Smiths City Group Limited

[2017] NZHC 2351

IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY

I TE KŌTI MATUA O AOTEAROA ŌTAUTAHI ROHE

CIV-2017-409-000564 [2017] NZHC 2351

IN THE MATTER	of the Companies Act 1993
AND
IN THE MATTER	of an application by Smiths City Group Limited for orders sanctioning an arrangement under Part 15 of the Companies Act 1993

Counsel:	S M Grieve and W H Hamilton for Applicant
Judgment:	26 September 2017
(Determined on the papers)

JUDGMENT OF ASSOCIATE JUDGE OSBORNE [as to initial orders on Part 15 arrangement]

Introduction

[1]      Smiths City Group Limited (Smiths City) applies for initial orders under Part

15 Companies Act 1993.

[2]      Smiths City proposes to compulsorily acquire and cancel three shares in 20 shares registered in the name of each shareholder and to pay shareholders $0.72 for

each cancelled share (the Arrangement).

Re Smiths City Group Ltd [2017] NZHC 2351 [26 September 2017]

The Arrangement

[3]      The Arrangement has been explained in a supporting affidavit of Craig David

Boyce, the Chairman of Smiths City’s board of directors.

[4]      Smiths City has 52,688,153 ordinary shares issued to approximately 1,300 shareholders.

[5]      Smiths City at  present  holds  assets  totalling approximately $133,100,000 against liabilities of $79,700,000.   It therefore operates at a capital surplus of approximately $53,400,000, equating to a net tangible assets per share ratio of 97 cents.

[6]      The purpose of the Arrangement is to achieve a greater balance in its equity and debt position by returning approximately $5,700,000 of the excess capital to shareholders by way of a share buy-back arrangement.   Mr Boyce refers to three matters in particular which have produced the current equity position:

(a)      Settlement  of  insurance  claims  for  Smiths  City’s  Colombo  Street premises with retirement of debt and realisation of the revaluation reserve.

(b)Smiths City’s board of directors recognises the buy-back process as a tax-efficient means by which the company can achieve the return of excess capital to the shareholders.

(c)      The board of directors also recognises that the return of capital will allow Smiths City’s consumer finance subsidiary, Smiths City Finance Limited, to structure its total assets to debt ratio to a level that the directors consider more appropriate for a consumer finance company.

Legislative requirements

[7]      Smiths City is required under s 236(1) Companies Act to obtain the Court’s

sanction of this Arrangement.

[8]      Section 236A of the Act imposes further requirements.  Under s 236A(1) the applicant must, where the arrangement affects the voting rights of a code company (as Smiths City is),1 notify the Takeovers Panel of the application.

[9]      Under  s  236A(2)  the  applicant  in  such  a  situation  must  also  obtain  a resolution of shareholders.2

Procedural requirements

[10]     Smiths City here applies without notice for orders giving initial directions in respect of the Arrangement.   Rule 7.46(3) High Court Rules prescribes when an application may be dealt with without notice:

7.46     Determination of application without notice

(1)      ... (2)      ...

(3)      The Judge may determine that an application can properly be dealt with without notice only if the Judge is satisfied that –

(a)       requiring the applicant to proceed on notice would cause undue delay or prejudice to the applicant; or

(b)      the application affects only the applicant; or

(c)       the application relates to a routine matter; or

(d)      an enactment expressly permits the application to be made without serving notice of the application; or

(e)       the interests of justice require the application to be determined without serving notice of the application.

[11]     I am satisfied that it was appropriate for Smiths City to proceed on this interlocutory application without notice under either r 7.46(3)(a) or (c).  This Court has  adopted  this  approach  in  applications  for  orders  giving  initial  directions  in

respect of an arrangement when any final orders sanctioning an arrangement will

1      See s 2 Companies Act 1993: code company has the meaning set out in s 2(1) of the Takeovers

Act 1993.

2      Section 236A(4) Companies Act 1993 – the resolution must be approved by a majority of 75% or more of the votes cast by those shareholders entitled to vote and voting on the resolution (by proxy or in person), and a simple majority of the votes with those shareholders entitled to vote on the resolution.

follow a subsequent meeting of shareholders who will have first received notice of their meeting with full explanatory notes, including procedural details.3

The test for granting final orders

[12]     Counsel for Smiths City recognise that the test to be applied when the Court comes to consider final orders is that set out by Winkelmann J in Re Auckland International Airport where her Honour stated:4

[8]      The principles to be applied to an application for sanction of arrangement under part 15 of the Act are as stated in the decision of Smith J in Re CM Banks Ltd5 now as supplemented by Weatherston v Waltus Property Investment Ltd.6  In Re CM Banks Ltd Smith J formulated a four step test as follows:7

(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   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 person of business, a member of the class concerned and acting in respect of his or her interests, might reasonably approve.

[9]       In  Weatherston  v  Waltus  Property  Investment  Ltd  the  Court  of Appeal held that it was appropriate to supplement the test of an intelligent and honest business person by consideration of whether the arrangement is fair and equitable, because it was implicit in the test   of   the   intelligent   and   honest   business   person   that   the arrangement was also fair and equitable.8

3      See for instance Re Trustpower Ltd [2016] NZHC 1838; Re Michael Hill International Ltd

[2016] NZHC 1114.

4      Re Auckland International Airport [2014] NZHC 405.

5      Re CM Banks Ltd [1944] NZLR 248 (SC).

6      Weatherston v Waltus Property Investment Ltd [2001] 2 NZLR 103 (CA).

7      Re CM Banks Ltd, above n 5, at 253.

8      Weatherston, above n 6, at [35].

Position of the Takeovers Panel

[13]     Mr Boyce in his affidavit refers to correspondence with the Takeovers Panel (in compliance with s 236A(1) Companies Act).   The Takeovers Panel has been notified of the application (including by provision of draft copies of the material for distribution to shareholders).  The Panel has in August 2017 formed an initial view based  on  that  information  that  it  intends  at  this  stage  to  issue  a  no-objection statement in respect of the Arrangement prior to the next stage of Smiths City’s applications.

Discussion

[14]     I  am  satisfied  that  the  initial  directions  drafted  for  Smiths  City  will appropriately structure the process  so  as to  enable Smiths City to  comply with statutory requirements as to meetings, resolutions and the final application.   The proposal as it can be assessed at this interim point appears to have proper regard to the interests of the shareholders who are to be treated uniformly under it.

[15]     The orders themselves are self explanatory and require no further elaboration in this judgment.

Orders

[16]     I order:

(a)      At a Special Meeting of shareholders (the Meeting) called for that purpose, Smiths City will put to the shareholders, for their consideration and approval, a proposed scheme of arrangement, described in the Arrangement Document (the Arrangement) annexed to the Originating Application for Final Orders Sanctioning an Arrangement (the Substantive Application) filed in the Christchurch High Court contemporaneously with this application.

(b)The Meeting will be held at a venue in Christchurch during normal business hours on 24 November 2017, or on a date to be determined

by Smiths City in accordance with the applicable provisions of Smiths

City’s constitution, but in any event not later than 23 December 2017.

(c)      At the Meeting, the Arrangement will be put to shareholders of Smiths City by way of a resolution requiring the approval of 75% or more of the votes cast by those shareholders entitled to vote and voting on the resolution (in person or by proxy) and a simple majority of the votes of those shareholders entitled to vote on the resolution.

(d)Smiths City is permitted to make any amendments, revisions or supplements  to  the Arrangement  Document  as  it  considers  to  be necessary in the best interests of Smiths City and its shareholders.  If the Arrangement Document is so amended, that will be the version of the Arrangement Document to be submitted to shareholders at the Meeting.   Smiths City is also permitted to make any consequential amendments to the Arrangement Resolution (described below)

(e)      Subject to the terms of this Order, the Meeting will be conducted in accordance  with  the  Companies Act  1993,  the  NZX  Main  Board Listing Rules, and the constitution of Smiths City.

(f)      Smiths City will notify its shareholders of the Meeting and the Arrangement  by  sending  to  each  shareholder,  at  least  ten  clear working days prior to the scheduled date for the Meeting:

(i)Notice of the Meeting, including the Resolution and the Arrangement Document that the shareholders will be asked to vote on;

(ii)      A letter from the Chairman of the Board of Smiths City; (iii)   The Explanatory Memorandum prepared by Smiths City;

(iv)     A certificate from the Board confirming that, to the best of the

Board’s knowledge and belief, the information contained in

the Notice of Meeting, Chairman’s letter, Explanatory Memorandum and the Arrangement Document are true and correct and include all of the information required to be disclosed  under  the  NZX  Listing  Rules  and  the Takeovers Code; and

(v)      The Substantive Application.

(collectively referred to as the Shareholder Materials)

(g)The Shareholder Materials referred to above will be in substantially the same form as that annexed to the affidavit of Craig David Boyce filed in support of this Application and the Substantive Application, subject to any amendments, revisions or supplements to those documents that Smiths City considers are necessary or desirable, including any amendments required by the NZX or the Takeovers Panel (to the extent that those are not inconsistent with the terms of this Order).

(h)The Shareholder Materials  will  be sent  to  all those  whose names appear on Smiths City’s share register at 5pm on the date fifteen clear working days before the Meeting (Notice Date).

(i)Smiths City will send the Shareholder Materials to shareholders by ordinary  post,  unless  any  shareholders  have  elected  to  receive materials electronically and have provided an email address, in which case the Shareholder Materials will be sent by email.

(j)The  Shareholder  Materials  will  be  made  available  on  the  Group website.

(k)Smiths City will provide a copy of the Shareholder Materials, upon request, to any shareholder that acquires shares between the Notice Date and the date one clear working day prior to the Meeting.

(l)Only those whose names appear in the share register of Smiths City as at 2pm two working days prior to the date of the Meeting are entitled to be represented and vote on the Arrangement at the Meeting.

(m)None of the following shall constitute a breach of this Order, nor invalidate any resolution passed at the Meeting:

(i)Any accidental failure or omission by Smiths City to provide the Shareholder Materials to any of the persons specified in (h) above; or

1. The non-receipt by any of those persons of the Shareholder

   Materials.

   (n)Should either of the issues referred to in (m) above be brought to Smiths  City’s  attention  prior  to  the  Meeting,  it  will  use  best endeavours to rectify it in the manner most reasonably practicable in the circumstances.

(o)Prior  to  the  Court’s  consideration  of  the  Substantive Application, Smiths City will file an affidavit or affidavits confirming that the matters referred to in (a) to (n) above have been completed.

(p)Smiths City is granted leave to apply at short notice to vary these orders,  or  for  such  other  or  ancillary  orders  as  it  considers  are required.

(q)      Formal service of this Order is dispensed with.

Associate Judge Osborne

Solicitors:
Duncan Cotterill, Christchurch