The High Court has revisited the recoverability of a target company's expenses for the first time in more than 45 years. The case has important implications for future reimbursement disputes.
Recovery of "properly incurred" takeover expenses
An offeror must reimburse the target company for any expenses that the target properly incurs in relation to a takeover offer or takeover notice. Disputes often arise between target companies and unsuccessful offerors. Nevertheless, those disputes have all been resolved prior to trial since the Takeovers Code was introduced in 2001. As a result, until last Friday, the only New Zealand court decision on recoverable expenses was a 1972 decision, which was decided under the 1963 legislation which preceded the Takeovers Code. This has created some uncertainty for targets and suitors alike.
In that context, the High Court's decision on the recoverability of costs incurred by listed issuer Abano against its unsuccessful suitor, Healthcare Partners, is significant for market participants.
Healthcare Partners disputed the recoverability of fees incurred by Abano's financial advisers, public relations advisers, lawyers, directors, and others. In a sweeping win for Abano, the Court ruled that Healthcare Partners was required to pay all of the disputed costs.
In doing so, the Court considered that it was timely to take a fresh look at the principles for recovery in the 1972 case to take account of the more regulated and complex modern takeovers environment and the burdens now placed on target companies.
The key takeaways from the Abano case are:
- The case signals a more target-friendly approach than the 1972 precedent.
- The case removes the earlier restriction on recovering expenses incurred "resisting" the offer. Expenses for such activities are no longer automatically irrecoverable.
- The focus for whether an expense is "properly incurred" is whether it was reasonable and proportionate, based on the circumstances at the relevant time and without the "comfort of hindsight".
Although Parliament has now tasked the Takeovers Panel with adjudicating reimbursements disputes, the decision is nevertheless significant:
- The Takeovers Panel is likely to be influenced by the decision for the disputes over which it now has jurisdiction. The Takeovers Panel has indicated that it will review its guidance note on cost recovery in light of the decision.
- The High Court will hear appeals against decisions of the Takeovers Panel. The Court can be expected to treat the Abano decision as a persuasive authority.
We note that:
- Some important issues regarding recovery of takeover costs remain to be resolved, including the recoverability of "success fees" and what types of fee structures constitute "success fees". The Court did not need to consider that in Abano, so further guidance on this topic will need to wait for another day.
- The decision is not relevant to takeovers achieved by way of a scheme of arrangement, for which cost recovery is a matter for the parties' contractual arrangements.
If you would like to discuss the implications of the Abano case, please contact your usual Bell Gully adviser or any of the contacts listed.