Opponents of the Waltus scheme to amalgamate most of its property syndicates into a single company are preparing an appeal following a loss in the High Court earlier this month.
On November 6, the High Court, presided over by Master Thomson, ordered the Waltus scheme could go ahead with the proviso that the company addresses the matter of possible double payment of management fees.
A group of dissident investors, headed by financial adviser Murray Weatherston and accountant Brian Moyle, had asked the High Court to force Waltus to buy out Waltus shareholders unhappy with the deal.
However, Master Thomson ruled a buyout clause was not necessary and that Waltus had sufficiently advised investors over most matters of concern to them.
“It has to be borne in mind that it is inherent in membership of a company that a shareholder may be bound by a decision of the majority, and here the majority approved the arrangement without buyout,” Master Thomson said.
Moyle says that while he is disappointed with the outcome, there remain several
grounds for appeal.
“The High Court ruling was too narrow and didn’t address some matters of law,” Moyle says.
He says a letter sent out to Waltus investors has generated overwhelmingly positive support for an appeal to go ahead.
In the letter, Moyle says the appeal will focus on; the High Court’s treatment of the removal of the 10 year right in the original Waltus syndicates (where any one investor can demand the sale of the property after a 10 year period), the legal test for shareholder approval and the Court’s ability to order a buy-out.
“The Master obviously accepted that we did have some realistic grounds upon which to appeal and he has consequently ruled that our reasonable costs of objecting shall be paid for out of the fund that Waltus provided for in their merger proposal arrangements,” Moyle says.
“The Master has not ruled that any of the grounds upon which we objected were wrong.”
Objectors had until last Monday to lodge an appeal.
However, Waltus financial controller Hamish Plimmer, says the company is going ahead with its merger plans despite the threat of appeal.
“The final orders of approval were delivered on November 6, and final orders are final orders,” Plimmer says.
“We can’t sit around twiddling our thumbs waiting to see if an appeal is launched. If there is an appeal, so be it, but I’m confident the ruling would be upheld.”
He says Waltus currently has a number of “major deals on the table” for leasing properties that have been made possible by the new structure of the syndicates.
“It would be hard to find anybody in the property industry that doesn’t like what we’ve done with the syndicates,” Plimmer says.
The High Court also gave Waltus two options to address concerns over the potential double payment of $2.95 million management fees to the company.
In his ruling Master Thomson found there had not been “as full disclosure as there should have been” concerning pre-paid syndicate management fees.
“I do not consider the fact that a double payment will be received by the Hodge family [Waltus directors] for management fees has been clearly explained to the shareholders,” the Master said.
He said Waltus could either seek shareholder approval for the double payment or build the sum into its future management fees in “an appropriate way”.
Plimmer says this decision was a surprise and Waltus has not yet decided to choose one of these options or appeal the ruling.
“They threw that issue in at the eleventh hour and we only had about three minutes to prepare a reply,” Plimmer says.
Moyle says Waltus will probably choose to lose the $2.95 million in future income rather than risk losing another shareholder vote.
He says if they make the adjustment through future management fees it will be “quite clearly indicating to all investors that because the Hodges knew full well that investors would not approve of their double dipping, they withheld full disclosure of this matter”.
“Consequently, all syndicates that presently have a balance of prepaid management fees should now share in the benefit of this $2.95 million correction which will have been saved as a direct result of our objection, so one could say that at least some element of fair judgment has prevailed for all investors, and not just for the objectors,” Moyle says.
He says a letter has also been sent to many Waltus investors who remain outside the merged company, alerting them to the possibility that Waltus “in combination with their fifteen or so supporting Investment Advisory firms, has sufficient combined voting power to achieve similar rearrangements with all their other syndicated companies”.
In particular, Moyle claims the Albany Power Centre syndicate is likely to be the next Waltus target for restructuring.
However, Plimmer denies Waltus has any intention of bringing any of its 13 separately managed New Zealand syndicates into the merged group.
