Re Methven Ltd

[2019] NZHC 608

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV 2019-404-0104

[2019] NZHC 608

IN THE MATTER

of Part 15 of the Companies Act 1993

AND

IN THE MATTER

of an application by METHVEN LIMITED for orders approving a scheme of

arrangement under Part 15 of the Companies Act 1993

Applicant

Hearing:

On the papers

Counsel:

J C Caird and J C Dickson for the Applicant T B Fitzgerald for GWA

M E Cunliffe for the Takeovers Panel

Judgment:

27 March 2019

JUDGMENT OF JAGOSE J

This judgment is delivered by me on 27 March 2019 at 4.00 pm pursuant to r 11.5 of the High Court Rules.

.....................................................

Registrar / Deputy Registrar

Solicitors:

Simpson Grierson, Auckland (Applicant) Bell Gully, Auckland (GWA)

Takeovers Panel, Wellington

Re. Methven Limited [2019] NZHC 608 [27 March 2019]

[1]                  The applicant (“Methven”) is an iconic New Zealand designer and manufacturer of kitchen and bathroom plumbing fittings. It is a company registered under Part 2 of the Companies Act 1993, and has more than 50 shareholders and share parcels.

[2]                  Methven seeks final orders approving a proposed arrangement under Part 15 of the Companies Act 1993, by which its shares would be acquired by GWAIL (NZ) Limited.

Legal context

[3]                  Under s 236, I may order arrangements, including for acquisition of the whole of a company’s shares by a third party,1 to be binding:

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), 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 1 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

1      See, for example, Re Nuplex Industries [2016] NZHC 1677; Re Fliway Group Limited [2017] NZHC 3216.

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.

(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.

(3)An order made under this section has effect on and from the date specified in the order.

(4)Within 10 working days of an order being made by the court, the board of the company must ensure that a copy of the order is delivered to the Registrar for registration.

(5)If the board of a company fails to comply with subsection (4), every director of the company commits an offence and is liable on conviction to the penalty set out in section 374(2).

and may make additional orders to give effect to the arrangement under s 237:

237 Court may make additional orders

(1)Without limiting section 236, 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, financial products, 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.

(2)Within 10 working days of an order being made by the court, the board of the company must ensure that a copy of the order is delivered to the Registrar for registration.

(3)If the board of a company fails to comply with subsection (2), every director of the company commits an offence and is liable on conviction to the penalty set out in section 374(2).

[4]            The proposed arrangement would affect Methven’s voting rights, defined as “involv[ing] a change in the relative percentage of voting rights held or controlled by 1 or more shareholders”,2 in the sense it would reduce voting rights held by existing shareholders from 100 per cent to zero (and, conversely, increase voting rights held by GWAIL (NZ) Limited from zero to 100 per cent).

[5]            As Methven also is a code company for the purposes of the Takeovers Act 1993,3 I may not order the arrangement to be binding unless Methven’s shareholders support the arrangement by resolution approved by the requisite majority, and either I am satisfied the shareholders will not be adversely affected by use of the Part 15 procedure instead of the takeovers code to effect the change, or Methven has filed a statement from the Takeovers Panel indicating it has no objection to such an order.4

Discussion

[6]            I made initial orders on 7 February 2019, largely to require Methven to put the proposal to its shareholders, for their approval by resolution at a special meeting, in accordance with the applicable statutory provisions.

[7]            The evidence before me is requisite majorities of Methven’s shareholders approved the proposed arrangement by resolution on 12 March 2019, and Methven has filed the Takeovers Panel’s 15 March 2019 statement indicating it has no objection to my ordering the arrangement binding. I see nothing in Methven’s resort to the Part 15 procedure, rather than the takeovers code, of any adverse effect on shareholders. I thus may make that order.

2      Section 236A(5).

3      Section 2, definition of “code company”.

4      Section 236A.

[8]            The exercise of my discretion then to do so is conditioned by four factors as they apply in the present case:5

(a)relevant statutory provisions have been met;

(b)the proposed arrangement has fairly been put to shareholders;

(c)shareholders were fairly represented by those in attendance, and the requisite majorities were acting in good faith and not coercing the minorities to promote interests adverse to shareholders; and

(d)the arrangement might reasonably be approved by reasonable and intelligent business people, acting in their own interests.

The last consideration imports a requirement the arrangement generally be fair and equitable.6

[9]I am satisfied from the evidence before me:

(a)my initial orders were met, with only an immaterial failure to make exactly timely separate provision of material to Methven’s directors and auditors, and minor grammatical or typographical changes to the draft material then proposed for publication;

(b)the publications to shareholders, including at the meeting, explained the substance of the proposed arrangement and the reasons for Methven’s independent directors’ unanimous recommendation of it in sufficient detail and time to enable shareholders’ opposition;

(c)the overwhelming majorities in favour of the resolution (against a threshold of 75 per cent, 98.01 per cent of votes cast; against a threshold of 50 per cent, 73.13 per cent of total votes able to be cast), and less than 2 per cent in either case against the resolution, and the absence of any opposition, indicates shareholders’ fair representation

5      Re C M Banks Ltd [1944] NZLR 248 (SC) at 253.

6      Weatherston v Waltus Property Investment Ltd [2001] 2 NZLR 103 (CA) at [35], applied in Re ACS (NZ) Ltd [2912] NZHC 1396 at [6], and Re Auckland International Airport [2014] NZHC 405 at [9].

and good faith at the meeting (including as recorded in its minutes); and

(d)that shareholder support affirms the independent directors’ opinion the arrangement’s provision of a 45 per cent premium on Methven’s recent volume-weighted recent price was advantageous in the absence of any better proposal, and the arrangement would not prejudice any shareholder (or creditor, Methven being in a stable financial position, and expected to be able to pay its debts as they become due in the normal course of business, and to have assets of greater value than its liabilities (including contingent liabilities), under the arrangement).

I conclude the proposed arrangement generally would be fair and equitable, and shareholders’ approval of it by resolution should be given full self-determinative force. Arrangements are in place to eliminate as far as possible any risk in exchange of clear title for cleared funds.

[10]        Implementation of the proposed arrangement is subject to the absence (or waiver) of specified events of prospective detriment to the arrangement occurring before that time. But that is not to establish any supervening detriment to shareholders, who would simply be restored to the status quo ante. The arrangement itself is not open to variation other than by this Court.7

Result

[11]              I therefore order the arrangement described in the Scheme Plan annexed to draft final orders filed in this Court on 20 March 2019 shall be binding on:

(a)Methven Limited;

(b)GWA Group Limited;

(c)GWAIL (NZ) Limited; and

7      Re NRMA Ltd (No 1) [2000] 156 FLR 349 (NSWSC) at 367.

(d)every person who is a Scheme Shareholder in terms of the Scheme Plan.

Methven Limited has leave to apply to the Court for approval of any amendment, modification or supplement to the arrangement.

—Jagose J