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:
- 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.
- 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 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.