MMG alleges DNZ breached Companies Act, constitution

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It seems what really scuppered DNZ Property Fund's up to $140 million capital raising and plans to list on the NZX was MMG Advisory Partners' threat of legal action over alleged breaches of the Companies Act and DNZ's constitution.

Friday, December 11th 2009, 5:00AM 1 Comment

by Jenny Ruth

In a letter to DNZ investors, MMG says its lawyers wrote to DNZ on behalf of clients on December 2, the day before the float was pulled.

DNZ had blamed "confusion and concern amongst some of our shareholders" over the public debate over the capital raising.

MMG has also secured the support of more than 15% of DNZ's investors, sufficient to require DNZ call a special meeting, something MMG wants to happen early next year.

MMG is also in the process of counting votes from DNZ investors supporting its desire to remove three of DNZ's existing directors and replace them with MMG chief executive David Young and MMG director David van Schaardenburg.

MMG says it needs 75% support from DNZ investors both by value and by number to succeed.

DNZ has about 8,200 existing investors, mostly mums-and-dads retail investors who were advised to invest in the 32 Dominion Funds syndicates, from which DNZ was formed, on the advice of Money Managers, now MMG following a change of ownership last year.

MMG's letter says the response to its opposition to the DNZ float "has been overwhelming."

While MMG supports DNZ listing on the NZX, among its objections are that existing investors weren't allowed to vote on the DNZ plans and that a report on the valuation of the DNZ management contract by Northington Partners was not released to DNZ investors. Part of the capital raised, which would have drastically diluted existing investors and dramatically reduced their income, was to have been used to buy out the management contract for $43 million.

"We are disappointed that DNZ have not reciprocated our effort to engage constructively and that the views of existing DNZ shareholders were ignored by DNZ. This has left us with no option but to pursue legal avenues and to raise these matters publicly," MMG's letter says.

DNZ has also written to investors arguing the rationale behind its plans and opposing the replacement of directors. MMG's plan "to replace experienced and qualified directors with executives from an organisation representing only some shareholders is inappropriate at this time," its letter says.

Nevertheless, if shareholders do want board changes "this should be done in an orderly and informed manner early in the New Year."

DNZ says the management contract "is a legacy of the old regime with features that are no longer appropriate in the current market" but that it carries "significant value" and, if not bought out, will remain in place.

DNZ also apologises to investors. "We have not engaged with shareholders as well as we perhaps could have but our aim is to remedy that now."

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