Minority buyout rights under fire

By GEOFF SENESCALL

The minority buy-out rights section of the Companies Act has come under fire in a judgment by Justice Doogue who described it as "substantially flawed."

He said urgent reconsideration was needed if the sections were to be beneficial and workable for small shareholders.

His criticism came in a ruling which has forced Infratil New Zealand to cough up title to its 26.58 million shares in Natural Gas as well as $5000 in costs.

Natural Gas had sought a declaratory judgment to get control of the the shares after having to front up with $34.5 million to buy out its dissenting minority shareholder.

But this court battle is essentially just a sideshow to the real issue, which is one of price.

This is still several months away from being decided through arbitration.

The dispute between the two parties arose after Infratil invoked the previously unused minority buy-back clause in the Companies Act when it took issue with Natural Gas' $824 million purchase of power retailer TransAlta at the beginning of the year. This forced Natural Gas to buy out Infratil's shares. But the price of 130c a share, which is being contested by Infratil, was determined by Natural Gas.

Justice Doogue said in the vacuum that exists, Natural Gas could not be required to pay the provisional price unless it received title to the shares. "To find otherwise would be so to the detriment of the company [Natural Gas] and its majority shareholders and to the advantage of the dissenting shareholder [Infratil]."

He went on to say: "I regard the section as substantially flawed and the outcome is not a satisfactory one if the company has made an assessment of price that is substantially less than fair and reasonable. At the moment it is impossible to see how the company could ever make a truly fair and reasonable assessment of price when there are no indications within the section as to the date at which the assessment is to be made.

"At the moment also the arbitrator has no power to compensate a dissenting shareholder for any grievous underpayment in respect of the provisional price other than by way of interest."

Natural Gas shares closed up 2c to 154c while Infratil shares ended steady at 124c.