NZ OIL & GAS LTD [2017] NZHC 810

NZ OIL & GAS LTD [2017] NZHC 810 [27 April 2017]IN THE HIGH COURT OF NEW ZEALANDWELLINGTON REGISTRYCIV 2017-485-135[2017] NZHC 810IN THE MATTER of Part 15 of the Companies Act 1993ANDIN THE MATTER of an application by NEW ZEALANDOIL & GAS LIMITED for ordersapproving an arrangement under Part 15 ofthe Companies Act 1993Hearing: On PapersCounsel: J Shackleton and S J Fairbrother for ApplicantsJudgment: 27 April 2017JUDGMENT OF SIMON FRANCE J[1] In January 2017, New Zealand Oil and Gas Limited (NZOG) sold its interest in the Kupe gas and oil fields. It consequently considers it now has excess capital which it intends to return to shareholders. The preferred method is to cancel half of the ordinary shares with an associated cash payment to shareholders.Orders sought[2] NZOG applies under s 236 of the Companies Act 1993 for approval of the arrangement it proposes for the return of the capital, and for orders that the arrangement is binding on NZOG and its shareholders. The text of the orders sought provides a convenient summary of the proposed arrangement:(a) that the scheme of arrangement between NZOG and its shareholders for the return of capital (Arrangement) is approved;(b) that the Arrangement is binding upon NZOG, all its shareholders, and all such other persons as are necessary, with (amongst other things) the effect that:(i) one out of every two Ordinary Shares (as defined in the Arrangement) in NZOG registered in the name of each shareholder at 5.00 pm on the Record Date (as defined in the Arrangement), will be cancelled, together with all rights attaching to those shares;(ii) within 5 business days after the Record Date (as defined in the Arrangement), NZOG will pay to each shareholder NZD$0.62724388 multiplied by the number of Ordinary Shares registered in the name of the shareholder that have been cancelled in accordance with paragraph 1(b)(i) above, rounded to the nearest whole cent;(iii) NZOG will not take any action in respect of any fractional calculation or entitlement and any one share in remainder will continue to be held;(iv) no Part-Paid Shares (as defined in the Arrangement) will participate in the return of capital; and(v) the original terms of issue of each Part-Paid Share will not change.Process[3] The process to be followed to obtain shareholder consent to the Arrangement was the subject of orders made by this Court (initial Orders).1 The evidence now filed satisfies me that that process was followed. It is unnecessary to here repeat the detail but rather it is preferable to summarise and update.1 Re New Zealand Oil and Gas Ltd [2017] NZHC 501.[4] A shareholder meeting was advertised in accordance with the initial Orders and was held on 12 April 2017. NZOG had been notified of a competing shareholder motion which proposed that the money be retained and used to drill further wells in a nominated area. That motion was introduced at the meeting, and discussion was invited on both the shareholder motion and the Arrangement. The shareholder motion was not passed.[5] Concerning the Arrangement, the following voting results were achieved:(a) Ordinary Shares – 99.16 per cent of those voting supported the arrangement. The number voting represented 63.31 per cent of the total shareholding;(b) Part-Paid Shares – 87.27 per cent of those voting supported the arrangement. The number voting represented 94.33 per cent of the total Part-Paid shareholding.[6] Other matters that update the situation are:(a) prior to the shareholder meeting NZX had given its final approval to the informational materials being provided to the shareholders;(b) on the day of the meeting the directors of NZOG issued a solvency certificate confirming their belief that NZOG would continue to be solvent if the Arrangement were implemented;(c) on 13 April 2017 the Commissioner of Inland Revenue issued a binding ruling confirming that the return of capital under the Arrangement (if certain conditions were met) would not be treated as a payment in lieu of a dividend for the purpose of the Income Tax Act 2007;(d) on 19 April 2017 the Takeovers Panel issue a final No Objection Statement in regards to the Arrangement.Decision[7] Recently in Re Nuplex Industries, Katz J summarised the relevant considerations:2[10] The four-part test to be applied by the Court when deciding whether or not to exercise its discretion to approve a scheme under s 236 of the Act is well-established and was articulated in Re CM Banks Ltd as follows:(a) there has been compliance with the statutory provisions as to meetings, resolutions, the application to the Court, and the like;(b) the scheme has been fairly put to the class or classes concerned, and that if a circular or circulars have been sent out, as is usual, whether before or after the making of the application to the Court, they give all the information reasonably necessary to enable the recipients to judge and vote upon the proposals;(c) the class was fairly represented by those who attended the meeting and that the statutory majority are acting bona fide and are not coercing the minority in order to promote interests adverse to those of the class whom they purport to represent; and(d) the arrangement was such that an intelligent and honest person of business, a member of the class concerned, and acting in respect of his or her interest, might reasonably approve it.[11] As most recently observed in Re Auckland International Airport andRe ACS (NZ) Ltd, the Court also needs to consider, with respect to the fourth limb of the Re CM Banks test, whether the proposed arrangement is generally fair and equitable. This is because, particularly where there are competing interests, it is implicit in the test of intelligent and honest business person that a proposed scheme is also fair and equitable.[8] I consider each limb of this test in turn.Issue one – compliance with the relevant statutory provisions[9] The meeting was conducted in accordance with the Initial Orders. A competing shareholder motion was put to the meeting, added to the discussion, and voted on. The distribution of materials to shareholders prior to the meeting was in my view as comprehensive and successful as could be expected:2 Re Nuplex Industries [2016] NZHC 1677 at [10]–[11], footnotes omitted.(a) of the mailout, 351 packages were returned undelivered. Because of uncertainty of addresses, it is considered doubts may exist about whether 1,278 shareholders, out of a total of 11,597, received their mailout;(b) the material was posted on NZOG website. Further, because NZOG made an announcement to NZX, the material was also posted on the NZX website. There has also been considerable media coverage at various times.[10] The votes cast represent about two-thirds of all possible votes which is a reasonable percentage.[11] The votes in favour both satisfy the statutory requirements and reflect overwhelming shareholder support for the Arrangement.[12] I am satisfied the process has been correct and in accordance with the requirements.Issue two – has the Arrangement been fairly put?[13] The Arrangement is not a complex one, and I am satisfied the materials that were mailed out, and posted on websites, fairly set out the proposal and the consequences if the Arrangement was adopted or not adopted.Issue three – does the vote reflect an appropriate representation of an affected persons, who voted in a bona fide manner?[14] I am satisfied no issue arises here. The nature of the Arrangement being the return of capital to shareholders lessens any concerns here.[15] NZOG has two types of shares – Ordinary Shares, and Part-Paid Shares. It is only the Ordinary Shares that are the subject of the Arrangement and the effect of cancelling the Ordinary Shares but not Part-Paid Shares will be to alter the ratio between them. The effect, however, is not as dramatic as might appear as Part-Paidshares only carry fractional voting rights. Nevertheless, the two separate classes were identified. The statutorily required approval level applies to each class.[16] The high support in both classes for the Arrangement removes concern about oppression. Further, no shareholder has indicated that the granting of final orders will be opposed.Issue four – is the scheme one an intelligent honest person of business might reasonably approve?[17] The surplus arose as a result of the sale of NZOG's interest in the Kupefields. That sale was itself the subject of a shareholder vote, with 87 per cent supporting the sale. At the time of the sale a consequent return of capital to shareholders was proposed.[18] In the present case there is no reason for the Court to go behind the high levels of endorsement from shareholders as reflected in the votes.3 The evidence indicates the company will remain in a sound position, and creditors will not be affected. Such other steps as are required have been obtained.[19] I am satisfied this requirement is met. The Arrangement is fair and equitable. I see no need for anyone to be heard further on the application given the processes that have already occurred.Conclusion[20] The orders sought as set out in para [2] are made. The Arrangement that is approved is appended as A.____________________________Simon France J3 Re Trustpower Ltd [2016] NZHC 2499 at [18].