Wong Pansy: Companies (Minority Buy-out Rights) Amendment Bill — First Reading 
Wong Pansy: Companies (Minority Buy-out Rights) Amendment Bill — First Reading 
[Volume:644;Page:13924] 
PANSY WONG (National) 
: 
 It is a pleasure to take a call on this bill. Personally I am supporting this bill to the Commerce Committee only because of the brilliant chairmanship of Mr Gerry Brownlee. I have confidence only in him and because he is supported by our brilliant Simon Power the legal brain. I think this bill has to go through a close scrutiny. I point out that it is no wonder the Hon Paul Swain who was previously the Minister of Commerce did not bring any changes to the minority buy-out section because from the content of his speech we are quite sure he was not sure what was being proposed and the way it was going to change.  
First of all I would like to tackle two issues. One is the technical valuation of the shares. I contrast the statement that this bill is going to give a practical and constructive method for the valuation of the shares for a company upon request by the minority shareholder that wants its shares to be purchased by the company. Under the Companies Act 1993 upon receiving that notice the directors would have to nominate a fair and reasonable price for the shares to be acquired. But in the proposed changes the bill says that that price must be an honest estimate of the value on the day etc. I hope the excellent chairman Gerry Brownlee during the select committee deliberations will ask the officials to provide some evidence of dishonest estimates that have been proven to have happened in regard to all these minority shares bought out throughout this period without these amendments.  
We all know that lawyers love to spend time challenging and debating a new word or new phrase whenever they have been introduced into legislation. I am sure every commercial lawyer in the country is now sharpening his or her pencil and starting to interpret what the politicians who are trying to pass the first reading of this important bill mean. This bill is part of the urgency motion. They must have meant something given that in the present Act all it says is that the director has to give an estimate of the fair valuation of the shares but now we are inserting a clause stating that the price must be an honest estimate. How does one define “honest”? Should the directors immediately go external seeking an independent estimate of that? Have the directors up until now or before the bill is to be passed demonstrated that they have not been giving an honest estimate of the value?  
It seems to me that apart from this word “honest” the bill also specifies a couple of days regarding when the valuation has to be given; it specifies some parameters and says that first of all we have to ascertain the value of the total shares in each class and then each class will be adjusted to exclude some fluctuation before and after the event.  
I personally think that these three additional amendments that have been brought into this new bill will not give much direction to the valuation of the shares to be bought out from those minority shareholders. I am looking forward to the diligent National members on the Commerce Committee getting a detailed briefing from the officials and asking for an explanation step by step of how that would actually help the practical and efficient way of valuing shares.” As one of the three qualified accountants in the House I have long been resigned to the fact that the valuation of shares is really an art and not a science. We could go outside and get a valuation of what they call a “going concern” selling the business if it is to continue or we can get a replacement value or historical value which nobody believes is fair. Therefore I hardly believe that what is contained in the new bill will achieve that workability and efficiency etc. As I say the only saving grace is that the bill is being referred to the Commerce Committee which happens to be chaired by the brilliant Gerry Brownlee. The members on the National side I am sure will ask those hard questions.  
The other subject I want to touch on is that of minority buy-outs. Quite interestingly in the case of a public company situation or even a medium-sized company nowadays I really wonder at the meaning of the word “minority”. A 10 percent shareholder in a public company can be a cornerstone shareholder and in effect one would hardly describe that person as a minority shareholder. He or she probably has as a representative one or two of the board members. So I want to know whether in those circumstances those board members would excuse themselves or whether they are collectively still able to come up with what we would call an honest estimate.  
When we think of a minority shareholder in the traditional sense we think about shareholders who are helpless and may be subject to the tyranny of large-parcel shareholders. But in the current day minority shareholders themselves can be quite influential and substantial shareholders who may not agree or indeed may even stand up to the other shareholders who are actually true minority shareholders because of the small parcels of shares they hold.  
This bill in my mind has not quite addressed or really come up to the play with the modern scenario of what a minority shareholder can be. What I am alluding to is that I do not believe there is a practical framework to work out the value of shares. If we consider the current definition of a minority shareholder we see that the shareholder can actually be quite substantial in a company and invariably that situation will lead to litigation. It will also lead to arbitration.  
So as we look at this bill we are not sure that in fact it will bring efficiency or effectiveness. The reason is that Parliament tends to be quite slow. We tend to be reactive as was demonstrated by the former Minister of Commerce Paul Swain. He acknowledged there was a problem with minority shareholders’ buy-out rights 8 years ago and what did Labour do? The outgoing dying Labour Government has introduced 8 years later under urgency a solution to fix it. That solution might have been fine 8 years ago but 8 years later things have moved on. Therefore the solution here really will not in my mind contribute to a lot of difference. Ultimately if it is a lot easier for a listed company to look at the valuation of the shares—and I thought that might be one of the practical suggestions to save on litigation etc.—I wonder whether the select committee can look into the practical suggestion of having an independent valuation triggered early on in the piece rather than having the board of directors going away and trying to interpret how and in what circumstances they can prove to others that they have given an honest estimate of the value of those shares. Maybe they should just agree on a framework as to how they can appoint an independent valuer for those shares. I have lots of doubts and my only confidence is in the supreme chairmanship of the committee.