New Zealand Legislation: Bills
Bills are proposed Acts
This Bill amends the Companies Act 1993 (the Act) to clarify the minority buy-out provisions for dissenting shareholders in times of a special resolution. The key objective of the Bill is to improve the practical operations of the minority buy-out regime to ensure that it functions efficiently, cost effectively, and appropriately.
The intention of the minority buy-out provisions is to provide an exit regime for dissenting shareholders of a company who have unsuccessfully opposed a fundamental change to the structure or operation of the company. The shareholders are entitled to have the shares that they acquired before the change was decided on purchased by the company at a fair price.
In 2001 the Law Commission, in response to the July 2000 decision of Doogue J in Natural Gas Corporation Holdings Ltd v Infratil 1998 Ltd [2000] 3 NZLR 727, commenced a review designed to assess the effectiveness of the minority buy-out provisions. Its subsequent report number 74 Minority Buy-outs (released in August 2001) highlighted problems with the existing legislation and concluded that the Companies Act 1993 was defective in its failure to set out a workable method of valuing a minority shareholding when the minority shareholders had elected to have their shares purchased by the company under section 111(2) of the Act.
The current minority buy-out provisions are set out in sections 110 to 115 of the Act. These provisions provide for the company, if it agrees to the purchase of the shares, to nominate a fair and reasonable price for the shares to be acquired. This current test does not give sufficient guidance or certainty to companies as to how the price should be ascertained. Nor do the current provisions give any indication as to the date on which the price is to be ascertained.
To simplify and clarify the regime, the minority buy-out provisions should have the following key features:
an obligation on the company of a minority buy-out to send to each shareholder of the company a statement setting out the rights of shareholders when a special resolution triggers the minority buy-out provisions in the Act:
that the share offer for a minority buy-out be accompanied by a statement outlining for the shareholder how a fair value for the shares was determined:
the valuation of the shares in a minority buy-out should be calculated as at the value on the date the company gives notice to the shareholder agreeing to buy the shares:
the valuation should be adjusted to leave out of account any change in the valuation attributable to the event that was decided by special resolution (also known as the triggering event):
in determining the valuation of shares, a calculation of the class of shares in which the shares in question form a part should be done, followed by an allocation on a pro rated basis among all shareholders:
in determining the valuation of the shares, the adjustment of the valuation to leave out of account the effect of the triggering event should not apply when the dissenting shareholder is being eliminated as a shareholder against the shareholder’s will:
if the shareholder and company cannot come to an agreement on the value of the shares, the price may be determined by arbitration:
the legal title of the shares and voting rights attaching to them should remain with the shareholder until the price is ascertained and paid in full, but from the time of the provisional payment any purported disposition of the shares of the shareholder, except in favour of the company, will be of no effect.
Clause 1 is the Title clause.
Clause 2 provides that the Act comes into force on the day after the date on which it receives the Royal assent.
Clause 3 provides that Part 1 amends the Companies Act 1993.
Clauses 4, 5, and 6 make minor consequential amendments to sections 58, 66(1), and 67A respectively.
Clause 7 repeals section 112 and replaces it with new sections 112 to 112C.
New section 112 sets out how shares that are to be purchased by a company in a minority buy-out situation must be valued. It also specifies that a shareholder may object to the price offered for the shareholder’s shares, and when the company must purchase the shares if no objection is received.
New section 112A provides that if a company receives an objection to the price offered for shares under new section 112, the company must refer 2 issues to arbitration for determination and pay a provisional price for the shares in the meantime.
New section 112A also specifies the orders an arbitral tribunal must make once it has valued the shares, and provides it with discretion in relation to the award of damages for loss.
New section 112B provides that interest is payable on any sum that must be paid under new section 112 or 112A and that is outstanding, and specifies how that interest is to be calculated.
New section 112C specifies when the legal title to, and the beneficial ownership of, shares purchased by a company in accordance with section 111(2)(a) pass to the company.
Clause 8 makes a minor consequential amendment to section 113(1).
Clause 9 adds a new paragraph (c) to clause 2(2) of Schedule 1 that requires shareholders to be given notice of their minority buy-out rights under section 110 when they are asked to exercise their powers under section 106(1)(a) or (b) in order to amend the company’s constitution or approve a major transaction.
Clause 10 specifies that the amendments in Part 1 do not apply to any special resolution passed before this Act comes into force.
Clause 11 makes a minor consequential amendment to section 29(f) of the Co-operative Companies Act 1996.
Clause 12 makes a minor consequential amendment to regulation 33(1)(b)(ii) of the Overseas Investment Regulations 2005.