27 May 2024

Burger Fuel: Burger Fuel Group v. Mason Trustee

 

An unsuccessful challenge by Burger Fuel founder Chris Mason to the listed company’s return of four million dollars to shareholders was dressed up as a failure to comply with Companies Act rules for schemes of arrangement, but was at heart a rant against a depressed share price and current management’s performance.

While pressing the High Court to refuse on legal grounds a proposed return of capital at 27 cents per share, Mr Mason was willing to shut up and go away if paid 53 cents per share.

He was the driving force behind Burger Fuel’s growth, from its 1995 New Zealand start to world-wide expansion.  It was hiccoughs with its US expansion that saw Mr Mason and Burger Fuel part company in 2018.

Current management’s recent proposal to return cash to shareholders earned his ire, with Burger Fuel explaining the cash return followed its withdrawal from the US market.

Mr Mason says the cash return will damage shareholder value: reducing the company’s capital base; limiting potential future business investment.

The company proposed a pro-rata cancellation of existing shares, cancelling thirty per cent of shares held by each shareholder, with 27 cents paid for each share cancelled.

The price per share was calculated as the volume-weighted average Burger Fuel share price for the eleven month period starting one month prior Burger Fuel’s announcement in October 2023 of its proposed cash return.

Burger Fuel CEO Josef Roberts controls 66 per cent of Burger Fuel; former CEO Chris Mason, five per cent.

Mr Mason complained that the deal was in part a plan by Mr Roberts to privatise Burger Fuel.  This complaint made no sense to corporate finance specialists; a pro rata share cancellation does not change shareholder proportionate voting strengths.

The lion’s share of the proposed four million cash return goes to current CEO Mr Roberts, giving him a sizeable war chest of some $2.64 million.

Burger Fuel’s cash return was achieved through a Companies Act Part 15 scheme of arrangement.  Part 15 schemes require support from 75 per cent of affected investors plus High Court approval to ensure the scheme is properly explained to investors prior to the vote and that the scheme is such that an ‘intelligent and honest person of business’ might approve.      

Of shareholders voting, 92 per cent voted in favour.

Burger Fuel management say a Part 15 scheme is the most tax efficient way to return cash to shareholders.

When the scheme came before Justice Andrew for approval, both Mr Mason and the NZ Shareholders’ Association criticised the paucity of information provided to investors in advance of the Part 15 meeting.  It was their intervention that had forced Burger Fuel to belatedly make public the fact of shareholders’ Companies Act rights to challenge any successful vote.

Mr Mason said court approval should be refused because Burger Fuel management failed to disclose what alternative business opportunities were open to the company, rather than simply returning cash to shareholders.

Mr Mason’s primary complaint that Mr Roberts was angling to take Burger Fuel private was of no direct relevance to court consideration of a Part 15 scheme, Justice Andrew said.

While the proposed scheme was not fairly put to shareholders and there were deficiencies in the information provided prior to the vote, more fulsome information would not likely have changed the outcome, he ruled.

The cash return and corresponding pro-rata share cancellation were given court approval.

Burger Fuel Group Ltd v. Mason Trustee Ltd – High Court (27.05.24)

24.139