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The Takeovers Panel has won new powers to scrutinise controversial mergers once outside its scope.
The Court of Appeal has confirmed that the takeovers watchdog has a right to be heard during court proceedings to approve mergers conducted by shareholder vote rather than through an on-market offer for shares.
The ruling sets another hurdle for the mergers, which have faced trenchant investor criticism this year since Australia's Transpacific Industries took control of New Zealand sharemarket star Waste Management.
Many investors said this deal, effected by a shareholder vote requiring only 75 per cent support, unfairly diluted investor protection. Under the Takeovers Code, companies can compulsorily acquire outstanding shares only if they hold 90 per cent or more of their target.
Takeovers Panel chairman John King said the Appeal Court had indicated it would take a dim view of any merger designed to avoid the code.
"We have standing, and that means for schemes of arrangement companies should be talking to the Takeovers Panel at an early date."
But King conceded that the ruling would not have blocked the Transpacific-Waste Management deal as that did not require court sanction.
Stephen Franks, former Act MP and now consultant to law firm Chapman Tripp, said the ruling was only a partial victory for the panel because the court had rejected many of its substantive arguments. The panel's right to be heard in such cases was never in doubt and it should not have interfered in the case.
"Regulatory organisations should reserve their powers for things that really demand them."
The stoush emerged from a plan by Dominion Funds to merge its Dominion Income Property Fund, Property Fund Thirty-One and Dominion Newmarket Properties, with Dominion Income being the surviving company.
The panel was concerned that the merger was to be approved by postal ballot instead of a formal meeting and could be pushed through by a very small number of shareholders in each company. It wanted Dominion to obtain the support of a majority of the shareholders in each company.
This request was granted by the High Court but overturned by the Court of Appeal, which said the scheme could receive overwhelming shareholder approval but fail to secure support from the holders of a majority of the voting rights in each amalgamating company.
The appeal judges, however, said the High Court was probably right to hear from the panel and thought the amalgamation was legitimately a matter of interest to the panel. It also said the panel must be advised of the outcome of the shareholder vote and might still apply to be heard.
Dominion Funds chief executive Paul Duffy said his company had spent about $60,000 fighting the panel but would now seek investor approval for a proposed amalgamation with two of its smaller funds.
The takeovers code
* Established in 2001 and enforced by the Takeovers Panel.
* Aims to ensure takeovers take place in an orderly fashion and that all shareholders are treated equally and are well informed.
* Provisions governing compulsory acquisition of shares have been criticised for giving minority investors too much.
* Companies have skirted these provisions with deals called amalgamation or schemes of arrangement not covered by the code.
* The panel has won new powers to scrutinise these controversial deals.
