Michael Hill International Limited [2016] NZHC 1114 (24 May 2016)

High Court of New Zealand

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Michael Hill International Limited [2016] NZHC 1114 (24 May 2016)

Last Updated: 5 August 2016

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV-2016-404-000978 [2016] NZHC 1114

IN THE MATTER	of an application for approval of an arrangement under Part 15 of the Companies Act 1993
BETWEEN	MICHAEL HILL INTERNATIONAL LIMITED First Applicant ACN 610 937 598 LTD Second Applicant

Hearing:	24 May 2016
Counsel:	G Fitzgerald and A Kissling for Applicants
Judgment:	24 May 2016

JUDGMENT OF ASHER J

_{(as to pre-application procedures)}

Solicitors:

Kensington Swan, Wellington.

MICHAEL HILL INTERNATIONAL LTD [2016] NZHC 1114 [24 May 2016]

Introduction

[1] Michael Hill International Ltd and ACN 610 937 598 Ltd have filed a without notice originating application for orders approving an arrangement under Part 15 of the Companies Act 1993 (the Act).

[2] In essence it is intended that Michael Hill International Ltd, a New Zealand company, will change domicile to Australia by the formation of a company in Australia. There will be a one-for-one share swap whereby existing New Zealand shareholders will exchange their current shareholding for shares in the new Australian entity. The Australian company will take the place of Michael Hill International Ltd as the parent company of the wider Michael Hill group.

[3] Today I have before me a without notice interlocutory application for orders dispensing with service and representation regarding the application under Part 15 of the Companies Act 1993, and for initial orders regarding the application relating to the procedures to be adopted.

[4] There has been a conference before me today where there has been considerable discussion about the reasons behind the application and particular facets of it. My concern at this stage is to ensure that the directions sought in relation to the application are fair, and in accordance with the Act.

The arrangement

[5] The proposed scheme is of a type that is eligible for consideration under Part 15. The proposed arrangement is not of the most common variety, involving as it does shareholders exchanging their shares for shares in a new overseas company. It has been considered by the Takeovers Panel under s 236A of the Act. The Takeovers Panel has provided a letter of 23 May 2016 stating it has formed an initial view based on information that has been provided to the Panel, and that it “intends at this stage to issue a no-objection statement in respect of the above scheme of arrangement prior to the second Court hearing”. The Panel expresses no views on the merits of the scheme.

[6] It has been explained to me that the change of domicile of the company reflects the current trading reality for the Michael Hill Group, which is that turnover and profit from the Australian operation now considerably exceeds that of the New Zealand operation, and the company’s extension into yet other countries is being increasingly reflected by a diminishing New Zealand percentage contribution to the total turnover.

Shareholders not in Australia or New Zealand

[7] The only matter that has given me some pause has been the position of shareholders domiciled out of New Zealand and Australia. Those shareholders make up 1.1 per cent of the total shareholdings in Michael Hill International, and are 61 out of the 3880 individual shareholders. Some (but not all) of those shareholders may not be able to participate in the swap because of the regulatory environment in their particular countries. If they are in that position, the scheme proposes that their shares will effectively be sold and they will receive the full market price, without deduction for expenses, for those shares. The goal is for them to be in a position where they could, if they wished, immediately acquire shares in the new entity without additional cost (although that must always be the subject to vagaries in the share price on a day by day basis). Because of this concern I have asked that in the letter introducing the scheme, particular reference be made to the position of these overseas shareholders.

[8] I have given consideration to whether this group of shareholders should be regarded as a separate interest class. At the moment there are only two interest classes identified, being those of the family holding company, Hill HoldCo, and all other shareholders. However, I am informed it is impossible at this point to identify the overseas shareholders who will not be able to participate in the swap, and so a third group could not be practically defined.

[9] The Act provides that the principles set out in Schedule 10 “may” be used to determine who constitutes an interest class. However, the word “may” has been interpreted as requiring mandatory consideration of the principles in Schedule 10

when determining interest classes.¹ I note that a relatively expansive approach to the designation of classes has been adopted by the Australian Courts. In Hills Motorway Ltd, the scheme involved the issue to a nominee of securities who would sell them and account to the holders for the net proceeds of sale.² Those holders had addresses in countries where distribution or receipt of securities might contravene domestic law. Barrett J held:³

The test is thus not one of identical treatment. It is one of community of interest. The court must ask itself whether the rights and entitlement of the different groups, viewed in the totality of the scheme’s context, are so dissimilar as to make it impossible for them to consult together with a view to their common interest. The focus is not on the fact of differentiation but on its effects. The extent and nature of differentiation must be measured in terms of the effect on the ability to consult together in a common interest or, in other words, the ability to come together in a single meeting and debate the question of what is good or bad for the constituency as a whole and where the common good lies. Only if the differentiation destroys that ability

– the word used by Bowen J [in the leading Sovereign case cited in the

Cabinet paper] is “impossible” – does class distinction come to prevail.

In this case, neither of the differentiation [i.e. one being the share sale facility] can be said at this point to have any such effect.

[10] In CSR Ltd Conti J followed that case and did not require those “relatively small number of shareholders” who were not to receive securities in the relevant scheme to be treated as a separate class.⁴

[11] I have already noted that those who cannot swap shares cannot practically be discerned at present. While there will be a definite point of distinction between those shareholders who can swap shares and those who cannot, the overriding issue to be determined at the upcoming meeting will be whether the change of domicile is in the shareholders’ interests. To that extent all the shareholders in the second group will have a relative commonality of interest. I am therefore prepared to treat all Hill HoldCo shareholders as a single interest class as proposed, with all other shareholders forming the second group. I have, however, indicated that I wish reference to be made to the particular position of overseas shareholders in the

_{introductory letter to the scheme, and an amendment is to be made accordingly.}

¹ _{Re New Zealand Oil & Gas [2015] NZHC 39 at [19].}

² _{Hills Motorway Ltd [2002] NSWSC 897, (2001) 43 ACSR 101;.}

³ _{At [12]–[13].}

⁴ CSR Ltd [2003] FCA 82 at [5].

The way forward

[12] That change, together with other proposed changes that have been discussed or which followed the interchange with the Takeovers Panel, will be added to an amended scheme booklet that is to be filed later today. I have indicated that when that scheme booklet is filed, together with an amended application reflecting this and other proposed changes that I have discussed with counsel, I will approve the without notice application.

[13] Thus it is anticipated that I will later today, in accordance with this minute, issue a further minute formally granting the amended interlocutory applications to be filed this afternoon.

...................................

Asher J