End of a life on the vine
Kevin and Karen owned an orchard and grew Kiwifruit. They were shareholders in a kiwifruit growers’ co-operative company that handled grading, packing, marketing and sale (the co-operative). After being in the industry for 25 years, Kevin and Karen decided it was time to retire and downsize. Kevin and Karen sold their orchard and bought a small lifestyle block. As they had sold their orchard they also had to redeem their shares in the co-operative.
The co-operative had an elected board and hundreds of grower shareholders just like Kevin and Karen. Each grower/shareholder holds shares equal to the tonnage of kiwifruit they provide. The shares hold a nominal value of $1 per share.
Because Kevin and Karen were not producing any Kiwifruit, they asked the co-operative to accept the surrender of their shares and redeem them at the nominal price.
The co-operative had installed a process whereby it would accept the surrender of shares, however, the nominal pay out would not take place until the 5th year anniversary of leaving the industry.
Kevin and Karen were shocked and asked FSCL to review the co-operative’s process as they believed it was unfair.
Review
We contacted the co-operative asking for details of the policy and were told that the policy was developed several years ago in response to the PSA threat to the industry.
The co-operative acknowledged that it used to immediately pay out shareholders who were exiting the industry. However, when the threat of PSA first appeared, an unprecedented number of growers exited the industry. This meant that there were insufficient cash reserves to be able to pay out share redemptions immediately.
Although the industry was now recovering, the co-operative said the new policy was prudent and would remain.
We found the co-operative’s policy was reasonable and complied with the Co-operative Companies Act 1996 requirement that payment of redeemed shares be made in a timeframe “not exceeding” 5 years.
The co-operative said it could not make a payment to Kevin and Karen immediately as Kevin and Karen were one of dozens of similar growers awaiting payment and there were insufficient cash reserves to pay all of them immediately.
We accepted that the co-operative’s policy was prudent and that it was an appropriate balance of ensuring the success of the co-operative and the remaining growers against the timeframe needed to make payment to former shareholders redeeming their shares.
However, we asked the co-operative to consider the fairness of asking Kevin and Karen and others who had weathered the storm of the PSA and supported the co-operative and the industry, to wait for 5 years for payment for their shares when they were now looking to retire.
Outcome
The co-operative said it could not make payment immediately, keeping the payment date of nominal shares at the 5th anniversary of leaving the industry. However, the co-operative proposed to pay interest, on a quarterly basis, to not only Kevin and Karen but all former growers who were redeeming their shares.
Kevin and Karen were happy with and accepted the co-operative’s decision. They accepted there were several things for the co-operative to consider and were pleased that the co-operative had offered a fair settlement.
Our insight
FSCL can review agreements and policies to see if they are fair and reasonable in the circumstances and can make suggestions for improvements, where apprpropriate.
