Sinclair Knight Merz Limited

[2013] NZHC 31

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV2012-404-007101 [2013] NZHC 31

IN THE MATTER OF     a scheme of arrangement under Part 15 of the Companies Act 1993

AND

IN THE MATTER OF     SINCLAIR KNIGHT MERZ LIMITED Applicant

Hearing:         30 January 2013

Counsel:         J A McMillan and B J Murphy for the Applicant

Judgment:      31 January 2013

REASONS FOR JUDGMENT OF WYLIE J

Distribution:

J A McMillan: [email protected]

B J Murphy: [email protected]

SINCLAIR KNIGHT MERZ LIMITED HC AK CIV 2012-404-007101 [31 January 2013]

Introduction

[1]      At 10.45 am this morning, I made an order in terms of s 236(1) of the Companies Act 1993 approving a scheme of arrangement between the applicant, Sinclair Knight Merz Limited (“SKM NZ”) , and its scheme creditors, and directing that the scheme of arrangement is binding upon SKM NZ, and each of its scheme creditors, in accordance with its terms.  I approved a draft order submitted to me by Mr McMillan, on behalf of SKM NZ.   The order approved by me contained the words “attached to these orders” in cl III(1) of the document, and had the scheme of arrangement attached to it.

[2]      I now set out my reasons for making that order.

Background

[3]      On 27 November 2012, SKM NZ filed an originating application seeking orders approving a scheme of arrangement under Part 15 of the Companies Act

1993.

[4]      SKM NZ is owned by Sinclair Knight Merz (NZ) Holdings Limited, and it is part of the employee-owned SKM Group.   The SKM Group has been providing consulting, engineering and project delivery services since it was established in Sydney, Australia, in 1964.

[5]      The SKM Group  has  a group-wide shareholding plan.   Under that plan, senior employees of companies in the SKM Group are offered the opportunity to purchase shares in their group company.  Participating New Zealand employees are offered  the  opportunity  to  purchase  ordinary  shares  and  dividend  shares  in Sinclair Knight Merz (NZ) Holdings Limited.  They are also offered one redeemable voting preference share in a company called Sinclair Knight Merz Management Pty Limited for each 100 equity shares they hold.

[6]      Prior  to  its  amendment  on  6  December  2010,  various  provisions  in  the

shareholding plan required the progressive disposal of an employee’s shares when

the employee was between the ages of 60 and 65. The plan also prohibited employee shareholders  who  turned  60  from  receiving  further  annual  increments  of  equity shares,  voting  shares  and  dividend  shares.    These  provisions  were  collectively referred to as the “age-based provisions”.

[7]      The  age-based   provisions   were  intended   to   facilitate  the  transfer   of ownership, and make shares available under the SKM Group Shareholding Plan, by providing new shares for purchase by newly promoted and existing employees through the sell down of shares by more senior employees who had enjoyed the benefits of share ownership for a longer period of time.

[8]      At the relevant time, these age-based provisions were widely understood and accepted by shareholders under the pre-2010 shareholding plan.

[9]      More recently, the various SKM companies that were parties to the scheme formed the view that the age-based provisions might well contravene antidiscrimination legislation in New Zealand, Australia and the United Kingdom. The relevant Act in this country is the Human Rights Act 1993.  SKM NZ concluded that  employees  (both  past  and  current  employees)  who  were  or  who  had  been affected by the application of the age-based provisions might have a claim against SKM NZ, and possibly other companies in the SKM Group.

The Scheme

[10]     In  order to  deal  with  the matter,  SKM  NZ proposed  a scheme whereby employees past or present with a potential claim (referred to collectively as “scheme creditors”), would release any rights they might have against SKM NZ or any other SKM Group Company in respect of any losses suffered as a result of the application of the age-based provisions, in return for:

(a)       a cash payment by SKM NZ; and

(b)for those scheme creditors who remain employed by SKM NZ, the issue by Sinclair Knight Merz (NZ) Holdings Limited, on behalf of SKM NZ, of an unsecured contingent value loan note instrument.

[11]     The proposed scheme in this country involved only 10 scheme creditors, three past employees and seven present employees of SKM NZ.

[12]     SKM NZ sought directions as to service, and in relation to other preliminary matters, under s 236(2) of the Companies Act 1993.

[13]     I dealt with that application on 29 November 2012, and issued a minute approving the initial orders proposed by the company, subject to three amendments.

[14]     In accordance with that minute, various minor changes were made to the creditor materials.   One additional change was also made.   The definition of the words “former employee scheme creditor” and “employee scheme creditor” in the materials to be made available to scheme creditors were amended, because SKM NZ considered that the definition was potentially inaccurate.

[15]     I am satisfied that that amendment was appropriate.  The amendment to the definitions did not affect the entitlement of scheme creditors, or result in any individuals changing status under the scheme.

[16]     In accordance with my minute, SKM NZ sent the approved materials to each of the scheme creditors on 3 December 2012.  I am advised by Mr McMillan that, insofar as the company is aware, the relevant materials were received by all scheme creditors.  No copies of the creditor materials were returned to the company marked as being “not received”.  Subsequent events and attendance at the meetings held in relation to the scheme confirms that the approved materials were received by all scheme creditors.

[17]     SKM NZ received two proxy forms from former employee scheme creditors and four proxy forms from current employee scheme creditors.  Those proxy forms were directed to a Mr Lory, who is the Chairman of SKM NZ.  They directed him to

vote in favour of the resolutions which were set out in the notices of meetings sent to scheme creditors.

[18]     As  proposed  in  the  creditor  materials,  concurrent  meetings  of  former employee scheme creditors and employee scheme creditors were held on Friday,

21 December 2012 at SKM NZ’s premises in Parnell, Auckland.  The purpose of the scheme meetings was to seek approval of the proposed scheme by each class of scheme creditors.  Mr Lory chaired the meeting.

[19]     A simultaneous  meeting  was  held  in Australia,  in  relation  to  a  virtually identical scheme of arrangement which is proposed in that country.  That meeting was chaired by a Mr Casamento.

[20]     The New Zealand and Australian meetings were connected by video link, and a transcript of the information which was relayed to all scheme creditors at the meetings  chaired  by  Mr Casamento  and  Mr  Lory  respectively  has  been  made available to me.

[21]     After the joint presentation, both in New Zealand and Australia, scheme creditors were given the opportunity to ask questions.   Experts were available to answer any questions.

[22]     The concurrent meetings were then adjourned.

[23]     The voting  in  respect  of each  scheme meeting  in  this  country was  held separately  and  only scheme  creditors  in  each  group  of  scheme  creditors,  either current or former employees, were entitled to vote on the resolution affecting them.

[24]     Two of the three former employees of SKM NZ attended the scheme meeting for former employee scheme creditors.  One had already filed a proxy, but decided to appear in person at the meeting.  The proxy was not used.  Mr Lory held a proxy in support of the resolution from the third former employee scheme creditor.

[25]     Three current employee scheme creditors attended the meeting for current employee scheme creditors, and Mr Lory held proxies from the other four current employees. There was a quorum present for both scheme meetings.

[26]     In the event, 100 percent in number, representing 100 percent of value of each class of scheme creditors voting at each scheme meeting, whether by proxy or in person, voted in favour of a resolution approving the scheme.

[27]     All scheme creditors present were advised that the matter was to be dealt with in Court on 30 January 2013.  They were invited to file any notice of opposition by

23 January 2013, together with any supporting affidavit.  No notices of opposition have been received.

Analysis

[28]     I have applied the tests discussed in Re C M Banks Ltd.[1]    A more stringent test applied by the Court of Appeal in Commissioner of Inland Revenue v Suspended Ceilings (Wellington) Limited[2]  is, it seems, confined to the particular factual matrix of that case.[3]   Even if that is not the position, the result would be the same. Approval should be granted to the scheme.

[1] Re CM Banks Ltd [1944] NZLR 248 (SC) at 253.

[2] Suspended Ceilings (Wellington) Ltd v Commissioner of Inland Revenue (1997) 8 NZCLC

261,318 (CA) at 261,321,318.

[3] Weatherston v Waltus Property Investments Limited [2001] 2 NZLR 103 (CA) at [33]-[34].

[29]     I  am  satisfied  that  all  relevant  statutory  provisions  as  to  meetings  and resolutions have been complied with and that the initial orders made by me on

29 November 2012 have been complied with.

[30]     I  have  read  that  transcript  of  the  meetings  and  the  detail  given  in  the approved materials sent to scheme creditors in New Zealand.  I am satisfied that the proposed  scheme  was  fairly  and  accurately  before  the  scheme  creditors  in  this

country.

[31]     Further, I have noted that 100 percent in number, representing 100 percent in value, of each class of scheme creditors, voted in favour of the resolutions approving the proposed scheme.  All scheme creditors, whether by proxy or in person, have attended the scheme meetings.

[32]     Finally, I am satisfied that the scheme is such that an intelligent and honest business person, a member of the class concerned and acting in respect  of that interest, might reasonably approve the scheme.  The consideration being offered by SKM NZ was calculated by an external actuary whose findings were reviewed by an independent expert.  The independent expert concluded that the scheme was in the best interests of scheme creditors.   I agree with that view.   Relevantly, scheme creditors were informed prior to voting on the scheme of its main advantages and its potential disadvantages.  The “pros and cons” were fairly put to scheme members.  I am satisfied that the scheme provides an efficient and certain way for scheme creditors to be compensated for any potential breaches of the Human Rights Act

1993, and that the scheme provides scheme creditors with a credible and pragmatic alternative to potentially lengthy individual negotiations and/or litigation.  It avoids the cost and time which would otherwise be expended.   It will result in a much speedier outcome.

[33]     For these reasons, I approved the scheme in the form attached to the draft order, in accordance with s 236(1) of the Companies Act 1993.

Wylie J