Alterations to Takeovers Code wording suggested
The New Zealand Law Society’s Commercial and Business Law Committee says it generally supports solutions suggested by the Takeovers Panel for addressing problems identified with the Takeovers Code.
However, the committee has suggested a number of the solutions could be improved by adopting alternative wording. In comments sent to the Takeovers Panel on the Panel’s consultation paper, The Code and Hostile Takeovers, the Law Society’s committee says one proposed new rule prohibits conditions that restrict the target company from carrying out activities in the ordinary course of its business.
“By contrast, the committee prefers an alternative approach that would prohibit an offeror from invoking a condition in circumstances where the condition has not been satisfied merely because the target company has carried out activities in the ordinary course of its business,” it says. The committee says it prefers this alternative approach because, if adopted, any doubt about the legitimacy of a condition under the new rule will only need to be tested if an offeror seeks to invoke the condition. As currently drafted, the rule would enable a target company to challenge the validity of a condition – and therefore the entire offer – when it was unknown whether the offeror wanted to invoke the condition or not.
“This presents the risk of a strategic challenge to the legitimacy of a condition as a means to delay or defeat an offer,” the committee’s comments state. The committee says it also believes the most appropriate time to assess the validity of a condition against a measure of “ordinary course of business” is at the time the offeror seeks to invoke it, rather than at the time it is stipulated. An alternative way of drafting the wording for the new rule is suggested.