Who wants to sue who and who will pay?

DevondaleTwirl

One of the first things farmers asked about the Murray Goulburn and Fonterra announcements was: “Can they really do this? Is it legal?”.

The lawyers have duly arrived.

I know of three firms circling Murray Goulburn right now. While Slater & Gordon was the first to announce it was opening an investigation into a class action against MG, it has not yet confirmed whether it will proceed.

Last week, a so-called “maverick” lawyer, Mark Elliott, reportedly filed a class action against MG on behalf of unit holders who had bought shares in the listed part of MG.

At the same time, another lawyer, David Burstyner of Adley Burstyner working together with Harwood Andrews, is building a list of farmers affected by the sudden milk price collapse who might be interested in one or more of the three legal strategies:

  • a “group claim” against a range of processors to recover financial loss;
  • steps to change and take back control of MG management, and;
  • an urgent court order stopping the claw back.

The big question on farmers’ lips is: if MG gets sued, won’t farmers ultimately pay the price?

The stakes are high because MG farmers face a double whammy:

  1. Now more than ever, farmers are acutely aware that when processors don’t do well, the answer is to slash the price paid to farmers.
  2. Every farmer who supplies milk to MG must own MG shares, so its falling share price is robbing many retirement nest eggs. Some are even facing margin calls on loans they took out to buy more shares.

The targets
The Elliott class action is targeting the MG unit trust and its directors. The good news is that the trust and directors should already have insurance that deals with such a claim.

There’s likely, however, to be an excess they will have to pay, which the lawyers call “deductibles”, which means the insured party has to cover part of the loss out of its own resources as “self insurance”.

On top of that, director’s insurance is no silver bullet. This type of insurance is complex and it’s quite possible that out of court settlements won’t be covered.

The proposed action from David Burstyner could target any of the processors who stepped down: MG, Fonterra, Lion and NDP. Mr Burstyner expects to know in the next few weeks. If launched, class actions usually play out over several years, so buckle yourselves in.

Will it help farmers?
Because there’s likely to be plenty of coverage of the Elliott class action for unit holders, I’m concentrating on the Adley Burstyner proposal for farmers and its potential impact on MG, the hybrid co-op.

Speaking with Milk Maid Marian on the weekend, Mr Burstyner said his firm is investigating an injunction to halt the milk price drops.

“An injunction is difficult to secure but the situation is urgent,” he said. “We are prepared to try if it is achievable, but it depends on what we learn from farmers”.

He also plans a “group claim” against processor(s) funded by a litigation funder, which roughly works on what some people call a no win no fee arrangement (see more at http://www.adleyburstyner.com.au/group-claim-faq). This arrangement minimises the risk to participating farmers but, as a guide, around 30% of the proceeds after costs is likely to go to funders. Mr Burstyner said the participation of thousands of farmers is necessary but that it’s possible because more than 3000 supply MG and Fonterra alone.

At the same time, Mr Burstyner said he hopes there will be no need for “all-out war” and that a class action could be avoided with the processors reaching a settlement with farmers that could also improve the way milk prices are set in future.

MG, however, is not a normal company. The fundamental ways it interacts with farmers must be put to co-op members and voted on rather than hastily negotiated on the court house steps.

But what if “all-out war” is the only option? Mr Burstyner acknowledged the possibility of short-term pain for the processor (which may carry through to its supplier shareholders) but the long-term benefit would be a “clean up” of the industry.

Asked why farmer shareholders could not simply reshape their co-operative by voting on special resolutions rather than litigation, Mr Burstyner strongly agreed that strategies along those lines could be very useful, saying, “Although MG is no longer the cooperative it was prior to July 2015, we would like to assist farmers with the solutions which could be possible in the newly formed corporatised structure, using farmers’ significant rights as shareholders which we think could really improve their position.”.

In notes he offered to Milk Maid Marian, Mr Burstyner clarified his point:

o    Murray Goulburn Co-operative Co Limited ACN 004 277 089 is an unlisted public company. It is controlled by its shareholders who for present purposes are the farmers. MG is no longer the same cooperative structure it was before July 2015.

o    Shareholders with more than 5% of votes can call a meeting or ask the company to call one.

o    They can sack the board and appoint alternatives by ordinary resolution.

o    There is a 2-month notice requirement for certain resolutions, for example, sacking board members.

o    The Company (under new management) may even be able to bring a claim against former Directors for not satisfying their director’s duties.

Mr Burstyner is keen to hear from farmers who would like to be kept updated on these three types of potential legal action (in the short term an injunction or challenging management, or the long term solution of a class action to recover financial loss and bring about systemic changes).

You can register your interest at http://www.adleyburstyner.com.au/farmers-farm-gate-milk-price-action.

Mr Burstyner stressed that he has no interest in any legal strategies if farmers don’t want them. Without interest from significant numbers of farmers, Adley Burstyner and Harwood Andrews will close their file.

Important: this post is general commentary only, please seek legal advice before considering any action.

 

 

13 Comments

Filed under Farm, Fonterra, Murray Goulburn

13 responses to “Who wants to sue who and who will pay?

  1. Sue Neales

    Really interesting Marian. Thank you

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  2. Ron guyett

    Can you tell me how many shares do supplier share holders have collectively

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  3. Confused city dweller...

    No surprises really…3 possible class actions being triggered by the actions of one great (a very loosely used term) man and supported by isolated, inattentive souls.

    (1) A class action against MG by disillusioned unit holders – roughly from $2.20 to $1.00.
    (2) A class action against MG by disillusioned farmers – roughly from $5.60 – $1.91.

    Murray Goulburn Devondale deserve them both really as a wake up call to get their collective act together after fiddling with what was essentially a successful co-operative structure albeit slightly congested, stuffy, inward looking, lacking inspiration, lacking capital reinvestment and lacking any degree of transparency but useful nevertheless.

    (3) Then we have another class action against processors at large to redress how the industry prices its supply source.

    and the missing one could be…

    (4) A class action possibly yet to come might be against the major retailers for over-aggressive buyer advocacy causing wholesale slaughter across the domestic dairy processor and pre-processor operators. Perhaps more fitting would be an ACCC ruling to overturn the $1/milk contracts.

    Post 1999 deregulation these sort of catalysts are way overdue but it is such a shame it has to take the shape of class actions where the primary benefit does not go to those that perhaps best need it.

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    • Ron guyett

      Confused city dweller ,that you are .Murray Golbourn dropped its price to $4.75 not$1.91 as stated
      The big issue is the claw back.It seems to have Gary Helou finger prints all over it as it certainly is not in the spirt of a co.op more like a dictator’s edict
      1 its in unfair given that the supplier most affected are the one in FMI (flat milk incentive) a payment system designed to help factories maximize the out put in the low milk flow months
      2 MG has dropped the milk price buy $.85 cents for the rest of the year .but buy its own admission is not sure how great the loss is
      The range is $5.00to $4.75
      So does that mean that those that are sending milk now especially a lot of milk will be repayed there greater contribution to the loss if it comes in at $5.00
      3 more importantly all farmers took a position on milk flow, fodder reserve’s, and cow numbers going ford (as it was a very trying dry spring) as early as November December giving the bullish forecast MG gave the market ..even up until March !!!
      So the wash up is the claw back is not a fair way to move ford as a co op when implemented in the last 2 months.. As all supplier’s milk flow is different this time of year .
      It makes some farmers Carry a heavier burden than other’s, how is that in the spirit of a co op

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  4. Good luck to all of you. It does sound like the industry structure needs an overhaul.

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  5. Dave

    legal action against any party will be costly and really achieve nothing. It would be drawn out over many years and would be a distraction from the main issues that need to be addressed. Only winner will be the law firms. Unfortunately if I fail to keep our farm viable over the coming year or so, it will be because of the unavoidable power of the laws of supply and demand in the global dairy markets. MG’s strategy to shift as much milk out of the bulk export scene is the right one. The problem is unless they can find a sustainable market for more than 75% of our milk we will continue to ride the milk price roller coaster.

    Like

  6. Brett Findlay

    As far as suppliers suing MG goes, apart from the fact that they would be essentially suing themselves, I would have thought this was a high risk strategy in that MG may decide to cease pick up of their milk and the chances of anyone else doing so in the current circumstances would be remote.
    As far as who will pay, any legal action against MG will impact directly on the farm gate milk price which will already be depleted by the embedded payback of the MSSP. Given that the corporate processors have well and truly signalled their intention to follow MG’s price down as far and as fast as they can next season, essentially most dairy farmers in South Eastern Australia would end up wearing the pain.

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  7. Ex farmers son

    Some questions: if the MG Co-op is owned by the farmers, and managed by senior management on behalf of farmers, with guidance by the board who are mostly farmers, then why don’t the farmer owners of the MG-Co-op tell the senior management to “get lost” re the clawbacks, and tell them to just wear the loss on the profit and loss statement. Then come July 1st, even starting now, senior management needs to work towards getting the best possible return for the milk supplied. Currently, farmers are going to want to leave to avoid the deductions, and new farmers will not want to join due to those deductions.

    Sure, it will trash the share price in the short term, but it will recover. It might also help with any lawsuits against the board and management, not such a bad thing since they should all be out the door.

    And how the hell does the chairman still have his role? He is a farmer, supposed to be looking after other farmers, and he sells them out.

    And why do all farmers let their co-ops be sold out, you are your own worst enemy on this matter.

    Bonlac Co-op: Sold Out
    WCB Co-op: Sold Out
    Bega Co-op: Sold Out
    MG Co-op: Selling Out

    When Saputo paid $600m for WCB, don’t you realise they want to get a return on their investment, and where does it come from, the milk price paid to farmers.

    “Unlocking the value” is what selling out usually goes under, which takes money contributed or developed over many years by all past suppliers, and hands it to the current suppliers, who walk away with that value, at the expense of all future suppliers.

    I understand that farmers have enough on their plates managing their farms, that’s why it is critical that the co-op management should be given strict instructions that there will be no selling out, which that partial listing was the start of.

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