Company reconstructions using the court supervised Part 15 procedure risk legal challenges if there is a failure to fully disclose details of who is affected, the Supreme Court warns.
The 2005 merger of Wrightson with Pyne Gould Guiness reached the Supreme Court when Elders New Zealand argued that the merger triggered its right to take full ownership of 13 stock saleyards. Control of saleyards is valuable as they can represent a local monopoly over stock sales.
The court was told Wrightson and Elders jointly owned the yards, with each side having rights of pre-emption: a right of first refusal should either joint owner wish to sell. Elders argued the merger with Pyne Gould Guiness operated like a sale and triggered its right of first refusal.
The case centred on the legal interpretation of reconstruction rules in the Companies Act 1993. The Part 15 procedure requires a court application; procedures using Parts 13 or 14 do not. Legal advisers have choices: what can be achieved under Parts 13 and 14 can also be achieved under Part 15. The Part 15 procedure is far more costly.
Wrightson’s merger in 2005 used the Part 15 procedure, though a Part 13 reconstruction was a possibility.
Elders agreed that a Part 13 merger would not trigger its rights of pre-emption, but argued that the Part 15 procedure is fundamentally different and did trigger these rights.
The Court ruled that while the procedures were different, the effect was the same and that Elders could not enforce its right of pre-emption.
But Part 15 does not require a compulsory disclosure to major investors of the proposed reconstruction, unlike Part 13. It is for lawyers putting the Part 15 procedure in place to ensure that there is provision for proper disclosure to affected investors.
The Court warned that any failure to make proper disclosures could mean a subsequent reconstruction or merger is challenged and overturned.
There was no question of any lack of disclosure in this case as the Court ruled Elder’s rights of pre-emption continued after the merger, while not being triggered by the merger.
Elders v. PGG Wrightson – Supreme Court (5.12.08)
01.09.001