Dominion Income Property Fund Ltd v Takeovers Panel CA229/06

[2006] NZCA 469

IN THE COURT OF APPEAL OF NEW ZEALAND

CA229/06

BETWEEN  DOMINION INCOME PROPERTY FUND LIMITED

First Appellant

ANDPROPERTY FUND THIRTY-ONE LIMITED

Second Appellant

ANDDOMINION NEWMARKET PROPERTIES LIMITED Third Appellant

ANDTAKEOVERS PANEL Respondent

Hearing:         26 October 2006

Court:            William Young P, Chambers and Ellen France JJ Counsel:     R G Simpson and J Q Wilson for Appellants

R A Dobson QC and D M Salmon for Respondent

Judgment:      26 October 2006

JUDGMENT OF THE COURT

A          The appeal is allowed.

BOrder 6 made in the High Court on 21 September 2006 is reinstated and the order made in the High Court on 18 October 2006 in substitution for it is quashed.

COrders 5, 7, 13 and 14 made in the High Court on 21 September 2006 are varied by substituting for the dates expressed in them, the following

new dates:

DOMINION INCOME PROPERTY FUND LIMITED AND ORS V TAKEOVERS PANEL CA CA229/06  26

October 2006

Order 5                  Friday, 17 November 2006

Order 7                  Monday, 30 October 2006

Order 13                Wednesday, 22 November 2006 and Thursday,

23 November 2006 (respectively)

Order 14                Monday, 20 November 2006 and Thursday,

23 November 2006 (respectively)

DOrder 14A made in the High Court on 18 October 2006 is amended by substituting “two working days” and deleting the reference to 17

November 2006.

EThe Takeovers Panel is to pay the appellants costs of $6,000 together with usual disbursements (with a certificate for second counsel).

F          This judgment is not to be reported in the news media until 5.00pm on

30 October 2006.

REASONS OF THE COURT

(Given by William Young P)

[1]      On 19 September 2006 Dominion Income Property Fund Ltd, Property Fund Thirty-One Ltd, and Dominion Newmarket Properties Ltd (“the amalgamating companies”)  filed an originating application in  the High  Court  at  Auckland  for orders approving an amalgamation under Part 15 of the Companies Act 1993 (“the

1993 Act”).   The application proposed that Property Fund Thirty-One Ltd and Dominion Newmarket Properties Ltd would become amalgamated in Dominion Income Property Fund Ltd.  The amalgamating companies simultaneously made an ex parte application for initial orders relating to that originating application under s 236 of the 1993 Act.

[2]      The initial orders were granted by Asher J on 21 September 2006.   The following are relevant to this appeal:

Order 2

The Amalgamation will be put to the shareholders of each of the applicants for approval by way of separate special resolution (Special Resolutions) of

75% or more of the votes cast by those shareholders (in their capacity as

Group A ordinary shareholders of the applicants) entitled to vote and voting on the resolutions.  Notwithstanding that shareholders will be voting in their capacity as Group A ordinary shareholders, they will also be bound by the outcome of the voting on the Special Resolutions in their capacity as debenture-holders.

Order 6

There will be no need for a quorum of shareholders in relation to the voting on the Special Resolutions.  Subject to the terms of these orders, the Special Resolutions will be otherwise conducted in accordance with the provisions of   the   Companies   Act   1993   and   the   constitution   of   the   relevant [amalgamating company] to which the Special Resolutions relate.

The Judge did not direct the holding of meetings but rather postal voting processes.

[3]      In a minute issued along with the orders the Judge recorded:

… Mr Simpson, who appears for the applicant with Ms Leong, although he does not accept that the [Takeovers Panel] has to be served, volunteers to ensure that they are so served, as a courtesy.

[4]      Accordingly   the   Takeovers   Panel   became   apprised   of   the   planned amalgamation.  On 13 October 2006 the Panel filed an application for leave to be heard in relation to the amalgamation approval and for a variation of the orders which Asher J had made on 21 September.   On 18 October 2006, and over the opposition of the amalgamating companies, Stevens J granted leave to the Panel to be heard and varied order 6 as follows:

The provision concerning voting rights in the first sentence of Order 6 made on 21 September 2006 is not to apply.  Instead, the special resolutions for each of the applicants must be approved by those shareholders (in their capacity as Group A ordinary shareholders of the applicants) entitled to vote, representing a majority of the total voting rights of each of the applications.

He also made provision (in the form of a new order 14A) for the Panel to be notified of the results of the voting and, if the Panel wished to be heard as to the application for final approval, for it to apply for leave in that regard within three working days of notification or 17 November 2006, whichever is the later.

[5]      The amalgamating companies challenge the order granting the Panel leave to be heard and the variation of order 6.

Background

[6]      The  amalgamating  companies  are  all  members  of  the  Dominion  Funds Group.  Dominion Income Property Fund Ltd is very much the largest of them.  All three  pool  investors’  funds  for  the  purpose  of  purchasing  property  and  issue securities in the form of:

(a)      Group A ordinary shares which are issued to investors in return for their equity contributions.  Such shares carry the right to vote on the appointment and removal of one director to the board and the right to receive distributions made by the company;

(b)Debentures or notes which are issued to investors in consideration for their debt contributions to the companies.

The shares and associated debentures are “stapled”, that is they cannot be disposed of separately.   Control of the companies is vested in a small number of Group B shares.

[7]      If the amalgamation proceeds, investors in Property Fund Thirty-One Ltd and Dominion Newmarket Properties Ltd will become owners of shares and debentures in the new Dominion Income Property Fund Ltd and that company will own all the properties presently owned by the other amalgamating companies.

[8]      The amalgamation has been proposed on the basis that it will enhance the continuity of distributions to, and protection of the capital value of investments held by, investors in each of the companies.

The reasons for the intervention of the Panel

[9]      The  Panel  is  a  body  corporate  established  under  the  provisions  of  the

Takeovers Act 1993.  Section 8 provides for its functions as follows:

(a)       To keep under review the law relating to takeovers  of specified companies and to recommend to the Minister any changes to that law that it considers necessary:

…

(c)       For the purposes of paragraph (a) of this section, to keep under review practices relating to takeovers of specified companies:

…

(f)        To promote public understanding of the law and practice relating to takeovers.

All three of the amalgamating companies are now “specified companies” or “Code companies” as they were referred to before us.

[10]     Earlier this year the Panel took the view that the provisions of the Takeovers Code were being bypassed by amalgamations under Parts 13 and 15 of the 1993 Act. On 4 April 2006, it released a discussion paper:  Policy on exemptions from the Code for schemes of arrangement effected under the Companies Act 1993.  In this paper it expressed dissatisfaction with the use of amalgamation as a Code avoidance mechanism  and  called  for  the  views  of  market  participants  on  this  subject.    It released another discussion paper in June 2006 seeking comment on the relationship between the Code and the Companies Act and on the use of amalgamations in respect of Code companies.

[11]     In August 2006 the Panel recommended that the Code be amended so that it no longer apply to schemes of arrangement under Part 15 of the Act.  Part 15 would also be amended to ensure that the High Court takes into account the principles of

the Code when deciding whether to approve a scheme (and, to this end, to receive submissions from the Panel).  The Panel also recommended amendment to Part 13 to require parties to a proposed amalgamation to obtain Panel approval to the amalgamation (with the Panel to take into account the principles of the Code).

[12]     These recommendations have yet to be accepted and it may be that they will not be acted on.  In the meantime, the Panel has indicated that it will seek to be heard by the High Court when the Court considers proposed schemes of arrangement involving  Code  companies.    This  proposed  amalgamation  is  the  first  since  the change of attitude was signalled by the Panel.

Overview of appeal

[13]     We propose to address the issues raised by the appeal under the following headings:

(a)      The legislative scheme.

(b)      Is the amalgamation a takeover? (c)     The absence of a meeting.

(d)      The merits of the majority voting threshold requirement. (e)   The standing of the Panel.

(f)       Other procedural questions. (g) Suppression.

The legislative scheme

[14]   The 1993 Act and the Takeovers Act and Code provide three distinct mechanisms by which the three amalgamating companies can come together.

[15]     There could be an amalgamation under Part 13 of the 1993 Act.   Such an amalgamation must be approved by shareholders by special resolution under s 106

(75% of those voting) or resolution under s 122 (75% of those entitled to vote). Dissenting shareholders would have the right to be bought out (see s 110) subject to a discretion vested in the High Court under ss 114 and 115 to order otherwise.  This option was not adopted by the amalgamating companies as they are not prepared to buy out dissenting shareholders.

[16]     Another option would have been a formal takeover by Dominion Income Fund Ltd of the other two amalgamating companies or by a new entity of all three amalgamating companies.   For practical purposes this mechanism would only be effective if the offer was accepted by at least 90% of the shareholders in the companies which were being taken over.

[17]     The option adopted by the amalgamating companies was amalgamation under

Part 15 of the 1993 Act.

[18]     The key provisions are s 236(1) and (2) and 237(1):

236      Approval of arrangements, amalgamations, and compromises

(1)       Notwithstanding the provisions of this Act or the constitution of a company,  the  Court  may,  on  the  application  of  a  company  or  any shareholder or creditor of a company, order that an arrangement or amalgamation or compromise shall be binding on the company and on such other persons or classes of persons as the Court may specify and any such order may be made on such terms and conditions as the Court thinks fit.

(2)       Before making an order under subsection (1) of this section, the Court may, on the application of the company or any shareholder or creditor or other person who appears to the Court to be interested, or of its own motion, make any one or more of the following orders:

(a)  An order that notice of the application, together with such information relating to it as the Court thinks fit, be given in such form and in such manner and to such persons or classes of persons as the Court may specify:

(b)   An order directing the holding of a meeting or meetings of shareholders or any class of shareholders or creditors or any class of creditors of a company to consider and, if thought fit, to approve, in such manner as the Court may specify, the proposed arrangement or amalgamation or compromise and, for that purpose, may determine the shareholders or creditors that constitute a class of shareholders or creditors of a company:

(c)   An order requiring that a report on the proposed arrangement or amalgamation or compromise be prepared for the Court by a person specified by the Court and, if the Court thinks fit, be supplied to the shareholders or any class of shareholders or creditors or any class of creditors of a company or to any other person who appears to the Court to be interested:

(d)   An  order  as  to  the  payment  of  the  costs  incurred  in  the preparation of any such report:

(e)   An order specifying the persons who shall be entitled to appear and be heard on the application to approve the arrangement or amalgamation or compromise.

…

237      Court may make additional orders

(1)       Without limiting section 236 of this Act, the Court may, for the purpose of giving effect to any arrangement or amalgamation or compromise approved under that section, either by the order approving the arrangement or amalgamation or compromise, or by any subsequent order, provide for, and prescribe terms and conditions relating to,—

(a)   The  transfer  or  vesting  of  real  or  personal  property,  assets, rights, powers, interests, liabilities, contracts, and engagements:

(b)   The issue of shares, securities, or policies of any kind: (c)   The continuation of legal proceedings:

(d)   The liquidation of any company:

(e)   The provisions to be made for persons who voted against the arrangement or amalgamation or compromise at any meeting called in accordance with any order made under subsection (2)(b) of that section or who appeared before the Court in opposition to the application to approve the arrangement or amalgamation or compromise:

(f)   Such other matters that are necessary or desirable to give effect to the arrangement or amalgamation or compromise.

[19]     By way of comparison we note that the precursor to s 236 was s 205 of the

Companies Act 1955 (“the 1955 Act”) subss (1) and (2) of which provided:

205      Power to compromise with creditors and members

(1)       Where  a  compromise  or  arrangement  is  proposed  between  a company and its creditors or any class of them, or between the company and its members or any class of them, the Court may, on the application in a summary way of the company or of any creditor or member of the company,

or, in the case of a company being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members of the company or class of members, as the case may be, to be summoned in such manner as the Court directs. If any question arises under this section as to whether or not any members or creditors of a company constitute a class of members or a class of creditors, as the case may be, it shall be determined by the Court as in the circumstances it thinks proper.

(2)       If a majority in number representing three-fourths in value of the creditors or class of creditors or members or class of members, as the case may be, voting in person or, where proxies are allowed, by proxy at the meeting agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Court, be binding on all the creditors or the class of creditors, or on the members or class of members, as the case may be, and also on the company, or, in the case of a company in the course of being wound up, on the liquidator and contributories of the company.

[20]     While  the  Part  15  process  does  not  does  provide  all  the  benefits  for shareholders that are available under Part 13 and the Takeovers Code, some safeguards are available for dissenters under Part 15 which are not available under the other mechanisms.  These are associated with Court supervision and the right of dissenters to have access to the Court.

[21]     For present purposes, the key features of the current legislative scheme are:

(a)      The wide range of parties who can apply under s 236(1), being the company, any shareholder in the company or any creditor.

(b)      The even broader range of parties who can apply for orders under s

236(2) extending to any person who appears to the Court to be interested.

(c)      The orders need not be in conformity with the provisions of the 1993

Act or the constitutions of the companies involved; given the opening words of s 236(1), “Notwithstanding the provisions of this Act or the constitution of a company…”.

(d)The Court has the power to determine the appropriate approval mechanism in its initial order as compared to the prescriptive requirements in s 205 of the 1955 Act.

(e)      The  Court  has  the  power  to  specify  who  may  be  heard  on  the application to approve the amalgamation.

(f)      The Court has the power to make provision  for  those  who  voted against amalgamation or opposed the order approving it.

[22]     The authorities show that it is very much for the applicants to get the initial orders right and that those orders are not in the nature of a final judicial imprimatur of either the applicant’s process or the substance of the amalgamation, both of which may be put in issue when Court approval is sought, see Re Hellenic & General Trust Ltd [1975] 3 All ER 382 at 384-5 and Nordic Bank Plc v International Harvester Australia Ltd [1983] 2 VR 298 at 303. On the other hand, it is right to recognise that the initial orders will necessarily have an impact on the dynamics of what follows, a point developed later in [52]. As to the general principles in relation to s 236 applications, it is sufficient to refer to Weatherston  v  Waltus  Property Investments Ltd [2001] 2 NZLR 103 (CA).

[23]     Mr Simpson stressed some contextual features which he maintained were of significance.   The power to approve arrangements under s 236 and corresponding powers in other jurisdictions are important particularly in relation to public companies.  Section 236 applications involve substantial expense and are unlikely to be  undertaken  unless  those  propounding  them  are  confident  of  success.    The proposal sent to shareholders is a prospectus and the audited accounts which accompany it must not be less than nine months old (see s 37A of the Securities Act

1978).  So there will be limited times within which such applications can be made.

Is the amalgamation a takeover?

[24]     This issue is quite complex and not well suited to being addressed in an oral judgment delivered under time pressure.

[25]     The  Takeovers  Code  is  not  engaged  by  the  amalgamation  proposal, essentially because the amalgamation will not involve the acquisition by any person or group of associated persons of more than 20% in the voting rights of the Code companies involved.  The shareholdings in each of the amalgamating companies are widely spread and none of the class A shareholders or group of associated shareholders has or will have anything approaching a 20% interest in Dominion Income Property Fund Ltd.  Indeed, in practical terms, Dominion Income Property Fund Ltd will be controlled by the same group of Group B shareholders as control the amalgamating companies.

[26]     That the Code is not engaged is not, in itself, a controlling consideration in terms of whether the proposed amalgamation is a “takeover”, an expression which is not defined in either the Code or the Takeovers Act.

[27]     Mr Dobson QC for the Panel noted that the amalgamation proposed will produce  an  effect  which  is  economically the  same  (or  practically the  same)  as Dominion Income Property Fund Ltd taking over the other two amalgamating companies.  Dominion Income Property Fund Ltd is issuing shares in itself to the shareholders in the other companies in exchange for their shares.  He reinforced this submission by referring to the way in which the letter which the applicants will send to the investors describes the amalgamation:

Under the proposed Amalgamation, investors in Dominion Newmarket and in Property Fund Thirty-one will “exchange” their existing charges and debentures for new shares and debentures in Dominion Income.  The basis on which this “exchange” will occur has been determined to ensure that the restructure is fair and reasonable to all investors in the Amalgamating Companies.  It is described in detail on pages 17 to 18 of the Information Memorandum.

He also  noted  that  the ability of  shareholders  in  the two  smaller  companies  to influence events will be watered down.   Mr Dobson’s propositions are true, but likewise are not controlling considerations.  The fact remains that the amalgamation does not engage the Code and the law generally does not  yet equate form  and substance.

[28]     Mr Simpson maintained that the amalgamation  is  not  a takeover  for  the purposes  of  the  Takeovers  Act.  A  takeover  involves  the  obtaining  of  effective control of a company.   An amalgamation, by contrast, is a reconstruction process under which two or more companies “are so joined as to form a third entity, or one company is absorbed into and blended with another”, see Re Walker’s Settlement [1935] 1 Ch 567 at 583 per Romer LJ. As well, the amalgamation will not effect a change in control. The shareholdings in the amalgamating companies are widely spread and there is no suggestion of a voting pact.

[29]     Without finally determining the question, we suspect that Mr Simpson is right but we do not see this as being of critical significance in the context of the case as a whole.

The absence of a meeting

[30]     Asher J did not require meetings to be held.   This was presumably for the reasons advanced to him by the amalgamating companies that experience had shown attendance at such meetings was sparse and greater shareholder participation could be obtained with postal voting.

[31]     Mr Dobson did not challenge this aspect of the orders made by Asher J but he maintained that this was a significant feature of the procedure.   He stressed the central  role  that  meetings  have  under  the  1993  Act  and  that  when  the  Court dispensed with meetings, it was giving a signal to shareholders that the proposal did not require much attention.   This highlighted the significance of the substituted

process.  He noted that the default substituted process provided for by the 1993 Act was under s 122 with its 75% voting threshold.

[32]     We accept that there is force in what Mr Dobson said on this point.  As to this we also note the comments made by this Court in Waltus at [32]:

The Court is of course likely to continue to follow the practice suggested by the Act of directing that meetings be held of shareholders or creditors to consider and approve the proposal.

On the other hand, it is also important to recognise that it would not be practicable for the amalgamating companies to have both meetings and postal voting and the evidence which was before the High Court suggested that postal voting is likely to result in greater shareholder participation.

The merits of the majority voting threshold requirement

[33]     The key reasoning of Stevens J on this aspect of the case appears in the following passage of his judgment:

Should the Court amend or vary the initial orders?

[71]      In determining this question, I consider first that the key question is the dispensation from a shareholder quorum as envisaged by order 6.  This aspect was canvassed in  paragraphs  110 to  115  of the  memorandum in support of the ex parte application for initial orders.  But it does not appear to have been considered in any depth (if at all) at the hearing before Asher J. By contrast, that issue was discussed in considerable detail in the hearing before me.

[72]      Second, in  my  view,  it  would  have  been relevant  for the  Court earlier to have considered features of the makeup of the shareholding of the applicant companies.  Given the absence of any significant shareholders and the very widely held nature of the shareholdings in each of the applicant companies, I consider that there is a real possibility that the amalgamation could come into effect (particularly bearing in mind the absence of a shareholder  quorum)  through  the  votes  of  only  a  small  number  of shareholders  in each  company.    Such  concern  is  exacerbated  where  the proposal is being advanced by managers, in circumstances where there is no significant or focussed shareholder interest monitoring the amalgamation.

[73]      Such features of the shareholding were considered of importance by the Panel. When viewed against the change of control of voting rights which

would  follow  in  the  amalgamated  entity  upon  a  75%  majority  being achieved, this leads to the desirability of a quorum of shareholder voters.  I agree.

[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 the 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.

[75]     It was for this reason that the Panel suggested that the promoters should be required to secure a minimum shareholder vote of 50%.   This figure was less than that required in s 122 of the Act.   I consider that a procedure setting a majority of voting shareholders in each of the applicant companies is appropriate in all the circumstances of this case.  The criticism that is “arbitrary” cannot be sustained, particularly when viewed against the dilution of other protective measures resulting from the terms of the initial orders.  Of importance in this context is the absence of investor meetings. Whilst the Judge considering the initial orders would have been aware that no investor meetings were proposed (see paragraph 101 to 105 of the memorandum), this factor was not specifically mentioned in the context of the submissions regarding no quorum.  Neither was there any reference there to the makeup of the shareholdings of the applicant companies, or the significant role of management in its governance.  The issues of impact on the various investments and change of control was not discussed in that part of the memorandum.

[76]      On the question of whether the Court should simply refuse to vary the initial orders, allow the proposed amalgamation to be put to investors, and then await the outcome of the postal ballot, I do not consider that course would be satisfactory.  As noted above, the Panel sought to be heard at this stage because the issue was procedural and effected the scope of the initial orders  made  and  the  procedure  to  be  followed  in  the  lead  up  to  the November hearing.   I consider that it is preferable that the shareholders should receive notice of any additional orders at the same time, or as close as possible, to the 19 October information package.  In my judgment, any order varying order 6 of the initial orders is likely to be of assistance to the shareholders when determining their views on the amalgamation proposal and their decision on it.

[77]      With respect to the 50% shareholder voting requirement, counsel for the Panel did not rule out the possibility that, if the results of the voting showed a turnout of just under 50% of the shareholders in one or more of the applicant companies, this should necessarily defeat the amalgamation proposal.  Rather, it would be a matter for the Judge at the final hearing in

November to determine whether the amalgamation should be approved, bearing in mind all of the voting and other information available at that time. It was against the prospect that the Panel might wish to participate at the final hearing that it sought an amendment or addition to order 14 of the initial orders.

[34]     We note in passing that the quorum requirements for shareholders meetings as laid down in the constitutions of the amalgamating companies are not exacting.  In each case, two shareholders constitute a quorum.  For meetings of debenture holders, a quorum consists of the holders of 10% of the outstanding stock.  This too might be thought to be relatively easy to achieve.  For both classes of meeting the result of a quorum being not achieved is that the meeting is adjourned and whoever attends the reconvened meeting will constitute a quorum.   As well, we note that Mr Simpson challenged what Stevens J had said as to what had happened at the hearing before Asher J.   But the issues associated with this seem to us to be of peripheral significance.

[35]     From  the  point  of  view  of  the  Panel,  the  problem  with  the  approval mechanism proposed by Asher J is that the amalgamation may be approved by a very small proportion of the shareholders who are entitled to vote.   Given likely shareholder apathy and the lack of a major shareholder who could be expected to scrutinise the proposed amalgamation rigorously, approval in the manner proposed by Asher J may not say much as to the commercial appropriateness of the amalgamation.

[36]     From the point of view of the amalgamating companies, the problem with the approach taken by Stevens J is really the other side of the coin to the point just made. Because of shareholder apathy, it will be difficult (although not necessarily impossible) to obtain support for the amalgamation from an absolute majority of those entitled to vote.  That this is so is apparent from voting figures associated with other amalgamation proposals provided by Mr Simpson.   On the other hand, as Mr Dobson pointed out, the rules under which voting takes place will necessarily have an impact on voting behaviour.

[37]     Practice in relation to amalgamation proposals under the 1993 Act (including those involving the Dominion group) has generally been along the lines adopted by Asher J.  The one exception is an instance in which the proposed amalgamation did engage the Takeovers Code.  However, as Mr Dobson pointed out, existing practice is based on decisions made on an ex parte basis.  He maintained that the cumulative effect of no quorum, no voting threshold and no minority buy out was lowering the bar far too low.   To this Mr Simpson responded by noting that the constitutional quorum requirements are not demanding, voting thresholds were not provided for under s 205 of the 1955 Act and have not been required in practice under s 236 and there is a secondary market which permits investors to realise their investments, limiting the need for minority buy out rights.

[38]     Mr Simpson referred us  to  the  remarks  of  Fry LJ  In  Re Alabama,  New

Orleans, Texas and Pacific Junction Railway Company [1891] 1 Ch 213 at 246-7:

Then it is to be borne in mind, in the next place, that the Legislature has vested the discretion, in regard to what is to be done by the creditors or class of creditors, so far as it rests with them, not in any majority of the entire class, but in the majority of that class who are present at a meeting, either personally  or  by  proxy;    and,  that  being  so,  it  is  impossible  to  us  to reintroduce by decision regulations with regard to an absolute majority of the class which may prevail in the case of other companies.  I do not think that the Court has any right to so fetter the powers given by the Legislature.

But as Mr Dobson noted, these remarks must be read in light of the legislation under consideration in that case (which corresponded to s 205 of the 1955 Act).

[39]     As the preceding discussion indicates, the merits of the positions advanced by both parties are closely balanced.   But there are three points which lead us to the view that the approach taken by Stevens J on this aspect of the case was erroneous.

[40]     The first is that s 236(2)(b) talks of approval not by shareholders, but rather by “meetings of shareholders”.  While a quorum requirement may be part and parcel of meeting procedures, a decision of a meeting is usually reached by reference to the votes of those who are present (personally or by proxy) and vote.  Asher J did not specifically  invoke  the  s 236(2)(b)  power  (because  he  directed  postal  voting

processes rather than the holding of meetings).  But plainly he was acting by analogy with s 236(2)(b).  In turn this consideration means that the remarks of Fry LJ in the Alabama case have some continuing relevance.

[41]     The second (and more important) is a practical consideration.   It is quite possible that the proposed amalgamation will be approved by an overwhelming majority of those who vote (say 95% – a figure which is quite likely given the voting figures on similar proposals in the past) but the total votes in favour may fall slightly short of 50%.   As to the latter point, Mr Simpson referred to a number of s 236 proposals which were overwhelmingly supported by those who voted but where those who favoured the proposals represented between 42%-49% of those able to vote.  In the course of argument Mr Dobson was inclined to accept that the threshold in relation to Dominion Income Property Fund Ltd might be both unnecessary (as it is, in substance, an acquirer) and too exacting given the likelihood of shareholder apathy.  (It has a very large number of shareholders and the amalgamation will not be as important for it as for the other two companies.)

[42]     In  [77]  of  his  judgment,  Stevens  J  contemplated  the  possibility that  the amalgamation might be approved by the Court even if not approved by the shareholders  in  the  manner  fixed  by the  Court.    Such  an  outcome  might  seem possible on a literal reading of s 236 (which does not expressly make Court approval dependent on shareholder approval). But we see the scheme of the section as being very much to the contrary.   No case was cited to us suggesting that the course contemplated by Stevens J was possible.

[43]     The third and partly overlapping point is that we see no basis on the evidence associated with the present case (which appears to be a very orthodox amalgamation and not a device to avoid the Takeovers Code) for departing from usual practice, including the usual practice previously adopted for similar amalgamations within the Dominion Group.

[44]     Against that background, we see the most appropriate course as being to revert to the orders made by Asher J.  If the proposed amalgamation is approved by

the shareholders, it will still be for the Court to decide on the final application whether to approve the proposal.  The smaller the number of votes cast in favour of the amalgamation, the greater must be the scrutiny of the Court.  Further, if the Court sees the amalgamation as engaging the policy of the Takeovers Act or as an inappropriate vis à vis dissenting shareholders, then this may be relevant to whether the  Court,  on  the  application  for  final  orders,  should  refuse  approval  or  make approval the subject to a buy out of dissenting shareholders.

The standing of the Panel

[45]     Section  236(2)  provides  for  the  Court  to  make  initial  orders  on  the application of “the company or any shareholder or creditor or other person who appears to the Court to be interested”.

[46]     Was it open to the Judge to conclude that the Panel “appears to be interested”

on the basis of the material before him?

[47]     Given that the appeal must be allowed on the merits we are not inclined to give a final ruling on the standing issue.  We are, however, of the view that it was at least well arguable that the Panel did have standing.  Given that Part 13 and Part 15 amalgamations (depending on their structuring) 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 s 8 of the Takeovers Act.  On the basis that the Panel therefore had a legitimate interest in the proposed amalgamation, we are inclined to think that it was open to Stevens J to form the view that it was also “interested” for the purposes of s 236(2) and thus to hear it under that subsection.

[48]     The amalgamating companies also argued that the Panel’s participation in the hearing was beyond its powers under the Takeovers Act.  We prefer to express no definitive view on the Panel’s powers although tentatively we think that its participation was within its powers.  If the reasoning set out in [47] is right, it might

be thought that the Panel’s participation in the hearing was sufficiently related to, or “consequential on”, its functions under s 8 of the Takeovers Act as being within its powers, given particularly s 14(1)(c) of the Crown Entities Act 2004.

Other procedural questions

[49]     The ability of  the Panel  to  intervene at  the initial  order  phase was  also challenged by the amalgamating companies.

[50]     We have some sympathy with this challenge, particularly given the potential for such intervention to lead to expensive disruptions of procedures put in place by an applicant.   Further, as Mr Simpson noted, there is a real sense in which the applicant must take responsibility for the appropriateness of the initial orders.  But the scheme of the section contemplates involvement at the initial order stage by parties other than the applicants.  We agree that the initial orders under s 236(2) will almost necessarily be made at the instance of the s 236(1) applicants.  But there is nothing in s 236(2) to indicate that the parties who may apply for initial orders are confined to the s 236(1) applicant.  For instance, if the s 236(1) application is made by a shareholder, it would be odd if the company was not entitled to apply under s 236(2) in relation to the initial orders.   Further, the fact that s 236(2) permits an initial order to be made also at the instance of “interested parties” (who will not be s 236(1) applicants) implies a power to revise orders.

[51]     In the High Court, Stevens J relied primarily on r 259 of the High Court

Rules which relevantly provides:

259      Order may be varied or rescinded if shown to be wrong

(1)       A party affected by an interlocutory order (whether made on the Court’s own initiative or on an interlocutory application) or by a decision given on an interlocutory application may, instead of appealing against the order or decision, apply to the Court to vary or rescind the order or decision, if that party considers that the order or decision is wrong.

…

(3)      Notice  of  an  application  under  subclause  (1)  must  be  filed  and served,—

(a)if it is made by a party who was present or represented when the order was made or the decision given, within 5 working days after the order was made or the decision was given:

(b)if  it  is  made  by  a  party  who  was  not  present  and  not represented, within 5 working days after receipt by the party of notice of the making of the order or the giving of the decision, and of its effect.

…

(6)      The Court may,—

(a)if  satisfied  that  the  order  or  decision  is  wrong,  vary  or rescind the order or decision; or

(b)on its own initiative or on the application of a party, transfer the application to the Court of Appeal.

That rule may well also have authorised the course adopted by the Judge.  But for ourselves,  we  prefer  to  approach  the  case  on  the  basis  that  s 236(2)  itself contemplates further orders.

[52]     It is important to recognise that the initial orders made by the Court, while not conclusive as to process or substance, are likely to be significant in terms of what happens later.  First, shareholders may well assume that the proposal and associated procedure does have the approval of the High Court.  Whatever rules are fixed will plainly affect promoter and shareholder alike.  Further, compliance with the initially ordered procedure is likely to be a significant factor on the application for final approval especially given the expensive nature of the exercise which will be then have been carried out.

[53]     In this context we see no procedural objection to Stevens J reviewing and supplementing the earlier orders.

Suppression

[54]     Both  parties  sought  an  order  suppressing  publication  of  this  judgment essentially  because  of  the  concern  that  publicity  indicating  that  the  Panel  was troubled by the amalgamation might lead to a false perception of the reasons for the Panel’s involvement.   We understand that concern.   But we consider that in this situation open justice considerations prevail.  There may well be shareholders who might be influenced in their voting by knowing that there have been and remain concerns by the Panel about the approval mechanism and it would not be right for us to suppress from them that information.

[55]     We are, however, prepared to suppress any reporting of this judgment until

5.00pm next Monday 30 October 2006; this to give the opportunity to the parties to get their own message out to the shareholders and indeed the public.  It is right to say that we see nothing in the proceedings which reflects on the merits of the proposed amalgamation and are content for this to form part of any material which is released to the shareholders and public.

Solicitors:

Bell Gully, Auckland for Appellants

LeeSalmonLong, Auckland for Respondent