It always seems to be a rough road for the agri-sector. Recent years have seen it faced with drought, low milk prices and a change in government which has had severe knock on implications not only for overseas investors, but also for famers themselves. The banks are tightening their LVR requirements and some are looking to divest of certain agri-sectors all together. These factors coupled with the environmental issues around freshwater management and methane production, topped off with the recent winter grazing scandals, lead to interesting times!
However, in one shape or another, farming has been around as long as humans have. To survive, it has learnt to be one of the most agile professions and the present day is no exception.
In recent years I’ve seen an increase in the complexity around the structure of farming businesses, with those that were once family businesses now being far more formal corporate structures which triggers the need to understand corporate governance and what each individual’s duties and liabilities are.
I have also seen an increase in syndication models, farmers and investors coming together to own and operate farms, which gives an option for funding away from the typical bank debt structure.
Whilst these systems are increasingly common it is key to ensure that they are supported by appropriate legal documentation. Any company with more than one shareholder should have an agreement in place to govern how the entity will be operated. When drafting these agreements there are three areas that I believe are the most significant.
Firstly, who will have the right to appoint the directors, all shareholders or just those with over a certain level of ownership?
Second, what actions cannot be carried out without all shareholders, or a certain threshold of shareholders’ consent?
Lastly, how will each party exit the business? Not everyone will wish to exit at exactly the same time and it is imperative that the agreement has a mechanism to deal with this, whether a stake can be sold to a third party, the other shareholders buy them out, or if certain assets are sold to facilitate an exit.
In my opinion the agri-sector is more legally complex than ever before. This makes it critical that clients obtain the correct advice from an experienced professional that also understands the industry.