Fletcher makes case for 50pc sale approval

By PAM GRAHAM

Fletcher Challenge Forests contended in court on Friday that it was not selling its forests - its subsidiary companies were.

If that argument is accepted, the sale agreement for the company's huge forest estate, expected at any time, will require approval by 50 per cent of shareholders in an ordinary resolution, rather than 75 per cent in a special resolution.

The Campbell Group has offered $685 million for the forests, and Kiwi Forests Group has said it would top that offer with a $725 million bid.

The Auckland High Court was updated on the sale progress on Friday, but Justice Peter Salmon ordered the press not to report on that issue, or even take notes.

In a letter to shareholders on November 21, the company promised an update at the December 19 annual meeting. It was aiming to sell the forests by the end of this year, but the sale will now go to a special meeting in the new year.

The Shareholders Association wants the 75 per cent hurdle because, in the case of major transactions, shareholders can seek remedies, such as requiring companies to buy back their shares.

Ralph Simpson, of Bell Gully, representing Fletcher Challenge Forests, said if the company held a 75 per cent vote, a majority of shareholders could have a legitimate complaint if the sale was not approved.

A central argument was whether the words "a company" in the section of the Companies Act that dealt with major transactions meant an individual company or a group.

It was only appropriate for courts to tear away the corporate veil, or look through corporate structures, when there was a fraud or a legislative license to do so.

Fletcher Forests had not transferred assets to subsidiaries to avoid the law.

The case turned on whether Section 129 of the Companies Act dealing with major transactions applied or not because stock exchange listing rules and the company's constitution required an ordinary resolution, with a 50 per cent vote, unless Section 129 applied.

Colin Carruthers, QC, was employed to put the contrary case. He argued that "company" meant group and that Law Commission reports feeding into the development of the law shed light on its intended purpose. The reports said shareholders should not find that massive transactions had transformed a company without warning.