Power Simon: Companies (Minority Buy-out Rights) Amendment Bill — First Reading 
Power Simon: Companies (Minority Buy-out Rights) Amendment Bill — First Reading 
[Volume:644;Page:13916] 
SIMON POWER (National—Rangitikei) 
: 
 Well I thank the member Martin Gallagher for that analysis of company law and minority share buy-outs. I am sure that in the fullness of time he will take the opportunity to come to the Commerce Committee when we are considering this bill and share his wisdom with the rest of us—and with those independent advisers whom Mr Brownlee has spoken about—in his own airy sort of way.  
In actual fact the Companies (Minority Buy-Out Rights) Amendment Bill is serious legislation. This bill amends the 1993 Act to clarify the buy-out provisions for dissenting shareholders in times of a special resolution. The key objective is to improve the practical operations of that minority buy-out regime in order to ensure it functions efficiently cost-effectively appropriately and without flatulence.  
The major difficulty with this particular legislation is that unfortunately it has not come about because of a technical issue that proved difficult for a one-off minority buy-out; it has come about of course as a result of the Infratil - Natural Gas case and a decision by Justice Doogue in July 2000. In fact I think I am right in saying that it was Justice Doogue who was on the bench the day I was admitted as a barrister and solicitor. I am pretty sure it was Justice Doogue and what a fine fellow he was. He congratulated me. I could be wrong but I am pretty sure it was Justice Doogue.  
The difficulty of course is that it leads to a wider question a question that I have raised in this House on a number of occasions which concerns the fact that the Government’s response to Law Commission recommendations is nothing if not consistent—that is whatever the Law Commission recommends the Government puts into legislation within a certain period of time. Of course that begs the question that is on everybody’s minds today: what do the Ministry of Economic Development and the commerce unit do and more particularly what is the Ministry of Justice doing while the Commerce Commission continues to make that huge number of references by way of legislative change? 
However in this particular case the Minister of Commerce is right to move this bill to the House. In fact National as my colleague Gerry Brownlee has said will support the passage of this bill through its first reading and pending the advice the select committee receives no doubt—in my opinion anyway—for its second and third readings as well.  
You see the intention of the minority buy-out provisions is to provide an exit regime for those shareholders who are dissenting and who have unsuccessfully opposed a fundamental change to the structure or operation of the company. In amongst Mr Brownlee’s contribution where he talked about some of the practical examples where this regime may have assisted he was dead right when he talked about the borrowing implications for the company once the dissenting shareholders had exited the company following the transaction. He questioned whether that increased borrowing would be incorporated in the valuation of shares post or pre - minority buy-out and what effect that would have on the dividend return to those remaining shareholders.  
Of course balancing up the rights of the minority shareholders who look to exit on a dissenting transaction presents one of the most complex and difficult matters for directors of a company. It concerns their duty to shareholders as opposed to their duty to the company. Those are two quite different things. The fundamental duty is to the company but the secondary or less significant duty is to the shareholder. Not all directors understand the difference between those particular transactions and if it is the matter of the health of the company and indeed of its remaining shareholders because of the borrowings-to-asset ratios remaining following a minority buy-out dissenting view then that creates a really interesting paradigm for directors to make these decisions in.  
It is hoped that this bill will assist those directors in making a decision that will work for the health of the company. Of course—as the Hon Paul Swain will know—the last thing the health of any company needs is a group of dissenting shareholders who do not want to be party to a major or indeed a significant transaction. But at the same time the rights of the remaining shareholders in a secondary sense will have to be balanced against that fundamental duty of directors. 
Hon Paul Swain 
: As long as it clarifies it. 
SIMON POWER 
: The Hon Paul Swain who has had a bit of experience in this area as a Minister for State Owned Enterprises is dead right when he says that as long as the legislation clarifies that point that will help. We do not want directors to be put into a position where the minority buy-out regime complicates and makes more convoluted the series of duties that the directors have to weigh up when considering the implications of a buy-out for dissenting shareholders in a time of a special resolution.  
Now I know my colleague Judith Collins who was a company lawyer in a previous life will have a firm understanding of the technical issues surrounding this matter and I welcome her 17½ minute contribution to the debate on this bill because I think it would be worth hearing. I was only fortunate enough to be practising for a very short time and of course I feel a little humble in the presence of those who practised in a much more technical area than me. I have offered only a general overview. The extent of my knowledge of these matters pales compared with the contribution made by the member from Hamilton West Martin Gallagher. But nevertheless his contribution was valuable because it provided a springboard for a more detailed discussion on some of these issues. He brushed over it in a general sense but his understanding of the more complex innuendoes surrounding the conflicting duties was apparent in some of the language he used during the course of his contribution.  
As the bill says the important thing here—and this is echoed by the chipping contributions of the Hon Paul Swain—is to simplify and clarify the regime. The minority buy-out provision should have the following key features. I am sure the House will indulge me as I work my way through page 2 of the explanatory note. The first key feature is: “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”. That is fine; that makes good sense. In fact I would be very surprised if that was not followed today under the existing regime. The second point is: “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:” We should remember that that particular statement should also perhaps include—in my opinion—a statement to remaining shareholders about what the increased borrowing means for their shareholding value and potential dividend stream once the buy-out occurs. The third point states: “the valuation of the shares … should be calculated as … on the date the company gives notice”. There is no problem with that.  
The fourth point states that the valuation “should be adjusted to leave out of account any change in the valuation attributable to the event”. Well this is the key point that Mr Brownlee drew our attention to during the course of his contribution—at what point does that consequent liability get married in or weighed in as part of the remaining valuation of those shares? We need to say that in determining the valuation the adjustment needs to leave out of account the effect of a triggering event and if the shareholder and company cannot come to an agreement the price will be determined by arbitration.  
Those last few clauses are pretty standard stuff really. We know—and I say this particularly to New Zealand First and my colleague over there Peter Brown—that this is not without its complications. I hope Peter Brown’s contribution to the House acknowledges the fact that although the House appears to be waving this legislation through to a select committee these are important matters of commercial and company law that should not be underestimated in terms of any potential conflict and application of duties that may arise in the public company or State-owned enterprise environment.  
I have to say the only thing that worries me is that if Mr Brownlee as chairman of the Commerce Committee moves to make the Law Commission its independent adviser we may not get the answer to some of those questions.