Heartland Bank Limited v Heartland Group Holdings Limited
[2018] NZHC 2725
•19 October 2018
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE
CIV-2018-404-001670 [2018] NZHC 2725
UNDER Part 15 of the Companies Act 1993 BETWEEN
HEARTLAND BANK LIMITED First Applicant
AND
HEARTLAND GROUP HOLDINGS LIMITED
Second Applicant
Hearing: 19 October 2018 Counsel:
S A Pope, A J Nelder and D H Jones
Judgment:
19 October 2018
RESERVED JUDGMENT OF WYLIE J
This judgment was delivered by Justice Wylie
On 19 October 2018 at 4.30pm Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar
Date:…………………………
Solicitors:
Russell McVeagh, Auckland
HEARTLAND BANK LTD v HEARTLAND GROUP HOLDINGS LTD [2018] NZHC 2725 [19 October 2018]
Introduction
[1] Heartland Bank Limited (Heartland Bank) and Heartland Group Holdings Limited (Heartland Group Holdings) have filed an originating application seeking approval of a scheme of arrangement under pt 15 of the Companies Act 1993 (the Act).
[2] As I noted in my minute of 9 August 2018, the scheme of arrangement proposes to restructure Heartland Bank. Under the proposed restructure:
(a)Heartland Bank shareholders will transfer all of their Heartland Bank shares to Heartland Group Holdings (a New Zealand registered company) in exchange for shares on a one-for-one basis in Heartland Group Holdings. This will result in Heartland Bank becoming a wholly owned subsidiary of Heartland Group Holdings and Heartland Bank shareholders becoming Heartland Group Holdings’ shareholders;
(b)Heartland Bank will transfer its shareholding in Heartland Australia Holdings Pty Limited (Heartland Australia) to Heartland Group Holdings. Heartland Australia is currently a wholly owned subsidiary of Heartland Bank. Under the restructure, Heartland Australia will become a wholly owned subsidiary of Heartland Group Holdings; and
(c)Heartland Group Holdings’ shares will be listed on the NZX and on the ASX as a foreign exempt listing, and Heartland Bank shares will cease to be listed on the NZX as they will all be owned by Heartland Group Holdings.
In effect, Heartland Group Holdings will become the holding company for the Heartland group, with separate wholly owned subsidiaries managing its Australian and New Zealand businesses. It is anticipated that the restructure will allow both the Australian and New Zealand businesses to grow, whilst remaining compliant with the conditions of Heartland Bank’s registration as a registered bank.
[3] On 9 August 2018, I made various initial orders under s 236(2) of the Act. Those orders were largely procedural. They set out the steps Heartland Bank and
Heartland Group Holdings were required to take to inform Heartland Bank shareholders of the nature and effect of the proposed restructure in advance of voting on the restructure at a shareholders’ meeting.
[4] I did raise some preliminary concerns that I had with aspects of the application. Those concerns were addressed by Heartland Bank and Heartland Group Holdings, and an amended application for final orders was filed in accordance with directions given by me.
[5] Further affidavits have since been filed. I summarise those affidavits briefly as follows:
(a)A second affidavit from Geoffrey Ricketts. Mr Ricketts is both the chair and an independent non-executive director of Heartland Bank. His affidavit confirms that:
(i)the initial orders made by me on 9 August 2018 have been complied with. All relevant materials directed to be served were sent to Heartland Bank shareholders on 15 August 2018. Heartland Bank also served its auditors and other parties as required. Copies of the relevant materials were filed with the NZX and electronic copies were made available by Heartland Bank on its website. Hard copies were kept by Heartland Bank at its registered office;
(ii) a shareholders’ meeting was held on 19 September 2018 at 10 am. Mr Ricketts chaired the meeting. Shareholders were asked to consider a resolution for the restructure and, if thought fit, pass that resolution. Mr Ricketts details how the meeting was conducted and records questions asked by, and the answers given to, shareholders. Heartland Bank’s auditors – KPMG – acted as scrutineers at the meeting, and voting at the meeting was conducted by a poll. The final voting on the restructure resolution was as follows:
- 333,558,468 votes were cast in favour of the restructure resolution; and
- 1,450,852 votes were cast against the restructure resolution.
The votes cast in favour of the restructure resolution represented
99.6 per cent of the votes of the shareholders voting and present at the meeting, and 59.5 per cent of the votes of those shareholders entitled to vote; and
(iii) various steps have been taken by Heartland Bank to facilitate the restructure. In particular, it has taken to satisfy the various requirements of the Reserve Bank, and to deal with the Financial Markets Authority, the NZX, the ASX and the holders of notes – known as tier 2 notes – that Heartland Bank has on issue.
(b)an affidavit from Jamie Munro, a partner in KPMG. Mr Munro and other representatives of KPMG attended the shareholders’ meeting to scrutinise the counting of the votes cast. Mr Munro reports on the process undertaken and independently verifies Mr Ricketts’ affidavit as to the result of the shareholders’ meeting;
(c)Courtney Grenfell has filed an affidavit confirming service of the relevant documents on the Takeovers Panel, the Companies Office, and on NZGT Security Trustee Limited (an entity involved in the proposed restructure) (NZGT); and
(d)Brian Ware has filed an affidavit confirming service of hard copy documents on an unrelated entity, Heartland Group Debtor Recovery Investigation Specialists Limited.
[6] No party has given notice seeking to oppose the final orders application. A
director of Heartland Group Debtor Recovery Investigation Specialists Limited
emailed Heartland Bank on 3 October 2018 detailing grounds of opposition to the proposed restructure. Heartland Bank responded later in the day, and, as noted, arranged service of a hard copy of the documents on the company. Discussions occurred and Heartland Group Debtor Recovery Investigation Specialists Limited has since advised that it no longer seeks to oppose the restructure. A letter from it in this regard has been filed. It did not appear at the hearing and no other person or entity appeared.
Relevant legal principles
[7] Part 15 of the Act deals with the approval of arrangements by the Court. Relevantly, s 236 provides as follows:
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.
…
(2A)If the arrangement or amalgamation or compromise involves a transfer or amalgamation that requires the written approval of the Reserve Bank of New Zealand under section 44 of the Insurance (Prudential Supervision) Act 2010, the court may not make an order under this section unless that approval has been given.
…
[8] In addition, s 236A imposes additional requirements where a proposed scheme of arrangement “affects the voting rights of a code company”, which, in accordance with s 236(5), means an arrangement that “involves a change in the relative percentage of voting rights held or controlled by 1 or more shareholders”.
[9] Here, the restructure intended to be effected by the proposed scheme of arrangement falls within this definition. Heartland Bank is a code company for the purposes of the Act – it will be a listed issuer at the time the restructure is implemented
and it has 50 or more shareholders.1 As a result of the proposed restructure, the percentage of voting rights in Heartland Bank held by Heartland Group Holdings will change from 0 to 100 per cent, and the percentage of voting rights in Heartland Bank held by every existing shareholder will drop to 0. Accordingly, s 236A applies.
[10] Relevantly, s 236A provides as follows:
236A Arrangement or amalgamation involving code company
(1)If a proposed arrangement or amalgamation affects the voting rights of a code company, the applicant for an order under section 236(1) must, at the same time as filing the application, notify the Takeovers Panel of the application.
(2)The court may not make an order under section 236(1) that affects the voting rights of a code company unless—
(a)the code company’s shareholders approve the arrangement or amalgamation in accordance with subsection (4); and
(b) either of the following applies:
(i)the court is satisfied that the shareholders of the code company will not be adversely affected by the use of section 236(1) rather than the takeovers code to effect the change involving the code company; or
(ii)the applicant has filed a statement from the Takeovers Panel indicating that the Takeovers Panel has no objection to an order being made under section
236(1).
…
(4)For the purposes of subsection (2)(a), the code company’s shareholders may only approve the arrangement or amalgamation in the following way:
(a)by a resolution approved by a majority of 75% of the votes of the shareholders in each interest class entitled to vote and voting on the question; and
(b)by a resolution approved by a simple majority of the votes of those shareholders entitled to vote.
…
1 See Takeovers Act 1993, s 2A(1).
[11] The additional requirements imposed by s 236A are intended to ensure that shareholders of companies that fall under the Takeovers code will not be disadvantaged if a change to a company is effected under the Act rather than under the Takeovers code.
[12] The principles applicable to applications under s 236(1) continue to apply to schemes of arrangement which also fall under s 236A.2
[13] The principles to be applied on an application for the Court’s sanction of an arrangement under s 236(1) are set out in a decision of Smith J in Re CM Banks Ltd.3
The Court there formulated four principles as follows:
(a)that there has been compliance with the statutory provisions as to meetings, resolutions, the application to the Court and the like;
(b)that the arrangement has been fairly put before the class or classes of concern, and that if a circular has been sent out, the circular gave all the information reasonably necessary to allow the recipients to judge and vote on the proposals;
(c)that the class was 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 whom they purport to represent; and
(d)that the arrangement is such that an intelligent person of business, a member of the class concerned, and acting in respect of his or her interests, might reasonably approve.
[14] In Weatherston v Waltus Property Investments Ltd, the Court of Appeal supplemented the final requirement.4 It said that it is appropriate to also consider
2 Re Trilogy International Ltd [2018] NZHC 580; Re Fliway Group Ltd [2017] NZHC 3216.
3 Re CM Banks Ltd [1944] NZLR 248 (SC) at 253.
4 Weatherston v Waltus Property Investments Ltd [2001] 2 NZLR 103 (CA).
whether the arrangement is fair and equitable, because it is implicit that an intelligent and honest business person would consider this.5
[15] In this case, I am satisfied as follows:
(a)there has been compliance with the relevant statutory provisions as to meetings, resolutions and the application to the Court. Mr Ricketts, in his second affidavit, has confirmed that the shareholders’ meeting was conducted in accordance with the constitution of Heartland Bank and the provisions of the Act. He has also confirmed that the initial orders made by me on 9 August 2018 were complied with;
(b)the information provided to shareholders fairly and fully explained what was proposed, its intended effect, and the reasons why Heartland Bank and Heartland Group Holdings propose the scheme of arrangement; and
(c)there is only one class of shareholders affected by the arrangement – the ordinary shareholders in Heartland Bank. As a result of amendments I requested at the time I made the initial orders under s 236(2), their interests are homogenous. They were fairly represented at the shareholders’ meeting. There is, and can be, no suggestion that a minority is being oppressed.
[16] Before considering the fourth requirement set out in Re CM Banks Ltd, I
address the other express statutory requirements.
[17] First, the requirement in s 236(2A) has been met. By letter dated 3 July 2018, the Reserve Bank consented to the proposed restructuring – subject to eight conditions. Mr Ricketts, in his second affidavit, has confirmed that those various conditions either have been met, or, insofar as they relate to the continuing operation of Heartland Bank and Heartland Group Holdings, will be met.
5 At [35].
[18] Secondly, I am satisfied that the requirements of s 236(2A) and (4) are met. More than 75 per cent of the votes of shareholders entitled to vote and voting on the resolution approved the arrangement. Further, the resolution was approved by a simple majority of the votes of those shareholders entitled to vote.
[19] The requirements of s 236A(2)(b) are also met. The Takeovers Panel provided a letter dated 4 October 2018 recording that it has no objection to the scheme of arrangement, that the Panel is satisfied that all material information relating to the scheme proposal has been disclosed, and that the standard of disclosure to shareholders has been equivalent to the standard that would be required by the Takeovers code in a code regulated transaction. The letter also records that the Panel is satisfied that the interests of classes of shareholders have been adequately identified, that other matters referred to in the Panel’s guidance note on schemes of arrangement have been addressed, and that there are no other reasons for the Panel to object to the scheme. The letter does not expressly record that the Takeover Panel has no objection to an order being made under s 236(1), but I consider that that can properly be inferred. To the extent that there is no express reference to s 236(1), and out of caution, I record that I am satisfied that Heartland Bank shareholders are not adversely affected by the use of s 236(1) rather than the Takeovers code to effect the changes which will occur as a result of the restructure.
[20] Other regulatory matters have been attended. The Financial Markets Authority has put out the Financial Markets Conduct (Heartland Group) Exemption Notice 2018. It came into effect on 15 August 2018, and it exempts Heartland Bank and Heartland Group Holdings from the provisions of pt 3 of the Financial Markets Conduct Act
2013, subject to various conditions. The NZX has provided a formal waiver from certain listing rules which could have been problematic. The ASX has approved Heartland Group Holdings’ application for listing on the ASX as a foreign except listing.
[21] The final matter which requires consideration is whether or not the arrangement is such that an intelligent and honest person of business, a member of the class concerned and acting in respect of his or her interests, might reasonably approve, and consider as being fair and equitable. I am so satisfied. All questions raised by
shareholders at the shareholders’ meeting were adequately and appropriately addressed by Mr Ricketts as the chair. No shareholder has filed a notice of opposition. The one shareholder who initially expressed concern has chosen not to take matters any further. Mr Ricketts has deposed that the company is unaware of any other opposition to the arrangement, and as I have noted, the majority of shareholders voted in favour of the resolution, with only a relatively small minority voting against it. There has been no articulation at any point of any reasons why the arrangement would prejudice either shareholders or creditors, and I am satisfied that the arrangement is such that an intelligent and honest person in business would reasonably approve it. I am also satisfied that the proposal is fair and reasonable because Heartland Bank’s shareholders will not be prejudiced by it.
[22] I therefore make orders as follows:
(a)the scheme of arrangement described in the Implementation Plan comprising Schedule 1 of the amended originating application filed on
8 August 2018 (the Restructure) is approved;
(b) the Restructure is binding, with immediate effect upon:
(i) the applicants:
(aa) Heartland Bank; and
(bb) Heartland Group Holdings;
(ii) every person who is a Shareholder (as defined in the Implementation Plan) as at the Record Date (also defined in the Implementation Plan);
(iii) NZGT; and
(iv) such other persons as are necessary to give effect to the
Restructure.
(c)for the purpose of giving effect to the Restructure (and in accordance with the Implementation Plan);
(i)at 5.00 pm on the Implementation Date (as defined in the Implementation Plan), all Heartland Bank Shares (as defined in the Implementation Plan) held by Shareholders will be transferred to Heartland Group Holdings;
(ii) in consideration for, and immediately following, the transfer set out at paragraph (i) above (and notwithstanding clauses 2.1 and
2.4 of the Current Heartland Group Holdings’ Constitution (as defined in the Implementation Plan));
(aa) Heartland Group Holdings will issue Heartland Group Holdings Shares (as defined in the Implementation Plan) to each Eligible Shareholder (as defined in the Implementation Plan), on a one-for-one basis for each Heartland Bank Share held by the Eligible Shareholder, on identical terms as that Eligible Shareholder’s Heartland Bank Shares; and
(bb)in the case of Ineligible Shareholders (as defined in the Implementation Plan), the Heartland Group Holdings Shares that such holders would otherwise have been entitled to receive as a result of this order will be issued to NZGT for sale on behalf of the Ineligible Shareholders and with the proceeds of sale to be paid to Ineligible Shareholders pursuant to the Implementation Plan.
(iii) with immediate effect following the issue of Heartland Group Holdings Shares set out at paragraph (ii) above (and in accordance with the sequence set out at clause 2.2 of the Implementation Plan):
(aa) the Current Heartland Group Holdings’ Constitution will be altered in accordance with Appendix 1 of the Implementation Plan; and
(bb)Geoffrey Thomas Ricketts, Ellen Frances Comerford, Gregory Raymond Tomlinson and Sir Christopher Robert Mace will be appointed as directors of Heartland Holdings (and Jeffrey Kenneth Greenslade will continue as a director of Heartland Group Holdings) (together, the Heartland Group Holdings Directors); and
(cc) with regards to the remuneration of the Heartland Group Holdings Directors, the ordinary resolution approved by Heartland Bank shareholders at the Heartland Bank
2016 annual shareholder meeting (regarding the total remuneration available to the non-executive directors of Heartland Bank) will be deemed to have been authorised by those person as shareholders of Heartland Group Holdings (as if the resolution were to apply to the Heartland Group Holdings Directors); and
(d)Heartland Bank and Heartland Group Holdings are granted leave to apply to the Court for approval of any amendment, modification or supplement to the Restructure.
[23] I approve the draft order filed by Heartland Bank and Heartland Group
Holdings with the Court on 17 October 2018.
Wylie J
2