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…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

Continue reading Smiths City Group Limited

Details

AGLC: Smiths City Group Limited [2017] NZHC 2351
Case: [2017] NZHC 2351
Decision Date: 26 September 2017

CaseChat Overview and Summary

Smiths City Group Limited has applied for initial orders under Part 15 of the Companies Act 1993, which deals with arrangements. The company proposes to compulsorily acquire and cancel three shares in 20 registered in the name of each shareholder and to pay shareholders $0.72 for each cancelled share. Smiths City is seeking the court's sanction for this arrangement, which would return approximately $5,700,000 of the company's excess capital to shareholders. The company has a capital surplus of approximately $53,400,000 and aims to achieve a greater balance in its equity and debt position by undertaking this share buy-back arrangement. The application was made without notice, which the court found to be appropriate given the circumstances.

The court was required to determine whether it was appropriate for the company to proceed without notice and whether the initial directions drafted for Smiths City would enable the company to comply with statutory requirements. The court found that proceeding without notice was appropriate and that the proposed initial directions would 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 appeared to have proper regard to the interests of the shareholders who are to be treated uniformly under it.

The court granted the orders sought by Smiths City, which included that the company would put the proposed scheme of arrangement to shareholders for their consideration and approval at a special meeting. The meeting would be held in Christchurch during normal business hours on 24 November 2017, or on a date to be determined by Smiths City. The resolution would require the approval of 75% or more of the votes cast by those shareholders entitled to vote and voting on the resolution and a simple majority of the votes of those shareholders entitled to vote on the resolution. Smiths City was also permitted to make any amendments, revisions or supplements to the arrangement document as it considered to be necessary in the best interests of Smiths City and its shareholders. The court also ordered that Smiths City would 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, the notice of the meeting, including the resolution and the arrangement document that the shareholders would be asked to vote on, a letter from the Chairman of the Board of Smiths City, the explanatory memorandum prepared by Smiths City, 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 the substantive application. The court granted leave to apply to vary these orders or for such other or ancillary orders as Smiths City considered were required. Formal service of this Order was dispensed with.

Orders