The High Court was called to unravel attempts by shareholders to game a ‘Texas shoot out’ clause triggered in a shareholder dispute over repayment of loans to their joint venture company.
John and Heather Lamers joined with Alan and Diana Hawkins in their 2004 purchase of a Canterbury cheese making business: Karikaas Natural Dairy. The Lamers hold a sixty per cent stake; the Hawkins forty per cent.
The High Court was told the Lamers provided working capital for the business over time by way of various shareholder loans currently standing at some $656,000. They want their money out.
An early step was formal notice by the Hawkins that their joint venture business relationship with the Lamers was to end unless terms of repayment were resolved. The Hawkins claim shareholder advances are not to be repaid if this raises a liquidity issue; these loans are ‘locked in.’
Their formal notice in turn triggered provisions in Karikaas’ joint venture business agreement requiring one party or the other to assume full ownership of Karikaas, provisions described in legal circles as a ‘Texas shoot out.’
As the name suggests, a Texas shoot out requires each shareholder to separately submit a sealed bid stating the price offered to buy the other’s shares. The sealed bids are simultaneously revealed, with the higher bidder required to buy out the other at the bid price.
The High Court was told the Hawkins bid a price of one dollar (stating that this bid was a ‘reserve price’); the Lamers bid stated ‘no bid.’ The High Court was asked to rule what was the legal effect of these two apparently non-binding bids.
Associate judge Lester required the Hawkins to confirm within 48 hours whether their one dollar bid stood as a genuine bid.
If so, the Hawkins assumed full ownership of Karikaas for one dollar and terms of the joint venture agreement required all Lamers’ loans to be repaid in twelve months.
If not, the Lamers could immediately take steps to force Karikaas into liquidation for non-payment of their shareholder advances.
Karikaas Natural Dairy Products Holdings Ltd v. Arundel Farm Holdings Ltd – High Court (14.12.23)
24.031