Proceedings should be struck out—counsel

Press, 9 May 1985, Page 14

Proceedings should be struck out—counsel

The applications for interim injunctions were a bold attempt by the plaintiffs to stop the “parliament” of N.C.F. Kaiapoi, Ltd, meeting next Monday, Mr J. G. Fogarty said when opening his case in the High Court yesterday. Mr Justice Gallen is presiding over the case which arises from the attempted take-over by C. S. Stevens and Company, Ltd, of N.C.F., a long established freezing company which is raising the “poison pill” defence.

Injunctions are being sought by Robert Henry Trounce, company director, and Alfred James Wakefield, a chartered accountant, both of whom are directors of N.C.F., and by C. S. Stevens and Company. The case began on Tuesday and will continue today. N.C.F. is the first defendant and seven of its nine directors are the second defendants. They are Edward Wilfred Turrell, of Akaroa; John Roscoe Taggart, of Cust; Charles Richard George Forbes, of Waikari; D’Arcy John Collins Freeman, of Wellington; George Emilie Rennie, of Irwell; George Crowley Weston and Ronald Earl Wilton, both of Christchurch. The injunctions sought are to stop both defendants from holding an extraordinary general meeting on May 13 to consider proposals to alter the share structure of N.C.F. to make the company unpalatable for the take-over and to prevent the defendants from stopping Messrs Trounce and Wakefield from exercising their rights as directors in relation to the take-over bid.

Messrs R. E. Wylie and G. T. Mahon appear for Messrs Trounce and Wakefield; Messrs W. M. Wilson and B. W. F. Brown for C. S. Stevens and Company; and Messrs J. G. Fogarty and M. W. Russell for both defendants.

Mr Fogarty said that ever since the development of company law the courts had been at pains to protect the rights of shareholders to attend general meetings.

The case for the defendants was that these proceedings were misconceived and

should be struck out so that the shareholders could go to the extraordinary general meeting on-Monday without High Court litigation complicating the issues and threats of damages hanging over their heads.

It was submitted by Mr Fogarty that both plaintiffs had no locus standi or standing to bring the applications which should be refused.

The plaintiffs had not, and could hot, establish any conduct on the part of the defendant directors justifying restraint by the Court of the activities of shareholders.

If passed, the proposed resolution would be actioned by the majority of farmer shareholders to preserve the status quo, namely control of the company.

The discretion of the Court, consistent with the fundamental principles of company law, should be not to interfere but to allow the extraordinary general meeting to proceed, Mr Fogarty submitted.

Earlier when opening his case for C. S. Stevens and Company, Mr Wilson said that it was clear that the defendant directors of N.C.F. were attempting to defeat the take over of the company by the “poison pill” technique. They were attempting to change the structure of N.C.F. so that it was no longer an attractive take-over target. Any doubt as to their motivation for the proposed changes was resolved by Mr M. C. Walls, the “take-over expert” advising N.C.F. in an article in “The Press.”

Stevens and Company already held 22.5 per cent of the capital of N.C.F. The value of that holding would be substantially reduced if it was disenfranchised on all major issues affecting N.C.F. which would happen if the proposed resolutions were passed at the extraordinary general meeting. Stevens and Company therefore came to the Court not only to prevent unlawful interference with its proposed take over of N.C.F., but also to protect the valuable investment which it held in N.C.F. Messrs Trounce and Wakefield were wrongfully excluded from the deliberations of the board of direc-

tors of N.C.F. in respect of the proposed take over. The resolutions of April 11 and 19 were invalid. The former resolution did not define the powers of the board purportedly conferred on the committee and the later resolution purported to empower the committee to act in the interests of future shareholders of N.C.F. and in the interests of suppliers and customers of N.C.F.

The Articles of Association of N.C.F. gave the directors power to convene an extraordinary general meeting. But in this case the proposed meeting had not been convened by the directors, even though the notice purported to be given by the order of the board and was therefore invalid. The notice was issued by the committee which excluded Messrs Trounce and Wakefield, Mr Wilson said.

Dealing with the personal right of action by C. S. Stevens and Company, Mr Brown said its right arose because of the take over proposed by Stevens Properties, Ltd. The defendant directors were proposing the bonus issue of shares solely as a defensive tactic in response to a bona fide take-over offer and with no other redeeming purpose.

The intent of the defendant directors was to make N.C.F. “indigestible” so far as Stevens Properties was concerned with the result that the offer would be withdrawn with the consequence that the company might be deprived of its right to consider this or any other bona fide take-over offer.

Having regard to the fact that most of the present shareholders of N.C.F. were farmers, the company was already in the control of farmers. It was submitted that for the shareholders of N.C.F. to exercise their votes to pass the resolution would not be for “a company purpose.”

The resolution had been deliberately framed not only to ensure that C. S. Stevens and Company could

never get control of N.C.F.. but also to have the effect that it was deprived of voting power on essential shareholder questions. There were equitable considerations in this case which would render such exercise of power unjust to C. S. Stevens and Company and which ought to be restrained.

It was asserted by C. S. Stevens and Company that the defendant directors were acting in breach of their fiduciary obligations to N.C.F. in recommending the proposal to the extraordinary general meeting.

C. S. Stephens and Company could not be adequately compensated by an award of damages for the loss it might sustain if the interim injunction was not granted. There would be a substantial reduction in the value of its shareholding.

It was submitted that neither N.C.F. nor the defendant directors would suffer any damage or loss by the granting of the interim injunction. The interests of N.C.F. shareholders were a valid fact to be taken into account and it was unlikely that they would be caused any loss by the issue of the injunction. Indeed it would be’ in their interests if it was.

If that was done the shareholders would retain the opportunity to consider the take over off as it would not be withdrawn. They would be able to consider information which was not yet available to them.

That included the company’s valuation which was not yet forthcoming and the report from the Examiner of Commercial Practices.

With the advantage of further time the shareholders would have a chance to gain a better appreciation of the complex issues and in respect of which there might be a level of misapprehension because of the spurious manner of the presentation of the proposals, said Mr Brown.