possible and whether compliance would create an inappropriate, unreasonable, or unintended result.

The Panel notes that conditions of any exemptions to a scheme will focus on:

• the level of shareholder approval required for a transaction to proceed and who is entitled to vote on the relevant resolution; and

• the information given to shareholders about the proposed transactions (to ensure that shareholders have sufficient information to decide for themselves the merits of any scheme proposal).

Where a proposed scheme involves a merger of shareholder interests, the Panel has indicated that it will generally seek to require the proposed scheme to be approved by:

• at least 75% of the votes cast at a meeting, provided that the resolution represents more than 50% of the total voting rights in the code company; and

• at least 75% of the votes cast at the meeting of independent shareholders. 

However, the Panel has made it clear that in the absence of a merger of shareholder interests, for example where a proposed scheme involves shareholders of one participating company exiting for cash, it is likely to impose a shareholder approval threshold representing 90% of the total voting rights in that company (being the same as the compulsory acquisition threshold under the Code).

The revised policy statement also affirms previous statements made by the Panel in 2006 that the Panel will seek to be heard by the High Court on schemes of arrangement involving code companies at the stage that initial orders are being made. Accordingly, the Panel encourages code companies to advise the Panel of their intentions in the early stages of the planning process.

A copy of the Takeovers Panel’s Policy Statement is available on its website at www.takeovers.govt.nz. Also see issue No. 19 of the Takeovers Panel’s Code Word for the Panel’s discussion on its general approach to schemes of arrangements involving code companies and the differences between the revised policy and its 2003 policy.

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.