NEW ZEALAND Law and Practice Contributed by: Ian Beaumont, Tom Gillespie and Sam Kember, Russell McVeagh
opportunity to decide on its merits. Directors must therefore ensure that any steps they take in response to an unwelcome bid – whether recommending rejec - tion, soliciting competing proposals or commissioning an independent adviser’s report – are genuinely moti - vated by the interests of shareholders and fall within the boundaries permitted by the Code. 9.5 Directors’ Ability to “Just Say No” Target directors may decline to engage with a pro - spective acquirer and are under no obligation to pro - vide access to non-public due diligence information. However, they cannot ultimately prevent a bidder from making a takeover offer directly to sharehold - ers under the Takeovers Code. A prospective acquirer that is rebuffed by the target board retains the ability to launch a hostile bid, notwithstanding the signifi - cant execution risks involved (see 9.1 Hostile Tender Offers ), and may also engage directly with key share - holders to build support for its proposal and pressure the board to reconsider its position. In practice, the stance of the target board carries considerable weight. The independent adviser’s report, the board’s public recommendation and direct engagement with shareholders are powerful tools that can effectively determine the outcome of an unsolic - ited bid. History shows that hostile takeover bids in New Zealand rarely succeed without a subsequent increased offer sufficient to prompt a change in the board’s recommendation from “reject” to “accept”. Litigation in connection with M&A transactions is relatively uncommon in New Zealand. In private M&A deals, disputes are typically managed through con - tractual dispute resolution mechanisms, with formal proceedings arising less frequently. The increasing prevalence of warranty and indemnity insurance in private M&A transactions in New Zealand has also resulted in claims typically being submitted to insurers rather than giving rise to litigation. In public M&A transactions, disputes concerning take - overs and changes of control are generally dealt with 10. Litigation 10.1 Frequency of Litigation
by the Takeovers Panel, which has enforcement pow - ers in respect of the Takeovers Code. The availabil - ity of this specialist forum reduces the prevalence of court proceedings, other than in relation to schemes of arrangement or limited enforcement matters. 10.2 Stage of Deal Where litigation does arise in connection with M&A transactions in New Zealand, it most commonly occurs post-completion, particularly in private M&A deals. Typical disputes relate to warranty and indem - nity claims, purchase price adjustments, earn-outs or alleged breaches of post-completion covenants. In public M&A transactions, disputes are more likely to arise during the transaction, but are usually addressed through the Takeovers Panel rather than the courts. Court involvement most commonly occurs in the con - text of scheme of arrangement transactions, at the initial order or final approval stages, or where enforce - Although New Zealand experienced relatively few “broken-deal” disputes arising directly from the COV - ID-19 pandemic, the disruption highlighted important lessons for transactions signed but not completed. In particular, the pandemic reinforced the high thresh - old for invoking material adverse effect or material adverse change (MAC) clauses. Attempts to rely on COVID-19 as a MAC were generally contentious, especially where clauses contained carve-outs for market-wide economic or public health events. ment or supervisory relief is sought. 10.3 “Broken-Deal” Disputes This was illustrated by the proposed acquisition of Metlifecare Limited by Asia Pacific Village Group Lim - ited, where reliance on COVID-19 as a MAC led to renegotiation rather than termination. The Metlifecare experience also highlighted the role of the High Court of New Zealand and the Takeovers Panel in scheme of arrangement transactions dur - ing periods of market uncertainty. While substan - tive opposition to schemes remains uncommon, the decision in Re Metlifecare Limited confirms that the court will closely examine disclosure, valuation and process issues, while generally being reluctant to
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