The issue of who bears the costs incurred by a target company during a takeover was recently considered by the Court of Appeal.

The now repealed Companies Amendment Act 1963, allowed a target company to recover from the 'offeror ... any expenses properly incurred by the [target] company, in relation to the take-over scheme.' A situation arose where Kiwi Property Holdings Limited gave notice of a proposed takeover to Shortland Properties Limited, but then did not proceed with the takeover. In defence to Shortland's claim for expenses incurred, Kiwi argued that it had no obligation to pay because it had not made a formal offer and was therefore not an 'offeror' in terms of the Companies Amendment Act.

The Court of Appeal was not prepared to interpret the reference to 'offeror' in such a restricted manner and held that it included a party giving notice of a takeover even if the takeover did not proceed. The Court was persuaded by the fact that the target company had an obligation to respond to the takeover notice.

The Takeovers Code has been appropriately drafted to prevent this type of debate. The cost provision (section 49) clearly states that a target company may recover from 'the offeror ... any expenses properly incurred by the target company in relation to an offer or a take-over notice.'

This is a general summary only and should not be taken as a substitute for specific advice.

For further information please contact Mike Brooker:
mike.brooker@phillipsfox.com

Web site: Phillips Fox