Companies (Minority Buy-out Rights) Amendment Bill — Second Reading In Committee Third Reading 
Text is incorporated into the Bound Volume 
Companies (Minority Buy-out Rights) Amendment Bill — Second Reading In Committee Third Reading 
[Sitting date: 02 September 2008. Volume:649;Page:18524. Text is incorporated into the Bound Volume.] 
Companies (Minority Buy-out Rights) Amendment Bill 
Second Reading 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I move  
That the House take note of the Commerce Committee’s report on the Companies (Minority Buy-out Rights) Amendment Bill and that the bill be now read a second time 
. The objective of the Companies (Minority Buy-out Rights) Amendment Bill is to make technical amendments to the minority buy-out provisions in the Companies Act 1993 to ensure that they function efficiently cost-effectively and appropriately. The minority buy-out provisions provide an exit regime for shareholders of companies who have unsuccessfully opposed certain types of fundamental changes to the structure or operations of the company by virtue of a special resolution. The regime then entitles them to have their shares purchased by the company at an appraised price.  
The rationale behind these provisions is that if the company’s structure or operations change significantly after the shareholder enters the company the shareholder should be entitled to decide to exit the company but also be afforded some specific protection against financial loss by reason of the decision to leave the company. The provisions have been amended largely in accordance with the recommendations made in the Law Commission report on minority buy-outs.  
The Law Commission commenced a review of the minority buy-out provisions after Justice Doogue criticised the provisions in  
Natural Gas Corporation Holdings Ltd v Infratil 1998 Ltd 
 stating that the existing regime was lacking in information for shareholders particularly as to valuation method and date. This bill addresses those concerns. Since the first reading of the bill the Commerce Committee has recommended a number of amendments to strengthen the bill which I am sure will help it achieve its objectives.  
I conclude by thanking the officials and members of the Commerce Committee for their work in considering the bill and acknowledging the contributions of those who provided submissions on the bill. I commend the bill to the House. 
GERRY BROWNLEE (National—Ilam) 
: 
 The Companies (Minority Buy-out Rights) Amendment Bill is one of those interesting bills on which when they come before the Commerce Committee there is genuine interest on the part of all members to ensure that we get good and workable legislation. In this case we are talking about the rights of individuals who purchase interests in various entities only to find that a bigger parcel of shares than theirs is taken up by someone else or that there is a proposal to buy out those individuals by someone else not always at a price that might be in the best interests of those individuals. It is not uncommon for a price to be struck for a buy-out that is ahead of the market but not necessarily ahead of the expectations of some of the smaller shareholders in the particular company. As the Minister said when people make a decision that a new arrangement inside a company they had previously been confident about investing in comes to the fore then people should a right to exit—indeed to test the strength of whoever has bought the company and of the new philosophy that may presumably come with that.  
The committee has made a number of recommendations for amendments to the bill and we will discuss those further in the Committee stage. The bill is fairly technical in nature but as everyone knows it is the fine print that always ends up costing us. So if we were to typify this bill we would typify it as being a bill that puts some rules around the effect of the fine print.  
One of the things that we are a little uncertain about is the involvement of the Arbitration Act or bringing in the Arbitration Act as the vehicle for sorting out disputes between I guess an offered value and the value that someone would like for their shares. Those sorts of provisions can be very costly and it is a little unclear exactly who would meet the costs of that arbitration process. I do not believe that is specified in the bill so the Minister may wish to take us through that when we go through the Committee stage. That may be an oversight. If in fact there is a right to arbitration and a right to a price that reflects the best value of those shares I think the question should be asked and answered in the bill as to how the cost of dealing with the arbitration is to be met because it can be quite expensive.  
The provision of interest on I guess unpaid moneys owing after a price is struck is a very positive contribution in this bill and once again that matter is covered in a new clause in the bill. We will discuss that further during the Committee stage so that the  
Hansard 
 record is clear about what the select committee believed it was doing as this law was being put into place.  
We also recommended amending new section 112C inserted by clause 7 of the bill to provide that legal title to shares passes to a company on notification of the company’s decision to purchase the shares. The relevance of that is that if in fact a board accepts a proposal and the purchaser indicates that it has accepted it the potential exists for it to be quite some time before a settlement is reached—or is concluded which is perhaps a better way to describe it. None the less to all intents and purposes the owner of those shares once this bill is passed will in fact be the purchasing entity.  
It has been a very interesting exercise to consider all the various contortions of minority buy-out rights inside competition law and I think this bill goes a very long way towards trying to make clear some of the things that have been matters of confusion for players in the commercial world. We look forward to the coming debate in the Committee stage. The bill is relatively short but it is very very important. As I said before most people find that the devil is in the detail and that it is the fine print that trips us up. So we expect that the Committee stage today will traverse all aspects of the provisions of the bill in order to ensure it is abundantly clear exactly what it is all about. It is interesting though that the bill is in only two parts and we do notice over a period of time that when important bills are debated just part by part there is not a lot of time to consider all of the clauses in them.  
However I am sure that by the end of the day this bill will probably be law or I should say ready for the Royal assent. Subject to being satisfied with the answers to our questions in the Committee stage I say we will continue to support the bill. 
Dr RICHARD WORTH (National) 
: 
 On one view of it the Companies (Minority Buy-out Rights) Amendment Bill might not be considered interesting but it affects a very substantive change to the law. All tributes go to the honourable Minister Lianne Dalziel who at all times has kept an open mind on the merit of this legislation and who has been prepared to make change where there was a warrant for doing that. 
These changes being made by this legislation are to the Companies Act 1993 which of course is a code that deals with a whole lot of aspects of corporate activity in New Zealand. The Act constitutes a code if you like for those activities that are very much at the heartland of New Zealand business. The provisions relating to minority buy-out rights are contained in sections 110 to 115 so the provisions are not very extensive but they raise essential issues of equity. The argument is really simple: 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 to also be protected from losing financially by reason of a decision to leave the field. I think it is worthwhile citing a comment made by Alexander Khutorsky who is well known in this area of corporate law for what he said about the intended functioning of buy-out provisions. In a merger context he said this: “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 damages awards. The corporate planner’s assumed preference for certainty coupled with potential cash-flow constraints in meeting potentially sizeable judicial awards should encourage the planner-majority owner to offer fair consideration in freeze-out transactions.” That is quite turgidly but thoughtfully worded. It is a simple enough concept: a person is a shareholder in a company the other shareholders do something that the person does not like so what are the rights of that person? So we see in this bill the setting up of a code—the amendments to and filling out of provisions in the existing law—that gives rights to the shareholder who wants to get out. In money terms that is the way in which those rights have been exercised. 
There is a history in all of this of course and in fact it is quite a long history. But what prompted the Government to move—actually to move quite slowly—was a case called  
Natural Gas Corporation Holdings Limited v Infratil 
1998 Ltd 
. The judge in that case which is a trigger for all these changes being made today as this bill progresses started off by saying “To the best of the knowledge of the parties this is the first time that the minority buy-out rights sections have come before the court.” and “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 s 112(4) is silent as to the basis upon which the shares at issue are to be dealt with and 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. While the Law Commission and the legislature may have been wise to avoid the complexity of some of the North American legislation it would seem essential that if the minority buy-out rights sections are to be effective they should be urgently reconsidered.” 
Against the background of those comments the Law Commission looked at this issue. It came up with a report; it suggested draft legislation. Parliamentary Counsel had a look at that legislation and made some changes. The Commerce Committee made some further changes. But these are the sorts of issues that arise: should notice be given of the availability of the buy-out rights along with notice of the special resolution sought to be passed? Should the company be required to give particulars of the basis on which its offer is being calculated? Should the statute specify the date at which the shares are to be valued or otherwise dictate the basis of valuation? Should the shareholder be required to convey title to the shares—Mr Brownlee alluded to this issue—at the same time that the shareholder has paid the price calculated by the company on the basis of the value as initially assessed by it? Should the legislation spell out broader powers that authorise the arbitrator to award compensation for costs and delay? And should the arbitrator have the power to make ancillary enforcement orders? This legislation that is before us today actually covers all those points. 
In the time I have remaining it is interesting for me to look briefly around the world to see how other countries and other jurisdictions have dealt with this issue. Delaware in the United States which I guess would be recognised as the state in the United States that has the most company registrations—more companies in the Fortune 500 are registered in Delaware than elsewhere—has I think pioneered standards of excellence in corporate governance and has specific provisions dealing with this. I will not go through those provisions but they talk about that need to establish a fair value for the existing shareholder. When we come to the Committee stage we will see that is not quite the way that New Zealand has approached the issue and it certainly was not the way that the approach was to be taken when the bill was introduced. In New York where they have similar provisions in the New York Business Corporation Law section 623—as the Minister reminded me last night—they use this concept of “fair value” the same as in Delaware. In Canada they talk about “fair value” in the context of the compensation award. 
The American Business Association has a model code where “fair value” is actually defined. We have not done it in that way. I think we have done it in a much more sophisticated way. But in the American Business Association model “fair value” means the value of the corporation shares determined in three circumstances. First immediately before the effectuation of the corporate action to which the shareholder objects; second using customary and current valuation concepts and techniques generally employed for similar businesses in the context of the transaction requiring appraisal; and third—and this is quite significant—without discounting for lack of market ability or minority status except in certain cases. 
I commend this legislation as it has come back from the Commerce Committee with a number of changes that we are later to consider. Looking at section 110 of the Companies Act and the sections that follow it I think we have produced an outcome in a New Zealand context that is highly workable. 
Hon PAUL SWAIN (Labour—Rimutaka) 
: 
 Mr Assistant Speaker yes— 
Gerry Brownlee 
: He was no help at all. 
Hon PAUL SWAIN 
: Well that is a bit uncharitable from that member and he is getting me to engage with him when my speech must not be longer than 1 minute. I have already spent probably about 15 seconds. 
Gerry Brownlee 
: No he was no help at all— 
Hon PAUL SWAIN 
: I think that is a bit uncharitable from that member; in fact I have defended his contribution on many occasions. By and large the Commerce Committee has worked well. I congratulate Dave Hereora. He was the one who spent a lot of time getting his head round the Companies (Minority Buy-out Rights) Amendment Bill. I am obliged to the previous speaker Dr Richard Worth who does know a bit about it. When he gives little sermons in the House like the one he has just given I always find them particularly interesting especially when he goes back into history. 
Gerry Brownlee 
: I bet sometimes you wonder why you slept through it. 
Hon PAUL SWAIN 
: No to be fair to the member I did not sleep through the speech he just gave; I found it very very interesting. But I am now off the point. There is the potential to go on for 10 minutes if— 
Gerry Brownlee 
: Could have fooled me. 
Hon PAUL SWAIN 
: Normally I love interjections because they give me something to draw on but I do want to make a couple of quick contributions. As the member Richard Worth quite rightly said this bill came from some recommendations from the Law Commission around a case involving Natural Gas Corporation Holdings. It was about trying to set a regime so that shareholders had better rights. It is interesting to know that when I was the Minister of Commerce the first thing we did was to introduce the Takeovers Code which the National Party had basically rejected. That code of course gave important rights to small shareholders. It is really important that we are introducing this legislation which is another leg of this particular important part of companies law. 
As has already been said we know what the objective is: to ensure that the markets function properly. It is time to give minority shareholders not so much protections as special abilities to have a fair share value price if they oppose certain transactions of the company—that is if the company is no longer the company that they had shares in. For example if the constitution of the company is amended that amendment might imply restrictions on the company’s activity; the company might approve a major transaction that a shareholder does not agree with; or it might improve an amalgamation that the shareholder does not agree with. The shareholder may disagree with what is being done and want to opt out. This bill makes sure that there is a proper process for particularly assessing the value of the company shares at the time so that minority shareholders’ rights are protected as best as they can be. 
This is good legislation. It is another piece of legislation from the Commerce Committee. I almost said the committee is ably chaired by the chairman; he does chair it quite well but he made some uncharitable comments about me so I will not say it. What I will say is that this is good legislation and needs to be progressed. 
LINDSAY TISCH (National—Piako) 
: 
 From the comments made by previous speakers members will be aware that National is supporting the Companies (Minority Buy-out Rights) Amendment Bill. The genesis of the bill came out of a case back in 2000 and a review of the law following the Hon Justice Doogue criticising the existing law in the case  
Natural Gas Corporation Holdings Ltd v Infratil 1998 Ltd 
. His criticisms related to the lack of information available to shareholders in relation to the valuation of shares and the date at which shares were to be valued. That case was really the genesis of a review that then led to a Law Commission report back in 2001.  
At the time of that case the judge said the matter was urgent—that it needed urgent action. And here we are with this bill 8 years later which shows how urgent it has been to this Government.  
Hon Lianne Dalziel 
: There was a Law Commission report in the meantime. 
LINDSAY TISCH 
: The Law Commission report was in 2001. Well I say to the Minister that in the court case—and she will have a chance in the Committee stage to be able to articulate the points that she wishes to make—the judge said the “fair and reasonable” test for the valuation of shares is well established. It is an objective test. There is no accumulated jurisprudence in relation to the “honest estimate” and it would be a subjective test. One of the questions that came out from submitters to the Commerce Committee was what actually is the “honest estimate” test?  
The key points that were canvassed at the select committee included the issue of valuation. Gerry Brownlee raised the point that where shareholders are aggrieved at the company’s choice of valuation method would they retain the right to reject a price offer and to bring the matter to arbitration and if so who would pay for that? Another point that came up in the submissions was the date of the valuation of shares. Clause 7 states that date is to be the close of business on the day before the special resolution is voted on. That is the date that the Canada Business Corporations Act covers which was the point that Dr Richard Worth mentioned when we were looking at other jurisdictions. Another area was the date at which minority shareholders would lose their legal and beneficial title to the shares. We will be covering that point in some detail during the Committee stage.  
The points that I have made add value to this bill. We are very happy with it. We had a very good discussion on it at the select committee and some other points will come up during the Committee stage. 
PETER BROWN (Deputy Leader—NZ First) 
: 
 This will be a very short call. New Zealand First will support the Companies (Minority Buy-out Rights) Amendment Bill because we recognise that it does improve the current situation. One of the concerns raised by New Zealand First members when we were reading the bill—we were not on the Commerce Committee—was the one of arbitration. It concerns us a little bit this morning which is the very reason that I have taken the call to hear the chairman of the select committee and one of the members of that committee register those concerns. There is no recommendation in the commentary coming back from the Commerce Committee as to how the arbitration problem which was well outlined by Gerry Brownlee and to a lesser degree by Lindsay Tisch will be addressed—in particular the one of cost. I want to put on record that New Zealand First has concerns around that. We will be supporting the bill because we recognise it is a significant improvement on the current situation but we would like to have the arbitration question addressed. We would have preferred to have some comment from the select committee in the commentary. 
Bill read a second time. 
GERRY BROWNLEE (National—Ilam) 
: 
 I raise a point of order Mr Speaker. Earlier this morning a very interesting situation arose. There was a point of order from Mr Tremain in relation to the previous bill we were discussing—that being I believe the Customs and Excise Amendment Bill (No 3) which had provisions on tobacco. At the conclusion of the second reading debate on that bill a vote was taken on amendments. The Assistant Speaker Marian Hobbs gave a ruling that the vote was taken at that point to give effect to the select committee’s amendments to the bill. I notice that the select committee I chaired made a number of amendments to this bill but we appear not to have any such motion now. I want to clarify what the difference is between this bill and the Customs and Excise Amendment Bill (No 3) that means we deal with it in a different fashion. 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: Thank you for that Mr Brownlee. I am able to advise you that the requirement for a resolution relates only to amendments agreed to by a majority of the select committee. 
GERRY BROWNLEE 
: Thank you. I learn something every day particularly when you are in the Chair. 
The ASSISTANT SPEAKER (H V Ross Robertson) 
: You certainly do Mr Brownlee. That is very true. 
In Committee 
Part 1Amendments to Companies Act 1993  
GERRY BROWNLEE (National—Ilam) 
: 
 Let us go straight to new section 112A inserted by clause 7 which deals with the issue of arbitration when a price for a share is objected to by a minority shareholder. 
Just so that people are clear I point out that essentially the board of any company will accept a price for a buy-out or the board will choose to shrink the shareholding by buying out some of the smaller shareholders. A price will be struck for the value of those shares. If the shareholders accept that price everything is fine and it goes through with no problem. If the shareholders do not accept it then they have a right to object. The procedure is that the company strikes the price the shareholders have 10 days in which to think about it and if they reply in writing that no they do not accept it the parties go off to arbitration. The question then becomes who pays for the arbitration. 
The interesting thing is that if the cost of arbitration was loaded on to the board then effectively the board would have a gun to its head because it would either pay for the arbitration process or lift the share price. The board would have to make a determination depending on how big its purchase was about what it should do. However I have to say that in most cases the value of the purchase would be far greater than the cost of the legal proceedings surrounding arbitration. By the same token if the cost of the arbitration was to be borne by the minority shareholders then they effectively would have a gun held to their heads because they would have to make a decision about whether they should spend their money on arbitration. In some cases they themselves will be entities and they will have another subset of shareholders with expectations of the shares in the other entity. So the minority shareholders would have to decide whether to take a case to arbitration and wear all the costs in the hope that any increase in the share price would be more than offset—much more than offset—by the gain they made on the share price itself. 
So it is a bit of a catch-22 situation. It almost means that arbitration is not open to minority shareholders. It is not a process that needs to be used by a board. It is my opinion that the weight of authority in the buy-out lies with the board. In fact this bill does exactly the opposite. 
It would be useful to get the opinion of the Minister of Commerce on this matter. It is a relatively fine point. The politics of this House will not rise or fall on this particular issue nor will the positions that people take in terms of whether to support the bill. As the chairman of the Commerce Committee I feel a bit remiss for not picking up on it a bit sooner. I think our enthusiasm to get what effectively amounts to protection for minority shareholders in buy-out situations was so fervent that we did not quite think through just how a provision like this might work. 
It is not too late to fix it. The Committee could insert a small amendment to make it clear where the costs of the arbitration process would fall. I will quote from the intention of the bill as stated at the start of it in the purpose clause so that we are all clear. Well I cannot find it but the purpose is to protect small shareholders from being steamrolled by a much larger entity. I suppose that an amendment bill does not have a purpose clause because its purpose is to amend the main Act. None the less if Parliament’s intention was and is to protect those interests it seems a little ridiculous to have a provision in the bill that immediately can be seen to impugn those interests. The Minister’s view on that would be interesting. I wonder whether we could put in a small provision that split the matter fifty-fifty: if arbitration came out in favour of an increased share price then the cost of the arbitration would be borne by the offering party; and similarly if arbitration came out in favour of the initial price then the cost of the arbitration would be borne by the applicant. I hope the officials are listening because I think it would be far better that an amendment like that were written by officials and introduced by the Minister instead of a scrappy bit of paper being before the Committee. It seems to me that a fifty-fifty deal is not an unreasonable position to have. If one side wins they get the win and if the other side wins they get the win. 
I will leave my comments there. I know that the Chairperson will not be looking to stifle the debate. My colleagues have mentioned a number of things they want to talk about and hopefully the Minister will accumulate the concerns. In fact I do not think there are very many concerns; this matter might be all we want to talk about. I hope the Minister will give us a bit of heads-up as to whether we ourselves need to introduce an amendment. 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I will respond briefly to Gerry Brownlee’s point because I think the member raises it in a genuine spirit of trying to resolve a difficult issue. Obviously when we are talking about mum and dad investors we do not want them to be in a situation where they are taking complicated and expensive court action and arbitration obviously is not the most desired outcome in that regard. However there has to be a mechanism for resolving a dispute when a dispute arises. I think the provision in the bill that actually provides some comfort in this regard is the ability for the arbitrator to award damages. People who are utilising the system unreasonably and putting pressure on a minority shareholder will find the damages that might be awarded against them a much higher discipline than the fear of sharing half the costs if in fact the changes were made. The damages provision could cover all of the cost—and indeed more—to deal with the particular issue. The issue of damages is included under the provisions of what the arbitrator can award. The arbitrator has the power to award damages in those circumstances. 
I want to take this debate away from the mum and dad investors for a minute and to ask members to think about the case where this issue arose— 
Natural Gas Corporation Holdings Ltd v Infratil 1988 Ltd 
. What we are actually talking about—a more likely situation—is a company that was started as a family firm is subject to a takeover the person stays within the company for a period of time further changes occur and that person wants to opt out. So we are not necessarily talking about people who are without means; we are often talking about people with different commercial levels of strength from a legal perspective. I believe that the provisions in the bill that allow for discretion in the awarding of damages and payment of interest will essentially encourage companies and shareholders alike to be realistic about the initial value of the shares. I believe that that will discourage unnecessary delays. 
Dr RICHARD WORTH (National) 
: 
 I will respond to the comments that the Minister of Commerce has made because I think the matter is actually a bit more subtle than the way in which she has put it. The core provisions in Part 1 which National supports are quite clearly the new section 112 and the provisions in new section 112A—both sections are in clause 7—which the Minister and Mr Brownlee have been referring to. 
The scheme of the legislation is very simple. The company gives notice of its offer to a shareholder and the shareholder may accept that offer or may object. In the absence of objection the company must purchase the shares. Then there is the arbitration mechanism which is described in section 112A. 
I think probably two substantive points emerge from what I have said. The first is the point that I made in part in my second reading speech. From the way that section 112(2) was originally drafted the price had to be “an honest estimate of the value”. That has now been changed and appropriately so—and the Commerce Committee comments in its report on why it made that change—to a new test: “a fair and reasonable price”. There were big problems with using the phrase “an honest estimate”. I think there are certainly some problems of a linguistic nature in talking about “fair and reasonable”. What is the actual difference between “fair” on the one hand and “reasonable” on the other hand? There are two subsections that will guide those who have to make a judgment on these issues as to what is “fair and reasonable”. The first is set out in subsection 112(2) and subsection 112(3) allows for a different methodology which can be used if the first methodology is not appropriate. The second methodology is to be used where it would be “clearly unfair” to follow the methodology contained in the previous subsection. 
Comment has been made on this issue of arbitration. There is no doubt about it: these are most generous arbitration provisions which one would not normally strike in a statute. Normally there would simply be something along the line that in the event of a dispute there could be a submission to arbitration and the provisions of the Arbitration Act 1996 would apply. But here we have something quite different and I think much better. 
I think the Minister has correctly identified the most common class of case where there exists the possibility of an injustice being done to a minority shareholder—the founder shareholder who continues in the company then events change and he or she wants to exit the company. The normal rule in an arbitration context is that costs follow the event which means the loser pays. In these particular provisions relating to arbitration we see that that principle is being echoed in a number of ways. For example if we look at section 112A(2) we see that it states: “If the price determined for the shares—(a) exceeds the provisional price paid the arbitral tribunal must order the company to pay the balance owing to the shareholder:”. In that circumstance it would be the shareholder who gained the costs award. In the second circumstance where the price determined for the shares “(b) is less than the provisional price paid the arbitral tribunal must order the shareholder to pay the excess to the company.” it would be the company that received the costs award. But there is the prospect of not only a costs award; the award may include interest. Again we see the reflection of the loser pays in section 112A(3): “Except in exceptional circumstances an arbitral tribunal must award interest on any balance owing or excess to be paid …”. 
The final thing I would say on the question of costs is picked up in subsection 112(7) which imports clause 6 of schedule 2 of the Arbitration Act 1996. If we look at that particular provision we see that it really is nothing more than a code for the “costs and expenses of an arbitration”. But here the term “costs and expenses of an arbitration” is given an extended meaning. Also I have picked up an error in the drafting that has been occasioned by the delay. I am referring to section 112A(7). The term “costs and expenses of an arbitration” in that provision includes “where a balance is owing to the shareholder—(a) the reasonable legal costs of the shareholder on a solicitor-and-client basis;”. Under the Lawyers and Conveyancers Act those concepts have now been changed and that wording should be “on a lawyer-and-client basis” in order to be consistent with the new regime. 
Section 112A(7)(b) states: “the reasonable costs of expert witnesses.” So we see here a bias in the case of the minority shareholder who wins. That shareholder in the context of a costs award can get a little more. It is unusual—very unusual—for costs to be awarded reflecting what used to be called a “solicitor-and-client basis” but is now called a “lawyer-and-client basis”. That is most unusual. It is reasonable that the costs of expert witnesses generally form part of a costs award so that is a change that should be made. 
I have no other comment on Part 1. Part 1 is otherwise I believe well-drafted and strikes an appropriate balance. 
LINDSAY TISCH (National—Piako) 
: 
 The Minister’s explanation as to the costs of arbitration is taken on board and certainly the comments that my colleague Dr Worth mentioned satisfy the question that I had during the second reading of the bill. I thank them for those explanations. 
I have a couple of points to make. The first relates to the date of the valuation of the shares. There certainly was some concern among the submissioners about the trigger date for the valuation of the shares. New section 112(2) set out in clause 7 has been amended from that set out in the original bill to require that the date of the valuing of the shares is at the close of business on the day before the day on which the special resolution is voted on. That is the example in the Canadian Business Corporation Act. We see under new section 112C “Timing of transfer of shares—(1) On the day on which a board gives notice under section 111(2)(e) that the board agrees to the purchase of the shares by the company—(a) the legal title to those shares passes to the company; and (b) the rights of the shareholder in relation to those shares end.” 
When those ownership shares have transferred the question then arises as to when the minority shareholder loses legal and beneficial title to those shares. Once the valuation is done the shares are transferred The ownership of shares gives shareholders three rights currently: to vote to make distribution of the shares and to receive distributions. None of those rights are retained from that time onwards. Sellers no longer have an interest in the company’s future once those decisions have been made and therefore they should not be able to vote. In addition the minority shareholders should not retain the right to obtain distributions. That was clarified within the discussions at the select committee and is identified here. 
Those are the points I wanted to bring forward. I am happy with the Minister’s explanation as to the costs of arbitration and there are no other points that I wish to canvass with her. 
GERRY BROWNLEE (National—Ilam) 
: 
 We have had very rapid discussions on this particular matter. I appreciate the direction that the Minister of Commerce gave us as to how the Arbitration Act itself might work. Also concerning the particular provisions and their interactions with the law as explained by Dr Worth I am now quite satisfied that there is no anomalous position. As it has been explained to me by my colleague Dr Worth the situation is that essentially the loser does pay. It seems to me that that is totally fair in this situation and National members will be able to continue to support the bill. 
I assume that in a minute we will come to the debate on the title. I think there is quite a debate to be had on the title and it would not surprise me if it were overturned and a new name put on the bill. Let us see how it goes. 
The question was put that the amendment set out on Supplementary Order Paper 247 in the name of the Hon Lianne Dalziel to insert new clause 8A be agreed to. 
Amendment agreed to. 
Part 1 as amended agreed to. 
Part 2Transitional provision and consequential amendments to other enactments  
The question was put that the amendment set out on Supplementary Order Paper 247 in the name of the Hon Lianne Dalziel to add new clause 13 be agreed to. 
Amendment agreed to. 
Part 2 as amended agreed to. 
Clause 1  agreed to.  
Clause 2  agreed to.  
Bill reported with amendment. 
Report adopted. 
Third Reading 
Hon LIANNE DALZIEL (Minister of Commerce) 
: 
 I move  
That the Companies (Minority Buy-out Rights) Amendment Bill be now read a third time 
. I have already described the nature of the changes that the bill brings into play. Essentially minority shareholders will be supported in their decision to exit a company if the company structure or operations have changed significantly since the shareholders entered the company but in doing so they will be afforded some protection against financial loss by reason of their decision to leave the company. 
The bill provides more clarity and transparency in determining the price of shares when a company agrees to purchase shares from a dissenting shareholder. This will lead to a reduction of the time and cost involved in resolving disputes arising under the provisions and will reduce the likelihood of cases going to court. There is no need to traverse the detail again but during the Committee stage I tabled a further amendment to the bill by way of a Supplementary Order Paper. This amendment provided that notice of minority buy-out rights must also be sent to shareholders where a special resolution has been passed in lieu of a meeting. 
I would like to take the opportunity to again commend the officials as well as the members of the Commerce Committee for their work on the bill and also to thank all those who made submissions on it. This bill is an example of this Government’s commitment to improve business law in New Zealand. One of the first things we did—and my colleague Paul Swain made this point in his second reading speech—was to introduce a Takeovers Code to provide an internationally accepted standard for protecting minority shareholders in a takeover situation. This latest move shows we are continuing to improve the law to protect minority shareholders and that will give investors greater confidence and will contribute to deepening our capital markets. 
I commend the bill to the House. 
Dr RICHARD WORTH (National) 
: 
 Eight years after a judge highlighted the substantial flaws of the Companies Act in dealing with minority buy-outs and called for an urgent remedy the Government has settled on a solution. Eight years is a long time. Eight years is a long time for an injustice to roll on so it is good that after that passage of time decisive action has been taken that National supports. The National Party has been very actively involved. Its members including the Commerce Committee’s esteemed chairman participated very fully in the committee’s deliberations on this legislation. 
What spurred all this legislation was what happened in a case—as Mr Swain has said—touching Infratil. Infratil was the first minority shareholder to invoke minority buy-out provisions in order to force the Natural Gas Corporation to buy its 6.7 percent stake in the corporation after it opposed the corporation’s $824 million takeover of the energy retailer TransAlta. Infratil was unhappy with the $1.30 provisional price set by the Natural Gas Corporation but after the company sought a declaratory judgment in order to get control of the Infratil shares Infratil was forced to hand over title and the price was later set at $1.68 after protracted arbitration. At that time Justice Doogue who was the trial judge in connection with the litigation criticised the statutory vacuum and said that the relevant section of the Act was “substantially flawed”—that was the phrase he used—and should be considered urgently. 
A number of issues emerged from that case and we have discussed them in the course of these parliamentary processes. There were issues around timing around valuation information and transaction enforcement and also around compensation. Either the Act was short on detail or alternatively the issue was missing from the Act. So it is right to say that the Law Commission reached a proper view in concluding that the bones of the law needed some flesh and that is what we are seeing today. National commends the bill. We look forward to its further passage by way of the Royal assent. 
I note one thing of perhaps passing interest and that is that the commencement clause provides that “This Act comes into force on the day after the date on which it receives the Royal assent.” If I look at the other bills that are on the Table and being dealt with in urgency I note that the Electricity Industry Reform Amendment Bill comes into force on the 28th day after the date on which it receives the Royal assent and the Family Courts Matters Bill comes into force on a date to be appointed by the Governor-General by Order in Council. It seems to be very much a preference of individual parliamentary counsel as to what may or may not be an appropriate commencement date. Surely there is a case for a greater element of consistency on the issue of when legislation is to strike New Zealanders and affect them. 
Hon PAUL SWAIN (Labour—Rimutaka) 
: 
 Mr Deputy Speaker— 
Gerry Brownlee 
: Oh no! Come on! He doesn’t know anything. 
Hon PAUL SWAIN 
: Gerry Brownlee must be getting tired. He is usually a very calm and mild-mannered man. But here he is on Friday getting a bit agitated and grumpy. There is not long to go now.  
The previous speaker Dr Richard Worth made a good contribution on the Companies (Minority Buy-out Rights) Amendment Bill. He started by introducing a bit of politics into the debate so I must respond to that. The Minister of Commerce has said publicly and rightly so—and I agree with her because I used to be the Minister of Commerce—that in 1999 the Labour-led Government inherited a regulatory wasteland. The member has the effrontery to criticise us for taking 8 years to sort this issue out. We have had a massive agenda a massive programme of doing things in order to get back to protecting some of the rights of people which this bill looks to do. 
Dr Richard Worth 
: There is no excuse for perpetuating an injustice though—no excuse. 
Hon PAUL SWAIN 
: The member says there is no excuse for it. We had to start from scratch. There has not been sufficient time to do it all. That is why we need another 3 years and then another 3 years as undoubtedly will happen.  
But I digress. This is good legislation. It is designed to help those shareholders who want to buy out when an action is taken that they do not agree with. If the share price that is set is not agreed to by the minority share owner then there is the ability to get arbitration and some resolution on the issue of the value of the shares. This is good legislation and it will progress because of that and because of the good work that the Commerce Committee did when studying the bill. 
GERRY BROWNLEE (National—Ilam) 
: 
 The member who has just resumed his seat Paul Swain probably should not have highlighted the fact that he was the Minister of Commerce in the Labour Government for a very long time. It has not escaped the attention of those of us on the Opposition side of the House that it is only in very very recent times that a new Minister of Commerce the Hon Lianne Dalziel has very rapidly picked up off the desk the piles of unattended work of the previous Minister and rattled it into some shape that the House has been able to deal with.  
I know that the previous Minister is now touting his credentials around the business community as he contemplates a career beyond this particular Chamber. I find it a little strange that he makes speeches in the House that totally contradict some of the outrageous claims he makes in his CV. As a recipient of that CV I have been incredibly impressed by the writings in it. He is unable of course to line up the events as described in the CV with the actual events inside the House. But none the less this afternoon I will not destroy the claims of extraordinary leadership in the commerce field made by the previous Minister.  
It probably would have been better for Paul Swain to say that a previous Minister had slaved over the matters included in the Companies (Minority Buy-out Rights) Amendment Bill for some 6 years and then handed the current Minister on a plate the opportunity to take the glory as the tape came up. He could have likened it perhaps to a pursuit cycle race where he was the guy who went out to the front and made all the running but who in the end had to hope that the Olympic Committee would give him a fifth bronze medal. The bill is definitely a bronze medal effort from the current Government as far as attention to commercial law in this country is concerned.  
I think we have gone through the exercise on this bill quite diligently in the Commerce Committee with the full cooperation of all members there. The previous Minister was particularly helpful in that matter particularly during his more wakeful moments. There were not very many of those but when they occurred they were most useful to the committee in its deliberations. 
Dr Richard Worth 
: They were very fleeting though. 
GERRY BROWNLEE 
: His ability to direct us albeit fleetingly as my colleague behind me says in a particular direction was very much appreciated.  
Quite seriously this bill talks about minority buy-out rights. The bill ensures that minority shareholders have a right to sell their shares in circumstances where the shape of the company they originally invested in has changed by virtue of a takeover or a buy-out. This legislation represents one of the many bills that go through the House every year where a lot of good work has been done by members of Parliament on all sides of the House. We continue to support the bill through this reading. 
LINDSAY TISCH (National—Piako) 
: 
 Following on from my colleagues Gerry Brownlee and Richard Worth I say that the debate on the Companies (Minority Buy-out Rights) Amendment Bill has been very interesting. During the Commerce Committee hearings a lot of information came out. As I said in my previous speech the genesis of the bill came from the court case heard back in 2000. A Law Commission report came out following that recommending that these changes be made. We welcome the clarification that the bill brings to these difficult issues. We need to make sure that in company buy-outs the rights of minority shareholders are protected and this bill addresses that. So we welcome the clarification provided by this bill. We support the reasonably simple approach taken in it. This legislation does protect those who disagree with substantial changes being made to a business entity right at the start of a new entity coming together. Having made those points I say National is very happy to support the bill. 
Debate interrupted.