Millennium & Copthorne Hotels New Zealand Ltd

[2014] NZHC 1616

THIS DECISION IS EMBARGOED FROM PUBLIC RELEASE UNTIL MCK, THROUGH ITS SOLICITORS, ADVISES THE REGISTRY BY EMAIL OF REGISTRATION OF THE FINAL PROSPECTUS AND NOTIFICATION OF THE FINAL SHARE PRICE FOR THE FS LISTING IN SINGAPORE.

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2013-404-005181 [2014] NZHC 1616

UNDER

the Companies Act 1993 and Part 7 and

Part 19 of the High Court Rules

IN THE MATTER OF

a scheme of arrangement under Part 15 of the Companies Act 1993

AND

IN THE MATTER OF

MILLENNIUM & COPTHORNE HOTELS NEW ZEALAND LTD Applicant

Hearing:	10 July 2014
Appearances:	D J Cooper and R A Rose for Applicant
Judgment:	10 July 2014

ORAL JUDGMENT OF VENNING J

Solicitors:           Bell Gully, Auckland

Re Millennium & Copthorne Hotels New Zealand Ltd [2014] NZHC 1616 [10 July 2014]

[1]      Millennium & Copthorne Hotels New Zealand Limited (MCK) applies for orders:

(a)      approving the proposed scheme of arrangement between MCK and its shareholders and directing that it be binding upon MCK and its creditors and shareholders in accordance with the terms and effect from the record date defined in the Scheme attached to an amended interlocutory application dated 30 May 2014;

(b)that  it  have  leave  to  apply  to  the  Court  at  short  notice  if  any amendment of the Scheme or further orders or directions are required;

(c)       it also seeks an embargo on the public release of this Court’s decision

on this application.

[2]      The Scheme provides for cancellation of 698 out of every 1,000 ordinary and preference shares registered in the name of each shareholder at the record date (with share fractions rounded down to the nearest whole number).   It also provides for distribution of 327 First Sponsor Group Ltd (FS) shares for every 1,000 ordinary or preference shares held by the ordinary and preference shareholders respectively on the record date (again with fraction entitlements rounded down to the nearest whole number).  Where shares are not held in multiples of 1,000 the ratios will be applied on a pro rata basis.

[3]      In substance the Scheme returns capital to MCK’s investors and effects a distribution in specie.  The rationale for the Scheme is explained in the first affidavit by Mr Chiu, the managing director of MCK as follows.1   MCK’s principal activities are the ownership and operation of hotels in New Zealand together with some related property activities.   In 2007 MCK acquired a stake in First Sponsor Capital Ltd (FSCL) (a company involved in property development activities in China), with the

intention of diversifying by investing in one of the fastest growing economies in the

world.

1      Sworn 16 December 2013.

[4]      However, FS, a subsidiary of FSCL is to be listed on the Singapore Exchange Securities Trading Ltd (SGX).  That has given MCK some concern about the need for future significant capital calls.  MCK’s Board considers the most prudent option is to give MCK’s shareholders direct control over their interest in FSCL by distributing the interest to them.  Such action will allow MCK to focus better on its core New Zealand activities.  Similarly, by giving MCK shareholders the ability to hold FSCL’s shares directly each individual investor can decide for themselves whether they wish to continue or cease investing in FS.  The initial public offering (IPO) of FS and the listing and trading of its shares on the SGX will provide such investors with a ready market to divest, purchase or otherwise trade the shares.

[5]      MCK’s Board is of the opinion that the return of capital to shareholders in accordance with the proposed Scheme is:

(a)       the best use of its capital at this time;  and

(b)      in the interests of MCK’s shareholders as a whole.

[6]      If approved and implemented MCK will remain established as a dedicated owner, lessor and operator of hotels in New Zealand with a majority holding in CDL Investments Ltd, an NZX listed entity.  The Chinese property development activities would be undertaken by FS which as noted is anticipated to be listed on the SGX.

[7]      On 16 December 2013 MCK applied for initial orders providing inter alia for directions  relating  to  second  and  third  hearings,  service,  initial  confidentiality, scheme meetings, notice of scheme meetings (including approval of the content of shareholders’ packs), reporting the results of the Scheme meetings, the rights of opposition of shareholders, creditors and other persons, dealing with requests for information, directions for the filing of an independent report with the Court, voting, and related orders.  On 19 December 2013 this Court made the orders sought.

[8]      The timetable for the second and third hearings was amended on 28 January

2014.  Before the date of the scheduled second hearing MCK sought a further initial order pursuant to s 236 of the Companies Act 1993.  MCK advised the Court that

there was a possibility the Scheme might be viewed as a major transaction depending on FS’s share price and the Singaporean dollar/New Zealand dollar exchange rate movements.  The Court made an interim order that MCK was not required to include minority buy out rights for any shareholder opposed to the Scheme even if the Scheme constituted a major transaction under s 129 of the Companies Act.

[9]      On 30 May the matter came back before the Court for a second hearing in relation to the provision of the detail and information required for the shareholders’ meeting proposed to be held in relation to the Scheme.  At the time the Court made orders confirming the Scheme meetings for ordinary and preference shareholders were to be held on Thursday, 19 June 2014 at Auckland.  The Court also confirmed the voting form, approved the proposed updated resolutions, approved Grant Samuel as a provider of the independent report and directed the report be distributed to shareholders.  The Court also made directions in relation to the shareholders’ packs, advertising, and provision for responding to further requests.   The Court provided authority to MCK to make amendments to the shareholders’ packs and the advertisement but only in limited circumstances.

[10]     The Grant Samuel report noted a number of benefits to the proposed Scheme:

(a)       shareholders   will   have   flexibility   to   manage   their   investment exposure;

(b)      additional investor interest in MCK is likely to be encouraged; (c)     the format of the proposed capital return was fair;

(d)      MCK will be released from further funding commitments to FS;

(e)       the  proposed  capital  return  may  lead  to  greater  management  and

Board focus at MCK.

[11]     The report also noted the risk that there was no absolute certainty the FS

listing would proceed.

[12]     The shareholders’ meetings took place on 19 June 2014.  The meetings were conducted in accordance with MCK’s constitution, the provisions of the Companies Act as well as the NZX main board listing rules.   Mr Chiu attended the Scheme meetings which were chaired by Mr Graham McKenzie, one of MCK’s independent directors.  A quorum of both ordinary and preference shareholders were present and voted.  Mr Chiu filed a further affidavit for the purposes of the final orders sought. On the basis of that affidavit I am satisfied the procedural steps directed by the Court in relation to the meetings have been complied with.

[13]     At the meeting various questions were asked by shareholders.   Mr Chiu’s impression is that the questions asked sought clarification about particular matters as opposed to recording formal opposition to the proposed Scheme.    The questions were  answered  by  Mr  Chiu,  MCK’s  directors,  Mr  Ito  in  his  role  as  company secretary and Mr Neo, FSCL’s Chief Executive Officer and Executive Director.

[14]     No shareholder stated they would oppose the granting of final orders if the scheme was approved.

[15]     When the Scheme was put to the vote it was passed at both meetings.  The 75 per cent threshold required for special resolutions was satisfied.  MCK now applies for the final orders in terms of the amended originating application dated 30 May

2014.

[16]     The principles to be applied on an application for approval of a scheme of arrangement under Part 15 of the Companies Act are as stated in the decision of Smith J in Re CM Banks Ltd:2

(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 concerned; and that if a circular or circulars have been sent out, the

2      Re CM Banks Ltd [1944] NZLR 248.

circular gave all the information reasonably necessary to allow the recipients to judge and vote upon 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 and honest man of business, a member of the class concerned and acting in respect of his or her interest, might reasonably approve.

[17]     In the case of Weatherstone v Waltus Property Investments Ltd3 the Court of Appeal also held it was appropriate to supplement the test of an intelligent and honest business person by consideration of whether the arrangement was overall fair and equitable because it was implicit in the test of the intelligent and honest business person the arrangement also be fair and equitable.

[18]     I am satisfied on the evidence of Mr Chiu and others that there has been compliance with the statutory provisions as to the meetings, resolutions, the application to the Court and the other preliminary directions of the Court.

[19]     The proposed Scheme has been fairly explained to the shareholders.   The shareholders’ pack was a detailed and informative document which provided all information reasonably necessary to enable the recipients to judge and vote upon the proposals in an informed way.  The information provided in the shareholders’ pack fairly and fully explained what was proposed, its intended effect and the reason why MCK wished to implement the Scheme.  On the information before the Court there is no suggestion of an oppression of a minority.  Importantly the shareholders were also able to access the Grant Samuel report, which discussed the benefits of the Scheme, but also highlighted the risks, the principal one being the one referred to, namely the possibility that the float of FS on the SGX may not proceed. As time has

passed, that risk has itself reduced.  FSCL and FS continue to make progress towards

3      Weatherston v Waltus Property Investments Ltd [2001] 2 NZLR 103 (CA). See also Dominion

Income Property Fund Ltd v Takeovers Panel CA229/06, 26 October 2006.

a viable listing of FS on the SGX.   It is expected the final prospectus will be registered today.

[20]     Mr Ito, the applicant’s Company Secretary and legal counsel has updated the Court by a supplementary affidavit for today’s hearing about FS’s final share price.  I also note that on the basis of that proposed listing price and the current exchange rates, the transaction will not be a major transaction for the purposes of s 129 of the Companies Act.

[21]     While the numbers physically attending the meeting were somewhat limited a quorum for the meetings was obtained and the total votes cast in volume were substantial.   Mr Doherty, a partner in the New Zealand office of KPMG, has confirmed that of the ordinary shareholders voting 99.85 per cent of the votes were in favour of the Scheme and in the case of the MCK preference shareholders voting

99.95 per cent of the votes were in favour of the Scheme.   The Scheme has overwhelming support.   The votes cast represented 93 per cent of the ordinary shareholders and 99 per cent of the preference shareholders.  As noted, there is no suggestion of coercion or oppression on a minority.  Even removing the votes cast by CDL Holdings Ltd of the remaining shareholders over 99 per cent of both ordinary and preference shareholders voted in support of the Scheme.

[22]     I am satisfied there is no need for any further directions as to service or the need to hear from any further party.  Notices of opposition were required to be filed and served by 4.00 pm 26 June 2014.  There has been no notice of opposition filed by any shareholder nor any appearance in opposition today.

[23]     As noted the reasons for the Scheme were fully outlined.   The risks were explained in the Grant Samuel report. The Scheme was overwhelmingly supported.

[24]     There  is  no  suggestion  of  prejudice  to  creditors.    MCK’s  only  secured creditor is HSBC.  HSBC has confirmed the Scheme transaction is permitted under MCK’s facility agreements.   Mr Chiu has confirmed that MCK’s Board does not expect there to be any matter or event that will prevent it from confirming to HSBC

on the Scheme’s effective date that there  is no event of default.   Mr Chiu has undertaken to advise the Court if such event arises.

[25]     Mr Chiu has also confirmed the MCK Board remains of the view that the

Scheme is in the financial interests of MCK and shareholders as a whole.

[26]     On the information before the Court I accept the Scheme will not prejudice the interests of any creditor, shareholder, or any other affected person.  Following the implementation of the Scheme MCK will retain its status as a substantial company with a strong financial position and positive operating cash flows.

[27]     An intelligent and honest person of business would reasonably approve the Scheme.  The proposal is fair and equitable, particularly given the expectation that FS  will  very  shortly  be  listed  on  the  SGX.     Both  ordinary  and  preference shareholders have been treated equally.

[28]     For those reasons I am satisfied it is appropriate to approve the Scheme in this case.  I therefore make orders in terms of the amended application:

(a)      The   proposed   scheme   of   arrangement   between   MCK   and   its shareholders as described in the Scheme plan attached to the amended application is approved and binding upon MCK and its creditors and shareholders in accordance with its terms with effect from the record date defined in the Scheme;  and

(b)MCK is granted leave to apply to the Court at short notice if any amendment of the Scheme or further orders or directions are required.

Embargo

[29]    This decision is embargoed from public release until MCK, through its solicitors, advises the Registry by email of registration of the final prospectus and notification of the final share price for the FS listing in Singapore.   I note that is

expected to be at some time later today.  Until receipt of that email this decision is

not to be distributed further than to counsel and the solicitors for the applicant.

Venning J