Brownlee Gerry: Companies (Minority Buy-out Rights) Amendment Bill — Second Reading In Committee Third Reading 
Text is incorporated into the Bound Volume 
Brownlee Gerry: Companies (Minority Buy-out Rights) Amendment Bill — Second Reading In Committee Third Reading 
[Sitting date: 02 September 2008. Volume:649;Page:18530. Text is incorporated into the Bound Volume.] 
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.