THE PRESS WEDNESDAY, APRIL 23, 1980. Who owns the companies?

Press, 23 April 1980, Page 20

THE PRESS WEDNESDAY, APRIL 23, 1980. Who owns the companies?

The,invoking by the Government of the provision in the Trustee Companies Act for the details of who is buying shares in the New Zealand Insurance Company and of where the money is coming from raises once again the question of disclosure of shareholding. In the present instance the fear was obviously that a company, possibly an overseas'company, was acquiring shares and would be in a position to make a take-over bid. The identity of the real buyer was hidden because the shares have been bought through nominees. Now that the Government has required disclosure it should become apparent who is buying and it will be easier to discern the motive.

Opinion is keenly divided on the question of the propriety of nominee shareholdings, and more particularly on the limits that should be imposed on shareholders with a substantial proportion of a firm’s stock to disclose their real interest. Generally there is no disagreement about the position of very small shareholders; in practice small private shareholders , are at no pains to conceal their interest. Their names appear on company registers for all to see. The debate about nominee shareholding is at present being carried on before the Securities Commission.

Company directors, company employees, other shareholders and a company’s customers and business connections could all offer respectable reasons for a right to know who is who. These reasons need not include the sometimes important consideration of take-over bids in which the covert acquisition of shares as an initial move is a common device. In the end the market will settle who owns the shareholding of a company. Willing sellers of shares and willing buyers with sufficient means and determination will ultimately decide who owns and controls a company unless some legal restrictions are placed on the exchange or holding of shares. Such restrictions may apply to foreign ownership: ordinarily anyone- ready to pay a sufficient price is 'capable of acquiring a small, influential, or controlling interest in a company’s equity. The take-over question is not really crucial in establishing a principle on the disclosure of the true, beneficial interest of a shareholding.

Interest in the question of disclosure is nevertheless increased by take-over activities. Two forces seem to be at play o'ver the present interest in take-overs. One is that in a time of inflation shares in some companies may

be priced low compared with the value of the assets of the company. This makes it tempting for a company with spare capital to bid for another. Inflation may mean that a company wanting to expand will find it cheaper to acquire the assets of another business already equipped and active than it is to buy more land and new equipment or to compete for the market. Other companies see . the high value of the assets compared with the price of shares as a way of making money and buy a company to sell off its assets. Another stimulus, may come from the. fact that a number of companies believe that there will be a considerable expansion in New Zealand business over the next few years and they want to be bigger to be able to benefit more from this expansion.

Present legislation requires a shareholding of 20 per cent to be disclosed. A code adopted by the Stock Exchange requires that when an offer for shares means that the buyer will hold 10 per cent or more of a company’s issued ordinary capital he must disclose his identity. A debate is being conducted before the Securities Commission about lowering this limit to 5 per cent. Even such a limit leaves open the possibility that a buyer can hide his identity through a number of nominees who hold just under 5 per cent, though this would be regarded as an abuse of the system.

While the debate may be conducted with eyes on the question of take-overs, the real issue lies in the propriety of knowing whp.vowns a company. Com-, panies are not secret societies iff which the members .should not be permitted to know each- other. Companies, have the protection of the law oh limited liability. ’The law is an essential part of the company system: being secretive about who is being, protected is not'an essential. Company registers should be as up to date as is practicable and they should be explicit as to who benefits from the ownership of shares.

•, Directors should surely know on whose behalf they are acting. In theory, the greater part of a company’s shareholding could be in the names of nominees and. the true owners might exert their wishes only in exceptional circumstances.-, Admittedly, most companies are. run with little direct contact between directors' and. other . shareholders. This, however, is not a good reason for entrenching a practice that in effect forbids contact except through intermediaries.