Statement of reasons
Note: The following statement of reasons should be read in conjunction with the statement(s) of reasons appended to the:
This notice applies to acts or omissions occurring on or after 10 April 2020 and is revoked on the close of 31 October 2022.
The Takeovers Panel (the Panel) has granted in this notice exemptions for classes of persons, transactions, and offers from compliance with rule 6(1) of the Takeovers Code (the Code). The terms and conditions of the exemptions are designed to ensure that the underlying purpose and intent of the Code are fulfilled while also allowing code companies to access sufficient equity capital urgently should the need arise.
COVID-19 has been causing significant issues with the economy and a number of companies have come, or are expected to come, under pressure because of rapidly changing economic conditions.
While the usual balance that the Code strikes among the objectives of the Code is appropriate in ordinary circumstances, the effects of COVID-19 have caused the appropriate balance to shift. Specifically, given the financial strain that companies are experiencing or are likely to experience, it is appropriate to temporarily refocus the balance between the objectives of the Code in favour of facilitating access to capital.
Generally speaking,—
control of a code company can be increased under this notice without a sell down requirement:
that increase in control is immediate, but is subject to a cap (generally of 10% more than the person would be entitled to under the Code):
control can be increased beyond the cap, but it is subject to a requirement to reduce control and voting restrictions.
The exemption in clause 5 permits increases in voting control of, by and large, up to 10% above the limits imposed by the fundamental rule in rule 6 of the Code. This exemption is consistent with the objectives of the Code in that it will encourage the efficient allocation of resources, to ensure that capital finds its way to companies that are in significant need during the outbreak of COVID-19.
The exemptions are consistent with the objectives of the Code because the attaching conditions require that a portion of the increase in voting control may need to be eliminated within 2 years of the increase and that the voting rights of that portion are not exercised before that elimination.
The exemption in clause 21 is based on that in the Takeovers Code (Professional Underwriters) Exemption Notice 2004. It does not apply to corporate investors who seek to use underwriting agreements as a means of increasing control in code companies. The Panel considers that it is appropriate to grant exemptions to professional underwriters, and upstream parties of professional underwriters, from rule 6(1) of the Code because underwriting arrangements are an accepted means of assisting companies to raise capital in New Zealand, which should be facilitated by the Panel, and the allotments pursuant to the underwriting agreements to which the exemption applies would not change the effective control of the code company.
The new exemptions apply only to increases in voting control on or before 31 October 2020.
Accordingly, the Panel considers that it is appropriate and consistent with the objectives of the Code to grant the exemptions because—
the exemptions relate only to allotments of voting securities. They do not permit acquisitions that would exceed restrictions in the Code:
the ability to increase effective voting control is generally capped at 10% (there is an ability to increase voting control beyond the cap but see the following bullet point regarding such increases):
to the extent that a person would increase voting control by more than the cap, the conditions provide that such voting control must not be exercised and such voting control must be eliminated within a 2-year period:
the usual sell down and voting restriction periods of 6 months (for professional underwriters) and 12 months (for shareholders) are not appropriate at this time given the level of volatility in the market. As such, the conditions retain the existing substantive protections but have adapted those protections for current market circumstances:
the exemptions maintain a proper balance between the costs of compliance with the Code and the benefits resulting from it:
the exemptions are temporary and will encourage the efficient allocation of resources by helping to facilitate legitimate capital raising in an extremely unusual situation:
assisting companies to survive extreme economic pressures will help to maintain the competitiveness of New Zealand’s capital markets.
Note: The preceding statement of reasons should be read in conjunction with the statement(s) of reasons appended to the: