Shareholders continue fight for clear sales law

By PAM GRAHAM

The Shareholders Association is fighting on for clear law on major transactions by companies.

Options it was considering yesterday included appealing against a High Court judgment on the sale of forests by Fletcher Challenge Forests, getting a separate declaratory judgment from the High Court, or lobbying for a redraft of the Companies Act.

The association did not want to hold up Fletcher's forest sale, although it had been advised it could appeal against a declaratory judgment the company had from the High Court at Auckland, said director Ross Dillon.

A separate declaratory judgment would be expensive when the issue was wording of the law.

Section 129 of the Companies Act dealing with major transactions referred to "a company" and the issue was did that mean an individual company, or a group.

If it meant an individual company, 75 per cent shareholder votes on major transactions could be avoided by running transactions through subsidiaries, avoiding associated remedies to shareholders.

The issue arose with Fletcher's forest sale because the forests were held in subsidiaries which had existed since the 1980s.

The transaction transforms the parent company from integrated forester to wood processor as well as being more than 50 per cent of its assets, the usual trigger for major transactions. But Fletcher owns the assets via subsidiaries.

The court ruled it could be approved by a 50 per cent vote by Fletcher Forests shareholders.

Fletcher Forests spokesman Paul Gillard said the board had been attracted to a 75 per cent vote but had been advised that directors could breach their duties to shareholders by making such a choice.

The association was "taking up the fight" but deliberating on how best to go about it.

Fletcher Forests shareholders will be updated on the sale at the annual meeting next Friday. Gillard said a sale agreement was expected next week.

Preparations for a special meeting to consider the sale took about six weeks.

The problem

* Fletcher Forests is selling its forests, which comprise more than half its assets.

* Deal requires shareholder approval.

* If the sale is classed a "major transaction" by the Companies Act, shareholders owning more than 75 per cent of Fletcher must approve it.

* If not, 50 per cent threshold applies.

* High Court ruled this week that the deal was not a "major transaction" because Fletcher owned the forests through subsidiaries.

* Shareholders Association says deal should need 75 per cent approval; wants law changed.