Worth Richard: Companies (Minority Buy-out Rights) Amendment Bill — First Reading 
Worth Richard: Companies (Minority Buy-out Rights) Amendment Bill — First Reading 
[Volume:644;Page:13926] 
Dr RICHARD WORTH (National) 
: 
 I join with those members of the House from both sides who have praised the wisdom of the chairman of the Commerce Committee to which committee this bill is to be referred. It is invidious to deal with the issue at length but I certainly recognise his artful insight his scintillating contribution to chairmanship of the committee and his dogged determination to do right by those who appear before the select committee. 
The Companies (Minority Buy-out Rights) Amendment Bill is interesting legislation but it is certainly not without complexity. That is why National supports its referral to the select committee. We think though that in the context of the submissions that will likely be received changes to the bill will be necessary and it is appropriate to enter that caution at this particular point. Some philosophical issues underpin minority buy-out rights legislation. But in essence the position is that if the goalposts are moved despite the shareholder’s opposition he or she is entitled to decide that he or she no longer wishes to be a player and is also entitled to be protected from losing financially by reason of his or her decision to leave the field. 
The intended functioning of buy-out provisions has been described in a number of ways by a number of academic writers and I simply cite an article that appeared in the 1997  
Columbia Business Law Review 
 by that well-known commentator Alexander Khutorsky. In an article under the subject heading “Coming in from the cold: reforming shareholders’ appraisal rights in freeze-out transactions” he stated: “In theory the existence of appraisal statutes has a two-pronged effect on merger transactions. First the appraisal remedy is supposed to guarantee that dissenting shareholders get a fair price for their equity stakes. This prong of the appraisal statute is embodied by a procedural scheme whose end result is a judicial valuation of the minority stake in the target with attendant money damages where appropriate. Perhaps more important than the actual exercise of the remedy is the ex ante effect which the mere existence of the remedy is supposed to produce. This second prong works by inhibiting the incentives of majority owners to act strategically by providing for the possibility of a threat of litigation and uncertain damage awards. The corporate planner’s assumed preference for certainty coupled with potential cash-flow constraints in meeting potentially sizable judicial awards should encourage the planner majority owner to offer fair consideration in freeze-out transactions.” 
In a New Zealand context the inadequacy of our current regime emerged a number of years ago when the Natural Gas Corporation and Infratil were locked in litigation in 2000. In very general terms what happened was that Infratil was the first minority shareholder to invoke the minority buy-out provisions to force the Natural Gas Company to buy its 6.7 percent stake in the Natural Gas Company after it opposed the $824 million takeover of energy retailer TransAlta. Infratil was unhappy with the $1.30 provisional price set by the Natural Gas Company but after the company sought a declaratory judgement to get control of the Infratil shares Infratil was forced to hand over title to those shares and the price was later set at $1.68 after protracted arbitration.  
The current statutory regime is easily explained. The broad scheme of the New Zealand Statute as far as it is relevant to matters that arise on this bill is that the shareholder must give notice of an intention to invoke the procedure within 10 working days of the passing of the resolution. The board within 20 days of receiving the shareholder’s notice must then elect one of a number of courses of action and notify the shareholder of its election. Those courses of action are: first to back away from the resolution that has triggered the shareholder’s notice; second to agree to buy the shareholder’s shares or procure a third party to do so; and third to seek an exemption under section 114 or 115 of the Act. In very general terms those sections empower the High Court to excuse compliance by the company on financial or just and equitable grounds.  
So if the company agrees to buy within 5 working days of notifying its election it must notify the shareholder of the price it is prepared to pay. If that price is unacceptable to the shareholder the company must be notified forthwith whereupon the issue of the price must be referred to arbitration and within 5 days the company must pay the price it has nominated. Each side is bound by the decision of the arbitrator. If the price is fixed by the arbitrator at more than the company’s proposal then the company must pay the shortfall. If the arbitrator fixes the price at less than the company originally offered then the amount paid in excess of that amount is recovered by the company from the shareholder and the arbitrator has the power to award interest. 
These deficiencies in the legislation were very clearly laid out in the Infratil case. In a comment that is often made in connection with buy-out rights the lack of detail was trenchantly criticised in the existing regime. The judge said in the course of that judgment—I am referring to paragraph 4 of the judgment—“It is common ground that the minority buy-out rights sections are defective. Although they provide for the company to nominate a fair and reasonable price for the shares to be acquired they do not state at what date that price is to be ascertained. Nor do the sections make any provision for the company in nominating the fair and reasonable price to give any information to the minority shareholder of the basis of the valuation. Nor do the sections provide any mechanism for the completion of transactions falling within them. As already noted section 112(4) is silent as to the basis upon which the shares at issue are to be dealt with at the time when the company is required to pay the provisional price. Nor has the arbitrator power to make orders in respect of the completion of the transaction following the arbitration. Having created minority buy-out rights the Act fails to provide for important features of the transactions that can arise under them. In the context of the Act as a whole and its history that is understandable. However here there is a relatively substantial sum of money involved. In other cases there could be a substantial number of shareholders involved.”  
Against the background of that decision the issue went off to the Law Commission and after what others have described as a substantial period of delay now comes to this House in terms of the Companies (Minority Buy-out Rights) Amendment Bill. The bill contains a helpful explanatory— 
Gerry Brownlee 
: I raise a point of order Madam Speaker— 
Hon Dr Michael Cullen 
: I raise a point of order Madam Speaker. 
The ASSISTANT SPEAKER (Ann Hartley) 
: Dr Michael Cullen. 
Gerry Brownlee 
: That is outrageous! I have never seen anything so biased in all my life. 
The ASSISTANT SPEAKER (Ann Hartley) 
: The member is to withdraw that remark please. 
Gerry Brownlee 
: What are the rules around here? I raised a point of order on the bell. I was clearly the first person to raise a point of order; the audiotape will demonstrate that perfectly clearly. The videotape of it will also show that very clearly. You looked my way then immediately turned to Dr Cullen. It would appear now that the Chair is totally complicit in the Government’s determination to jackboot all over the democracy and conventions of this county. I will not apologise for saying that.  
The ASSISTANT SPEAKER (Ann Hartley) 
: Mr Brownlee the call is mine as I have explained to you several times. 
Gerry Brownlee 
: I raise a point of order Madam Speaker. Let us be clear on what the sequence of events has been here. I sought a point of order and you chose not to accept it but instead turned deliberately to Dr Cullen and took his point of order. I have now expressed my disappointment about the biased nature in which the Chair has operated in this particular case and I have further alleged that the Chair is complicit with the Government in trying to expedite a piece of business for the Government that will see the democratic rights of New Zealanders trampled all over. Now apparently you are simply saying that you have told me the rules before that there are really no consequences to what I said and that we are going to hear from Dr Cullen because we have some time limits here that we need to address. Madam Assistant Speaker you are in a very difficult position because you either have to take some pernicious action against me or effectively revisit the way in which the House operates when circumstances like this arise. This will be precedent setting. 
Hon Dr Michael Cullen 
: The member seems to think there is some sort of strange complicity to achieve some device. Far from raising a point of order to expedite business I was raising the point of order to slightly delay some business of the House. I was going to seek leave—I will do that in a moment and explain why—for the next item of business which is the Mauao Historic Reserve Vesting Bill’s first reading to begin at 2 o’clock. I understand that some people are still on their way and that more people can probably be here at 2 o’clock than are here at the moment. I know that Opposition members are very sensitive about the  
New Zealand Herald  
editorial this morning and feel they have to beat their chests but the Government intends that the House carry on in urgency to complete first readings and that we will come back next week because most of us are going to be here anyway.  
I now seek leave for the House to rise for luncheon then to begin again at 2 o’clock for the first reading of the Mauao Historic Reserve Vesting Bill. 
The ASSISTANT SPEAKER (Ann Hartley) 
: Before we do that because the point of order was raised before the question had been put on the previous bill and the speaker had finished I will put that question first.  
Gerry Brownlee 
: I raise a point of order Madam Speaker. You cannot put the question because Mr Worth has not finished his allotted time. I raised a point of order—which was ignored—on the bell meaning that he still has 2 minutes to speak. 
The ASSISTANT SPEAKER (Ann Hartley) 
: I thought he had finished. OK; we will do that. 
Hon Dr Michael Cullen 
: If Mr Worth wishes to carry on speaking for 2 minutes then I am very happy for him to do so. I am fascinated by his erudite explanation of this bill which I trust will be noted fully in the next  
New Zealand Herald  
editorial. 
The ASSISTANT SPEAKER (Ann Hartley) 
: I would just like to say as I relayed to Mr Brownlee before that it is my decision about the call. As well if the member wants to criticise the Chair then he knows the proper procedure for doing so. 
Dr RICHARD WORTH 
: I am grateful for the opportunity of continuing this speech on the Companies (Minority Buy-out Rights) Amendment Bill. I was just about to turn to the substance of the bill in the short time I had remaining having made comments to set a broad contextual framework for what that position might be. 
One of the issues that will be looked at when the bill comes to the select committee will be the appointment of advisers. This is the type of legislation where I believe that independent advisers should be engaged. The reason for that without in any way criticising those officials who will be drafted into the task of providing support and assistance on the bill is that there needs to be a hard-headed commercial look at this legislation. The issues are easily identified but their solutions perhaps are not so easily identified.  
Certainly the following key features need to be considered. First of all there needs to be 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.  
Sitting suspended from 1 p.m. to 2 p.m. 
Bill read a first time.  
Bill referred to the Commerce Committee.