Under the proposed Constitution changes, the rules apply on a strict legal entity basis. Therefore, a grower can be misaligned if they own an orchard in the name of one legal entity, call it ‘Family Trust A’, but they own shares in the name of a different legal entity, call it ‘Orchard Partnership B’.
The result is that, under the amended Constitution, the different entity called ‘Orchard Partnership B’ is a non-producer, or more commonly referred to as being a ‘dry shareholder’. This is because there is no production attributed to this entity. If shares are not owned in the exact same legal entity as owns or leases the orchard, the shares are considered dry.
The result of this status is that the grower cannot vote the shares held by Orchard Partnership B, because voting entitlement is based on which entity owns or leases the orchard and has shares. Furthermore, under the amended Constitution, the grower could lose dividends on those misaligned shares after three years (or after seven years if the shareholder is dry when the rules take effect).
If a property is owned by a trust then the trustees of the trust will be listed on the Certificate of Title. If shares owned by the trustees differ from what is on the Title as legal owner then this is considered misaligned. Because of this, the shareholder would be considered ‘dry’.
MISALIGNED DEFINITION:
Owns shares under one legal entity but owns an orchard under another related party entity, not the exact same entity (and there is no lease in place). Therefore ownership of the shares and ownership of the orchard and fruit are not aligned.
Solution
There are simple ways to address this form of misalignment.
The grower can align shares with their production through a transfer of shares from Orchard Partnership B to the entity that owns the orchard, Family Trust A, or if Orchard Partnership B actually operates the orchard they can put a lease in place between them. Alternatively, a more complex solution would be to transfer the orchard into the share entity ‘Orchard Partnership B’.
The first option can be done anytime through an off-market transfer, which is a private transfer of shares between two parties that doesn’t require share broker services. The form and relevant instructions are available on:
- Canopy>Growing Kiwifruit>Shares>Ways to trade shares
- Or request a copy by emailing: [email protected]
Before taking any action in respect of shares or orchards, growers should consult with their professional advisers.
Trusts and Trustees
Approximately 35 percent of Zespri shares are currently held by trustees.
For the purposes of share ownership under the Companies Act, trustees are deemed as joint owners of shares – not the trust itself.
One consequence is that trustees need to make sure that there is alignment between their joint ownership of shares and their joint ownership of an orchard.
If there is a change in an individual trustee, for example because the trustee has retired, then a share transfer is required. The shares need to be transferred from one set of trustees jointly to the new set of trustees. This will only be permitted if the new trustees are producers, that is, own or lease an orchard.
This can be done through an off-market share transfer.
