Act needs rewrite says Sheppard

By PAM GRAHAM

The Shareholders Association is calling on Parliament to have another go at law on big transactions by companies.

"The Companies Act does not work in the modern world and it was only written in 1993. They just did not do it properly," said chairman Bruce Sheppard.

His call came after the High Court ruled that Fletcher Challenge Forests only has to put an ordinary resolution to shareholders with a 50 per cent vote, rather than a special resolution for big transactions with a 75 per cent vote, when it sells all of its forests.

A sale agreement is expected by Christmas. Kiwi Forests Group has offered $725 million and the Campbell Group $685 million.

The transaction transforms Fletcher Challenge Forests into a wood processor from integrated forestry company and a $1 a share return of capital to shareholders has been indicated. It will change its name.

The return of capital, which could be higher if the company opts to increase debt, will be subject to a 75 per cent vote.

In court on Friday, Ralph Simpson argued on behalf of Fletcher Forests that it was not selling the forests, its subsidiaries were. The subsidiaries had existed since the formation of the Fletcher Challenge Group in 1981.

Section 129 of the Companies Act, which covers transactions of more than 50 per cent of a company's assets, refers only to "a company".

Simpson argued the words were clear and the court should not interpret their purpose or rewrite law.

The fundamental principle of law was that each company was a separate legal entity.

Colin Carruthers, QC, arguing the contrary case as Amicus Curiae, said the word company in Section 129 should be interpreted as group of companies.

A Law Commission report included in a draft of the law said shareholders should not find that big transactions had transformed companies without warning.

Justice Peter Salmon said the words in the statute were clear. The plaintiff was not disposing of assets. An ordinary resolution was all that was required.

Sheppard said it was a victory for pragmatism and a defeat of foot soldiers. Every company could avoid remedies for minority shareholders by putting assets into subsidiaries.

The company's intention was to get clarity on the issue, spokesman Paul Gillard said. The shareholder decision on return of capital will be a special resolution.

Fletcher Forests shares had risen to $1.37 from $1.15 before it announced the letter of intent on the forest sale on September 15.