Wednesday, July 6, 2022

High-stress challenges from receivership

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Dodgy foreign buyers, seized stock, difficult personalities and scattered farms all contributed to a multi-million dollar receiver’s bill when the Crafar farms were finally sold in late November.

Receiver Brendon Gibson, of KordaMentha, acknowledged the firm’s $7.7 million bill to October last year was a lot of money, but was for a job he had originally hoped to complete by late 2010. The company went into receivership in October 2009 owing $194m to Westpac, Rabobank and PGG Wrightson. The timeline stretched over an additional two years, on a receivership fraught with almost every hurdle that could be encountered in the commercial field.

“It is a lot of money, I don’t deny that, but it is also an enterprise that was sold for hundreds of millions of dollars,” Gibson said.

The deal with Chinese company Shanghai-Pengxin is reputed to have been about $200m for land and stock, accounting for 8000ha and 16,000 cows. Alongside the receiver’s bill were legal costs of almost $6m. However, unsecured creditors have been left well out of pocket, with almost $5m outstanding to a cross section of businesses scattered throughout New Zealand. That includes more than $100,000 owed to a Tokoroa veterinary clinic and a similar amount to a transport firm. Even Ravensdown Fertiliser was caught, owed $400,000.

Gibson admits the toughest part of the job has been knowing there is nothing left for these creditors.

He said the Crafar operation had brought high-stress challenges from day one, when Ministry of Agriculture and Fisheries (MAF) officers swarmed over the farming operation after animal welfare issues had been made public. Other issues quickly presented themselves as the Crafar family became a lightning rod for many negative aspects of dairying. These included welfare issues, extended debt and poor effluent management.

“It was pretty public at the time and very intensive to start with. The business was in a state of crisis across the whole group,” Gibson said.

A cold snap across the central North Island, feed shortages, and cows in  poor shape after calving required significant levels of bought-in feed just to keep animals alive. Problems grew with the security claim by finance company StockCo over 4000 heifers, which included truckloads of animals being spirited away one weekend.

The receivership also came only weeks after the Crafars had been hit with one of the biggest penalties ever dished out for effluent breaches, and most properties demanded capital expenditure to get systems compliant.

“The capex over the period, including buying livestock, we would have spent $14-15m also on effluent systems, land improvement and machinery.”

The May Wang bid to buy the properties added delays to getting a final settlement, with the group placing caveats over the properties. Wang’s grand scheme to acquire $1 billion of farmland and her background made the deal the highest-profile land sale ever conducted in New Zealand. It ultimately fell over under a cloud of corruption and Serious Fraud Office investigations.

Even after the Shanghai-Pengxin deal came to prominence, debate over foreign ownership and Maori opposition to the sale of the Benneydale properties ensured the deal was never far from the public eye.

“If anything happened the media would find out and we would get a call seeking a response. It was very intensive scrutiny,” Gibson said.

For Gibson the Crafar deal has been the biggest rural job undertaken by KordaMentha, eclipsed only by the Central North Island Forest Partnership deal, in which that company was sold for US$600m in 2003. He said lessons for the industry from the Crafar saga lie around the impact high leverage can have on large-scale farming operations.

“You already have a number of variables in animals, weather and payout, only some of which you can control. But if you have high leverage and get in a tight spot, on this scale it can compound on itself and you need capital.”

He acknowledged how costs had become embedded into farming systems that were hard to remove when the payout sank, noting he felt the Crafar operation was middle of the road in its ranking of system type.

He said the Crafar family did not agree with a lot of what the receivers had done, but believed KordaMentha extracted good value for the banks owed so much.

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