Companies (Minority Buy-out Rights) Amendment Bill

I move, That the Companies (Minority Buy-out Rights) Amendment Bill be now read a third time. I have already described the nature of the changes that the bill brings into play. Essentially, minority shareholders will be supported in their decision to exit a company if the company structure or operations have changed significantly since the shareholders entered the company, but in doing so they will be afforded some protection against financial loss by reason of their decision to leave the company.

The bill provides more clarity and transparency in determining the price of shares when a company agrees to purchase shares from a dissenting shareholder. This will lead to a reduction of the time and cost involved in resolving disputes arising under the provisions, and will reduce the likelihood of cases going to court. There is no need to traverse the detail again, but during the Committee stage I tabled a further amendment to the bill by way of a Supplementary Order Paper. This amendment provided that notice of minority buy-out rights must also be sent to shareholders where a special resolution has been passed in lieu of a meeting.

I would like to take the opportunity to again commend the officials, as well as the members of the Commerce Committee, for their work on the bill, and also to thank all those who made submissions on it. This bill is an example of this Government’s commitment to improve business law in New Zealand. One of the first things we did—and my colleague Paul Swain made this point in his second reading speech—was to introduce a Takeovers Code to provide an internationally accepted standard for protecting minority shareholders in a takeover situation. This latest move shows we are continuing to improve the law to protect minority shareholders, and that will give investors greater confidence and will contribute to deepening our capital markets.

I commend the bill to the House.

Eight years after a judge highlighted the substantial flaws of the Companies Act in dealing with minority buy-outs and called for an urgent remedy, the Government has settled on a solution. Eight years is a long time. Eight years is a long time for an injustice to roll on, so it is good that, after that passage of time, decisive action has been taken that National supports. The National Party has been very actively involved. Its members, including the Commerce Committee’s esteemed chairman, participated very fully in the committee’s deliberations on this legislation.

What spurred all this legislation was what happened in a case—as Mr Swain has said—touching Infratil. Infratil was the first minority shareholder to invoke minority buy-out provisions, in order to force the Natural Gas Corporation to buy its 6.7 percent stake in the corporation, after it opposed the corporation’s $824 million takeover of the energy retailer TransAlta. Infratil was unhappy with the $1.30 provisional price set by the Natural Gas Corporation, but after the company sought a declaratory judgment in order to get control of the Infratil shares, Infratil was forced to hand over title, and the price was later set at $1.68 after protracted arbitration. At that time Justice Doogue, who was the trial judge in connection with the litigation, criticised the statutory vacuum and said that the relevant section of the Act was “substantially flawed”—that was the phrase he used—and should be considered urgently.

A number of issues emerged from that case, and we have discussed them in the course of these parliamentary processes. There were issues around timing, around valuation information and transaction enforcement, and also around compensation. Either the Act was short on detail or, alternatively, the issue was missing from the Act. So it is right to say that the Law Commission reached a proper view in concluding that the bones of the law needed some flesh, and that is what we are seeing today. National commends the bill. We look forward to its further passage by way of the Royal assent.

I note one thing of perhaps passing interest, and that is that the commencement clause provides that “This Act comes into force on the day after the date on which it receives the Royal assent.” If I look at the other bills that are on the Table and being dealt with in urgency, I note that the Electricity Industry Reform Amendment Bill comes into force on the 28th day after the date on which it receives the Royal assent, and the Family Courts Matters Bill comes into force on a date to be appointed by the Governor-General by Order in Council. It seems to be very much a preference of individual parliamentary counsel as to what may or may not be an appropriate commencement date. Surely there is a case for a greater element of consistency on the issue of when legislation is to strike New Zealanders and affect them.

Mr Deputy Speaker—

💬 Gerry Brownlee: Oh no! Come on! He doesn’t know anything.

Gerry Brownlee must be getting tired. He is usually a very calm and mild-mannered man. But here he is on Friday getting a bit agitated and grumpy. There is not long to go now.

The previous speaker, Dr Richard Worth, made a good contribution on the Companies (Minority Buy-out Rights) Amendment Bill. He started by introducing a bit of politics into the debate, so I must respond to that. The Minister of Commerce has said publicly, and rightly so—and I agree with her, because I used to be the Minister of Commerce—that in 1999 the Labour-led Government inherited a regulatory wasteland. The member has the effrontery to criticise us for taking 8 years to sort this issue out. We have had a massive agenda, a massive programme, of doing things in order to get back to protecting some of the rights of people, which this bill looks to do.

💬 Dr Richard Worth: There is no excuse for perpetuating an injustice, though—no excuse.

The member says there is no excuse for it. We had to start from scratch. There has not been sufficient time to do it all. That is why we need another 3 years and then another 3 years, as undoubtedly will happen.

But I digress. This is good legislation. It is designed to help those shareholders who want to buy out when an action is taken that they do not agree with. If the share price that is set is not agreed to by the minority share owner, then there is the ability to get arbitration and some resolution on the issue of the value of the shares. This is good legislation, and it will progress because of that and because of the good work that the Commerce Committee did when studying the bill.

The member who has just resumed his seat, Paul Swain, probably should not have highlighted the fact that he was the Minister of Commerce in the Labour Government for a very long time. It has not escaped the attention of those of us on the Opposition side of the House that it is only in very, very recent times that a new Minister of Commerce, the Hon Lianne Dalziel, has very rapidly picked up off the desk the piles of unattended work of the previous Minister and rattled it into some shape that the House has been able to deal with.

I know that the previous Minister is now touting his credentials around the business community, as he contemplates a career beyond this particular Chamber. I find it a little strange that he makes speeches in the House that totally contradict some of the outrageous claims he makes in his CV. As a recipient of that CV, I have been incredibly impressed by the writings in it. He is unable, of course, to line up the events as described in the CV with the actual events inside the House. But, none the less, this afternoon I will not destroy the claims of extraordinary leadership in the commerce field made by the previous Minister.

It probably would have been better for Paul Swain to say that a previous Minister had slaved over the matters included in the Companies (Minority Buy-out Rights) Amendment Bill for some 6 years and then handed the current Minister, on a plate, the opportunity to take the glory as the tape came up. He could have likened it, perhaps, to a pursuit cycle race, where he was the guy who went out to the front and made all the running, but who in the end had to hope that the Olympic Committee would give him a fifth bronze medal. The bill is definitely a bronze medal effort from the current Government as far as attention to commercial law in this country is concerned.

I think we have gone through the exercise on this bill quite diligently in the Commerce Committee, with the full cooperation of all members there. The previous Minister was particularly helpful in that matter, particularly during his more wakeful moments. There were not very many of those, but when they occurred they were most useful to the committee in its deliberations.

💬 Dr Richard Worth: They were very fleeting, though.

His ability to direct us, albeit fleetingly, as my colleague behind me says, in a particular direction was very much appreciated.

Quite seriously, this bill talks about minority buy-out rights. The bill ensures that minority shareholders have a right to sell their shares in circumstances where the shape of the company they originally invested in has changed by virtue of a takeover or a buy-out. This legislation represents one of the many bills that go through the House every year where a lot of good work has been done by members of Parliament on all sides of the House. We continue to support the bill through this reading.

Following on from my colleagues Gerry Brownlee and Richard Worth, I say that the debate on the Companies (Minority Buy-out Rights) Amendment Bill has been very interesting. During the Commerce Committee hearings a lot of information came out. As I said in my previous speech, the genesis of the bill came from the court case heard back in 2000. A Law Commission report came out following that, recommending that these changes be made. We welcome the clarification that the bill brings to these difficult issues. We need to make sure that in company buy-outs the rights of minority shareholders are protected, and this bill addresses that. So we welcome the clarification provided by this bill. We support the reasonably simple approach taken in it. This legislation does protect those who disagree with substantial changes being made to a business entity, right at the start of a new entity coming together. Having made those points, I say National is very happy to support the bill.

Debate interrupted.