New Zealand Oil & Gas Limited

[2017] NZHC 810

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV 2017-485-135 [2017] NZHC 810

IN THE MATTER	of Part 15 of the Companies Act 1993
AND
IN THE MATTER	of an application by NEW ZEALAND OIL & GAS LIMITED for orders approving an arrangement under Part 15 of the Companies Act 1993

Hearing:	On Papers
Counsel:	J Shackleton and S J Fairbrother for Applicants
Judgment:	27 April 2017

JUDGMENT OF SIMON FRANCE J

[1]      In January 2017, New Zealand Oil and Gas Limited (NZOG) sold its interest in the Kupe gas and oil fields.  It consequently considers it now has excess capital which it intends to return to shareholders.  The preferred method is to cancel half of the ordinary shares with an associated cash payment to shareholders.

Orders sought

[2]      NZOG applies under s 236 of the Companies Act 1993 for approval of the arrangement it proposes for the return of the capital, and for orders that the arrangement is binding on NZOG and its shareholders.  The text of the orders sought provides a convenient summary of the proposed arrangement:

(a)       that the scheme of arrangement between NZOG and its shareholders for the return of capital (Arrangement) is approved;

NZ OIL & GAS LTD [2017] NZHC 810 [27 April 2017]

(b)that the Arrangement is binding upon NZOG, all its shareholders, and all such other persons as are necessary, with (amongst other things) the effect that:

(i)one out of every two Ordinary Shares (as defined in the Arrangement) in NZOG registered in the name of each shareholder at 5.00 pm on the Record Date (as defined in the Arrangement), will be cancelled, together with all rights attaching to those shares;

(ii)within 5 business days after the Record Date (as defined in the Arrangement), NZOG will pay to each shareholder NZD$0.62724388  multiplied  by  the  number  of  Ordinary Shares registered in the name of the shareholder that have been cancelled in accordance with paragraph 1(b)(i) above, rounded to the nearest whole cent;

(iii)NZOG will not take any action in respect of any fractional calculation or entitlement and any one share in remainder will continue to be held;

(iv)no Part-Paid Shares (as defined in the Arrangement) will participate in the return of capital; and

(v)the original terms of issue of each Part-Paid Share will not change.

Process

[3]      The process to be followed to obtain shareholder consent to the Arrangement was the subject of orders made by this Court (initial Orders).1    The evidence now filed satisfies me that that process was followed.  It is unnecessary to here repeat the

detail but rather it is preferable to summarise and update.

1      Re New Zealand Oil and Gas Ltd [2017] NZHC 501.

[4]      A shareholder meeting was advertised in accordance with the initial Orders and  was  held  on  12 April 2017.     NZOG  had  been  notified  of  a  competing shareholder motion which proposed that the money be retained and used to drill further wells in a nominated area.  That motion was introduced at the meeting, and discussion was invited on both the shareholder motion and the Arrangement.  The shareholder motion was not passed.

[5]      Concerning the Arrangement, the following voting results were achieved:

(a)      Ordinary  Shares  –  99.16  per cent  of  those  voting  supported  the arrangement.   The number voting represented 63.31 per cent of the total shareholding;

(b)Part-Paid  Shares  –  87.27  per cent  of  those  voting  supported  the arrangement.   The number voting represented 94.33 per cent of the total Part-Paid shareholding.

[6]      Other matters that update the situation are:

(a)      prior to the shareholder meeting NZX had given its final approval to the informational materials being provided to the shareholders;

(b)on the day of the meeting the directors of NZOG issued a solvency certificate confirming their belief that NZOG would continue to be solvent if the Arrangement were implemented;

(c)      on  13 April 2017  the  Commissioner  of  Inland  Revenue  issued  a binding ruling confirming that the return of capital under the Arrangement (if certain conditions were met) would not be treated as a payment in lieu of a dividend for the purpose of the Income Tax Act

2007;

(d)      on  19 April  2017 the Takeovers Panel  issue a final  No Objection

Statement in regards to the Arrangement.

Decision

[7]      Recently   in   Re   Nuplex   Industries,   Katz   J   summarised   the   relevant considerations:2

[10]      The four-part test to be applied by the Court when deciding whether or not to exercise its discretion to approve a scheme under s 236 of the Act is well-established and was articulated in Re CM Banks Ltd as follows:

(a)       there has been compliance with the statutory provisions as to meetings, resolutions, the application to the Court, and the like;

(b)       the  scheme  has  been  fairly  put  to  the  class  or  classes concerned, and that if a circular or circulars have been sent out, as is usual, whether before or after the making of the application to the Court, they give all the information reasonably necessary to enable the recipients to judge and vote upon the proposals;

(c)       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)       the  arrangement  was  such  that  an  intelligent  and  honest person of business, a member of the class concerned, and acting in respect of his or her interest, might reasonably approve it.

[11]      As most recently observed in Re Auckland International Airport and Re ACS (NZ) Ltd, the Court also needs to consider, with respect to the fourth limb  of  the  Re  CM  Banks  test,  whether  the  proposed  arrangement  is generally fair and equitable.   This is because, particularly where there are competing interests, it is implicit in the test of intelligent and honest business person that a proposed scheme is also fair and equitable.

[8]      I consider each limb of this test in turn.

Issue one – compliance with the relevant statutory provisions

[9]      The  meeting  was  conducted  in  accordance  with  the  Initial  Orders.    A competing shareholder motion was put to the meeting, added to the discussion, and voted on.  The distribution of materials to shareholders prior to the meeting was in

my view as comprehensive and successful as could be expected:

2      Re Nuplex Industries [2016] NZHC 1677 at [10]–[11], footnotes omitted.

(a)      of the mailout, 351 packages were returned undelivered.  Because of uncertainty of addresses, it is considered doubts may exist about whether 1,278 shareholders, out of a total of 11,597, received their mailout;

(b)the material was posted on NZOG website.  Further, because NZOG made an announcement to NZX, the material was also posted on the NZX website.   There has also been considerable media coverage at various times.

[10]     The votes cast represent about two-thirds of all possible votes which is a reasonable percentage.

[11]   The votes in favour both satisfy the statutory requirements and reflect overwhelming shareholder support for the Arrangement.

[12]    I am satisfied the process has been correct and in accordance with the requirements.

Issue two – has the Arrangement been fairly put?

[13]     The Arrangement is not a complex one, and I am satisfied the materials that were mailed out, and posted on websites, fairly set out the proposal and the consequences if the Arrangement was adopted or not adopted.

Issue three – does the vote reflect an appropriate representation of an affected persons, who voted in a bona fide manner?

[14]     I am satisfied no issue arises here.  The nature of the Arrangement being the return of capital to shareholders lessens any concerns here.

[15]     NZOG has two types of shares – Ordinary Shares, and Part-Paid Shares.  It is only the Ordinary Shares that are the subject of the Arrangement and the effect of cancelling the Ordinary Shares but not Part-Paid Shares will be to alter the ratio between them.  The effect, however, is not as dramatic as might appear as Part-Paid

shares only carry fractional voting rights.   Nevertheless, the two separate classes were identified. The statutorily required approval level applies to each class.

[16]     The high support in both classes for the Arrangement removes concern about oppression.   Further, no shareholder has indicated that the granting of final orders will be opposed.

Issue four – is the scheme one an intelligent honest person of business might reasonably approve?

[17]     The surplus arose as a result of the sale of NZOG’s interest in the Kupe fields.    That  sale  was  itself  the  subject  of  a  shareholder  vote,  with  87 per cent supporting the sale.  At the time of the sale a consequent return of capital to shareholders was proposed.

[18]     In the present case there is no reason for the Court to go behind the high levels of endorsement from shareholders as reflected in the votes.3    The evidence indicates the company will remain in a sound position, and creditors will not be affected.  Such other steps as are required have been obtained.

[19]     I am satisfied this requirement is met.  The Arrangement is fair and equitable. I see no need for anyone to be heard further on the application given the processes that have already occurred.

Conclusion

[20]     The orders sought as set out in para [2] are made.  The Arrangement that is approved is appended as A.

Simon France J

3      Re Trustpower Ltd [2016] NZHC 2499 at [18].