Forty-One A Pack of Wolves 1987

CHAPTER FORTY-ONE

A Pack of Wolves

Silence reigned in the aftermath of the meeting; it seemed to grip not only those at the centre of the occasion but the wider community, shareholders and Farmers’ Co-op staff alike. It was described as like being ‘in the eye of a storm’. Although shareholders had supposedly saved the day and stopped the sale of the company, there was no strategic or master plan and the words ‘easier said than done’, and ‘will they put their money where their mouth is?’, were still ringing in the ears of some discerning attendees.

Not all at the Extraordinary General Meeting left feeling that justice had been done, and the ‘regrettable behaviour’ of some attending the meeting was brought into question by the media and letters to the editor:

SIR.—

May I through your column, comment on the meeting last Monday of the FCOS.

One question I would like to ask the shareholders present, particularly the farming shareholders, is how many of them deal solely with the company and have done so consistently over the last 10 years?

I know from my experience in my employment that many farmers who dealt solely with the FCOS now spread their buying and selling around other stock firms, particularly over the last five or six years. The atmosphere in the hall prior to the meeting was, to say the least, electric and I wonder how many present have ever been to an annual meeting of the company — not many when the average attendance at annual general meetings is between 80–100.

Really, it was like a pack of wolves waiting to be fed — ten to fifteen per cent being the exception to that last category. I would wonder how many had ever attended a meeting before. When the meeting was open for discussion it was moved and seconded that each speaker would be allowed to speak once for three minutes with the exception of Mr Harris. Two speakers later, demands were made that that was not to be. By rights the chairman could have stuck to the original motion but he allowed it to be changed. I commend Mr Blyde on his chairmanship owing to the ill health of Mr Williams, it certainly was no easy task, not that many will praise him for his authority.

Rumour has it that of all the speakers at the meeting, Mr Bourke was the only regular attendee of annual general meetings and consistently took an interest in the company and always asked questions of interest to other shareholders. Shareholders ask why they were not informed of the position of the company sooner. How many have consistently read their balance sheets and attended annual meetings? Maybe they cannot understand a balance sheet and milking cows and tending stock is their limit.

The best economist in the world could have stood up and spoken at the meeting on Monday and it would not have mattered, as too many people went there with one thought on their minds. I now hope that they have put their money where their mouth is. It will be interesting to see what contributions are received from the so-called voters against the directors’ recommendation.

I commend Mr Bourke disclaiming the reaction of the people present to the reaction they made on

the resignation of the past directors. I certainly was not one of those cheering and clapping rude people and neither were several around me. In conclusion, I commend the past directors of the company for their efforts and also commend the people who had the intelligence to vote for their recommendation — there are obviously very few of us left, with a little bit of common sense and who let our brain tell us what to do, not our emotions. Small Genuine Shareholder.

Whether for or against, all attending the meeting departed with mixed feelings, but none more so than the directors and chief executive who resigned. The former board had explored every possible avenue, considered and accepted professional advice from experts, yet in the end it was to no avail. They had done their level best and had always had the long-term interests of shareholders, clients and staff to the fore. However, the sweeping philosophical and cultural changes required to move the company forward would never have been delivered by the existing board who carried so much baggage from the past. It required an uninhibited lateral approach, with new people, a completely new modus operandi, to uplift the organisation from the present situation. For the former chairman, directors and chief executive the sale of the company was the only way. In spite of Reeve Williams’ failing health, he had personally given everything of himself during his tenure as chairman to correct the liquidity difficulties he inherited. Although the board refused his request for outside assistance in 1981, they had otherwise provided unequivocal support. On the day, no greater contribution was made than that of deputy chairman Peter Blyde, who with dignity and courage carried out the final wishes of the directors, for whom the recent months had been painful and heartrending, and one that they and others closely associated would never forget.

It was now time for them all to move on. Reeve Williams, although never fully recovering from his illness, returned to his farming operation at Ohangai, and in later years moved to Tauranga with his wife Edna. Peter Blyde continued to sit on a number of boards and returned to farm the family property at Lepperton. The other embattled directors were in the main pleased to put the experience behind them and went back to their occupations and lives in the rural districts and towns where they lived.

Taranaki Farmers was suddenly the topic of conversation throughout the New Zealand farming fraternity. The circumstances were quite extraordinary and of considerable interest to those with rural sector connections. Listening to the National news programme, Chartered Accountant and strategic business adviser David Simpson, from Finance & Advisory Services Ltd, Auckland, heard of the plight of the company. His business was a corporate advisory service, operating essentially in the fields of financial and general management. It had two principals: Mr Alistair L. Hutchinson, B.Com (Hons), A.C.A. who was formerly financial secretary to the Government of Western Samoa and an Alternate Governor of the International Monetary Fund and the Asian Development Bank, with extensive commercial experience in New Zealand, Australia and the Pacific; and Mr David Simpson, MBA, ACA, CMA, also with extensive consultancy experience in the fields of finance and general management in Australia, South East Asia and New Zealand. Apart from being a director of a number of companies David Simpson had been financial controller of Allied Farmers’ Co-op in Auckland and had worked closely, as second in command, to the then managing director the late Stan Pritchard. He had considerable experience in the pastoral industry. David Simpson recalls – it was 1 April 1987: It was 12:30 in the afternoon and I heard about the Farmers’ Co-op and that the board had resigned and a new board had been appointed. I pricked up my ears because I had had some experience in the industry before, and being a wide awake consultant – if you like – I always sniff around for opportunities and thought – hello, I wonder if they need some help!

Armed with a report from the New Zealand Herald, he obtained the new chairman’s name and address and contacted him early in the morning. Brian Train answered the phone and David Simpson explained he had heard about the difficulties and wondered how they were off for advisers. Brian Train said:

I was still in bed when the phone rang – a voice said ‘my name’s David Simpson, I have just heard about the Farmers’ Co-op. I was a financial controller with Allied Farmers in the Waikato and I could be of assistance to you’. I said, ‘thanks very much, I will think about it’, and left it at that. I’m always a little cautious when people come out of the blue like that.

Brian’s response was cautious but he was curious. David Simpson said he had worked for the original Allied Farmers Ltd in Waikato and Northland as head of finance under the chairmanship of Doug Hazard. The mention of Doug Hazard’s name immediately lowered Brian’s defences. Doug Hazard had an exceptional reputation in the world of finance and in particular as Receiver in the first wave of defaulting companies and of the JBL Group in the 1970s. Brian asked David Simpson to forward a curriculum vitae. At least someone was interested in the company’s predicament and his impression was that he felt that the caller ‘seemed to have some substance’ and although ‘did not know the guy from a bar of soap’, he knew that Doug Hazard had been appointed statutory manager of JBL by Robert Muldoon. His background was indeed impeccable. An Auckland-based Chartered Accountant specialising in receiverships, he commenced his career in Hamilton. Among other projects he was overseer of the merger of Farmers Co-op Auctioneering Co. Ltd, with North Auckland Farmers Co-op Ltd, and became chairman of Allied Farmers Co-op Ltd. During his term as chairman of this company he was also on several other boards such as Northland Dairy Company, Ports of Tauranga Ltd, Odlins Timber Co Ltd, and chairman of Fiji Air, an internal and Pacific regional carrier. The Allied Farmers operation also involved Mr Hazard travelling to the Middle East to oversee the establishment of a meat import company in the region. In the 1960s he was appointed by the Government to the role of Statutory Manager of JBL Group Ltd, one of New Zealand’s first large corporate collapses, and was responsible for recovering a significant portion of investors’ and creditors’ money, which included funds from some overseas countries. His ‘no nonsense’ approach and success in difficult situations had gained him an enviable reputation.

With so much to consider in such a short time no consideration had been given by the new board to involving an outside agency in the financial reconstruction of the company. Just coming to grips with the enormity of the task was currently taking every moment of their time. The provincial and national newspapers ran articles with captions like ‘Farmers ready to fight’, ‘People power saved the day’ and ‘Company’s sale heavily rejected’. The intrepid new directorate was back in the boardroom at 9:30am on Tuesday 31 March. It was going to be a long day. They were now in charge of a company that was in serious financial difficulty, the extent of which was not fully known. Fortunately the previous evening Colin Morrison, manager of the retail division, had forwarded Brian Train a management report showing that losses for February 1987 were $275,000 and they were paying between 20 and 21 per cent interest on $7 million. It was not good news. The company executives who remained, namely Trevor Harrop company secretary, Trevor Pope manager of the finance company, Colin Morrison, retail manager, Mr Western, area manager New Plymouth and Mr Grenside, wool department, Wanganui assembled at head office not knowing what to expect of the day or of each other. They now, however, shared an enormous responsibility. There were many unknown factors, such as staff loyalties and the ability of the new directors. Would senior management and staff support a new and relatively inexperienced regime?

Those present in the boardroom included, B. A. Train, chairman, P. L. Cook, P. R. Harris, D. J. Harvey, L. C. Laird, R. A. Lithgow, P. R. Pederson and T. J. Harrop, company secretary. The first item on the quickly drafted agenda was to appoint a deputy chairman and it was moved by Mr Lithgow

and seconded by Mr Laird that Mr Paul Harris be appointed to this role. The second item was Mr Evennett’s resignation. Mr Harris stated that Mr Evennett’s resignation as chief executive officer and director of subsidiary companies should be accepted. ‘His exit from the company should be tidied up prior to his departure’. It was then resolved ‘that the resignation of Mr Evennett be accepted forthwith’.

Derek Evennett had been appointed two years earlier specifically to introduce restructuring initiatives to correct the seriously deteriorating liquidity problem in the company and was subsequently to bear the brunt of criticism in the aftermath of what had been a period of economic turbulence and a series of poor decisions throughout two decades. He resigned with no planned exit or employment arrangements in place, firmly believing that the recomendation to sell to Elders would receive the approval of shareholders. As we now know, that was not the case and the fallout and controversy did not enhance Derek Evennett’s future employment opportunities. Two months elapsed and he received a telephone call from his former managing director at Fletcher Industries and was asked to assist in restructuring another group of companies. Ten years later to the day, Derek Evennett bought one of the companies, ‘Clearlite’, a wholly New Zealand-owned-andoperated company specialising in bathroomware, furniture and accessories. Although semi-retired, he still owns the company and holds the position of chairman of Clearlite and Athena Bathrooms and resides with his family on the North Shore in Auckland.

Colin Morrison was called into the boardroom and offered the position of acting general manager, which he accepted. His initial immediate reaction was: ‘I am the Acting General Manager – and 18 months ago I was a stock agent – Wow! What a recipe for disaster!’

Colin accepted the position knowing that a significant weight would be placed on his shoulders over the coming months. His ability to adapt had been clearly demonstrated during his long and loyal service with Farmers’ Co-op. He had risen from a subordinate position to that of acting general manager at a time when the company was at its lowest ebb. Having earlier executed one of the most distasteful jobs of his career, involving the redundancy of many of his long-time work mates, he was now able to have a significant positive input to the rejuvenation of the company he so admired. His personal contribution towards Taranaki Farmers’ recovery cannot be understated. It was Colin who brought the two groups from Waverley and Stratford together, as a result of the unforgettable train ride.

The remaining Farmers’ Co-op executives were invited back into the boardroom and advised of Mr Morrison’s appointment and requested to give their ‘full support to Colin in his new role’. With the appointments of Colin Morrison as acting general manager, and Trevor Harrop as company secretary, Brian Train immediately had evidence that the Company’s financials were in good hands: ‘In all fairness – we had all the information by 12 o’clock the next day. We knew we had unsecured and secured creditors of this and that.’

Preston Bulfin and Ken Horner from Halliwells, the company’s solicitors for the past 74 years, were then invited into the meeting to provide directors with ‘a rundown on their responsibilities’. Mr Bulfin explained that if the company was recognised to be insolvent by the directors and they incurred further debts after this fact was known to them, then they became personally liable for those debts. A question was then raised about the definition of the term ‘insolvent’. He stated the opinion that ‘the old board was okay as the company was paying for its debts as they fell due and a Section 205 notice was proceeded with promptly’. This being the case, the directors could not be seen to be negligent and face personal liability. A Scheme of Arrangement proposal had already been drafted and presented to the former board for consideration but would now require considerable alteration and go back to the High Court for amendment, to embody the change in direction, new management and new directors. He went on to explain that the company needed to make every effort to pay for current purchases and continue with the Section 205 Scheme of Arrangement

with its creditors. A suggestion was made that if a Section 218 was served on the company then the hearing could probably be postponed until the court decision was given on the Section 205. The various stages of the section 205 were explained: Application made to the Court on the commercial sense of the Scheme and to determine the period of notice required. Each meeting of creditors needs to agree to the scheme by a 75% majority. Once meetings have agreed to the scheme it is returned to the Court for approval, at which time any creditor could object.

Essentially once the amended Scheme of Arrangement had been approved at meetings of each category of creditors and had received the final sanction of the High Court, it would then be binding on all shareholders and creditors, thus protecting the company by preventing creditors and members from winding it up for the duration of the Scheme.

Detailed information provided to the former board relating to the continuing responsibility of directors was now handed out to the new directors, who were advised that: ‘Care was needed by any person making statements on behalf of the company as to its ability to pay, given that no assurance can be given re future guaranteed payments.’

Discussion then took place concerning the merits of establishing a trust fund to cater for the collection of $3 million of capital consisting of redeemable preference shares to existing holders of ordinary shares. Should the figure not be reached, the money would be repaid to the original donors. If the target figure was reached, the prospectus could be issued and the shares taken up. It was agreed that the idea had merit and that the company would not use interest earned for its own purposes prior to the issuing of shares. Other matters were considered at this inaugural meeting of directors that was finally adjourned after over eight hours, at 5:45pm on Tuesday 31 March, and reconvened on Wednesday 1 April 1987 at 1:00pm. Mr Morrison commented that one of the major problems at the time was staff confidence and the supply of product and payment for the goods. He also stated that the split in the livestock and merchandise departments 12 months previously had not worked and a significant improvement would eventuate if they were brought back together. He also alluded to a number of staff members who were on the Elders ‘hit list’ and needed to be reassured about their positions, and that the board may need to consider salaries, improve cars, and ‘drop off poor staff at the other end’. Colin Morrison knew that Elders had been going to contact key staff within the next two days. Salaried reviews normally carried out in January had not been actioned and many had lost relativity with staff on award wages who had received increases in the normal way. A report had also been received from Foodstuffs, who were seriously considering stopping further supplies, and Roy Lithgow had received a communication from Fernz Corporation Ltd stating that they were owed $3.2 million. He had given an undertaking to pay $200,000 that day.

The chairman advised the meeting of his discussion with David Simpson from Finance & Advisory Services Limited, Auckland, and his offer of independent advice on the financial position of the company. The chairman also advised the board that he had held discussions with John Knott of Williams & Kettle Ltd, who stated that ‘in the company’s position it should definitely seek financial advice’. It was agreed that the chairman should have a further discussion with David Simpson. The salaries of the acting general manager and company secretary were set. Credit managers Messrs Bishop, Kilminster and Sefton were invited into the meeting, the directors stating that they were very concerned about the debtors level. The key exercise of the directors over the next few weeks was to collect debt. The fact was that merchandise debtors of $7.3 million was overdue three months or more, this representing 60% ‘and in the livestock ledger some 35% was also overdue three months or more’. There was a need for an all-out onslaught on overdue accounts. Credit managers were asked to prepare reports immediately for the following day with details of how the debt was to be collected and what action was to be taken. The debate regarding the collection of debts became so

heated that one director suggested that unless amounts were paid within 14 days, names should be published with the amounts owing and then if payment was still not forthcoming, they should be given to a debt-collection agency and that if this was not done he would resign from the board. However, following a full and frank discussion regarding the publication of names, it was felt that the time was not right for this action and it was resolved to review the matter in a fortnight. It was further resolved:

That this resolution be included in a letter to debtors who are overdue 90 days, this note to read – ‘That the policy of keeping confidential the names of particular overdue debtors will be reviewed by the board in a fortnight’.

Committees were appointed from the directorate: Finance Lithgow & Harris Fixed Assets Pedersen & Harvey Staff Laird, Cook & Harris

Discussion took place concerning the benefit of a trust fund to protect clients’ money and whether to appoint a receiver so that the company could continue to trade ‘and raise moneys required and restructure the company’. Company rationalisation was also on the agenda, with a need to shed parts of the operation that were not profitable. Fortunately the previous board and management had made considerable inroads into slimming down the size of the company. Colin Morrison was asked to discuss with branch managers and staff matters regarding rationalisation of the stock department and to set up a report. Following a brief discussion regarding the directors’ stance on charging cash for groceries, it was resolved: ‘That groceries will be on a cash basis as from Monday 6 April 1987.’

A number of other issues relating to improving efficiency were also discussed and the company’s solicitors, Halliwells of Hawera, had now engaged two lawyers, including Messrs A. J. Clark and K. A. Horner, to counsel the new board on a number of important issues. One was the establishment of a trust fund to protect shareholders funds in a new issue of shares, another alterations to the Scheme of Arrangement under section 205 of the Companies Act, as well as the question of the legal liability of directors. The question relating to directors’ responsibilities was of particular concern because it essentially revolved around whether or not the company was insolvent. If it was thought that the company was insolvent then members of the board were laying themselves open to the risk of being personally liable in respect of any debts incurred from the point that they knew this to be so. It was also emphasised that: In the view of the change of policy brought about by the Extraordinary Meeting of the 30 March and consequent abandonment of the sale to Elders that your secured and larger unsecured creditors at least be kept appraised of your proposals and their development. Legal opinion was sought from Nicholson Gribbin, barristers and solicitors, Auckland as to the position of the directors should the shareholders and creditors of the company not enter into a Scheme of Arrangement under Section 205 of the Companies Act. In short, the outcome and advice from the legal advisers was that: The directors of the company have a potential personal liability in the event of the company continuing to trade at a time when it is not able to meet payment on due date to its creditors. The fact that the accounts of some creditors are substantially in arrears is prima facie evidence that the company is unable to meet payment to its creditors.