Frustrating waste of time and money, but it’s the price of democracy

The media release from Silver Fern Farms about the requisition for a special meeting to consider the resolution to form a partnership with Shanghai Maling reeks of the company’s frustration at what it sees as a complete waste of time. However, regardless of that frustration, the company has agreed to the requisition and will set a date for the meeting.

 

A group of 80 shareholders, led by John Shrimpton and Blair Gallagher, has passed the required 5% threshold to requisition the board to hold a special meeting in compliance with the Companies Act. Shrimpton cancelled a meeting with the board which he had arranged for 2^nd May and which the board was keen to hold, so its members could learn and understand the purpose and legal justification of the requisition.

 

Not surprisingly the board sets out a list of very cogent reasons why it considers the requisition a waste of management time and resources, notably 67% of shareholders have already voted with 85% in favour of the deal, SFF would be in breach of contract if it pulled out and there would be no legal obligation on the company as a result of the special meeting.

 

A possible weak spot in the company’s position may be its own constitution which appears to requires a minimum of 75% of shares holding voting rights to vote on a special resolution to enter a ‘major transaction’. Knowing the normal level of shareholder participation, it would be difficult if not downright impossible to achieve such a high threshold.

 

The media release also states the merits of the partnership have, if anything, increased since the vote in favour last year. This indicates the fickle nature of meat industry profitability, raised by SFF chairman Rob Hewett last month, when he said this year’s result would be materially worse than last year.

 

Winston Peters has put out a press release accusing the SFF board of a cavalier attitude and demanding responsible Ministers instruct the OIO to place its approval process for the Shanghai Maling investment on hold. But the release also states it is a spectacular back down and questions why the company has blinked, if it is so sure of its position. Peters calls it a shareholder revolt which is a bit of an exaggeration when the group only represents 6.5% of the shareholder base.

 

I confess I have already asked the company if it could explain why it has agreed to the requisition when it obviously considers it a waste of time and received the answer it was a requirement of the Companies Act. Without in depth knowledge of the legal niceties, it is hard to understand why the Companies Act would enforce the requisition to hold a special meeting, if the company is not also bound by the result of a vote. This is where it hinges on the specific dictates of the company’s constitution.

 

A logical assessment of the shareholder group’s rearguard action suggests the small minority that is trying to overturn the partnership deal is highly unlikely to succeed, given the massive majority in favour at the time of the original vote. Therefore this action will be no more than an irritant in the process.

 

SFF must make sure it has all its legal ducks lined up and, assuming that is the case, it will be able to get on with life. Anything else would be a disaster from a number of perspectives: it would seriously jeopardise the company’s future financial health and would almost certainly cause a major stress point in New Zealand’s relationship with China.

 

It’s a pity Shrimpton has refused to meet the board, because communication is always preferable to incurring legal costs. Obviously he and the other 79 shareholders feel disenfranchised by the fact the vast majority of votes were in favour of the Shanghai Maling partnership deal, but in a democracy I was under the impression majority ruled. Winston Peters has spent his political career supporting, with considerable success, minority positions and this one ties in neatly with his antipathy towards foreign investment in New Zealand.

 

While this particular issue looks as though it is a foregone conclusion, there may yet be some twists and turns to negotiate.

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Tags: China relationship, Companies Act, John Shrimpton, meat industry profitability, Overeseas Investment Office, Rob Hewett, Shanghai Maling, Silver Fern Farms, Winston Peters