Saving the olive and almond plantations
KordaMentha Partner Andrew Malarkey reflects on the administration of the Timbercorp Group, when a sense of creative agility and determination enabled the KordaMentha team to negotiate challenging obstacles to achieve a series of remakable outcomes for the client.
‘KordaMentha was appointed as Voluntary Administrator to the Timbercorp Group in April 2009. In addition to forestry plantations of over 95,000 hectares, Timbercorp also managed vast horticultural projects in Victoria, Queensland and Western Australia, including almond plantations of over 12,000 hectares and olive plantations of over 6,000 hectares. Unlike forestry trees, which did not require irrigation or day-to-day care and maintenance, these plantations required regular irrigation and fertiliser to protect future crops and ensure the trees did not become dormant or potentially die. The Timbercorp Group outsourced this management to external service providers.
Once KordaMentha was appointed, these service providers were anxious for a guarantee that they would be paid if they continued to manage the orchards. We were unable to provide this assurance because the Timbercorp Group had minimal bank funds and no immediate cash inflows. Whilst there was value in the orchards, and the upcoming almond and olive harvest, the orchards were subject to Managed Investment Schemes which severely restricted our ability to deal with them. Whilst the majority of key Managed Investment Scheme providers have been subject to insolvency or wound up their operations, Timbercorp was the first. Subsequently, there were very few legal precedents to rely on for guidance. KordaMentha needed to pioneer an appropriate solution.
Given the pressing need to ensure continued management of the plantations, we negotiated a Crop Lien Agreement with the service providers in an attempt to allow them to recover their costs from the proceeds of the upcoming harvests. Because this type of arrangement had never been undertaken by an insolvent Responsible Entity, we made an urgent application to the Supreme Court under Section 447D of the Corporations Act to seek approval from the court.
During the course of the hearing it became apparent the court would not provide the approval we were seeking due to a technical legal impediment. However, in last minute negotiations with the service providers, an alternative mechanism was agreed which was acceptable to the court and provided the same commercial outcome to the service providers. This negotiation involved a sale of part of the upcoming harvest to the service providers at a price that would enable them to recover their costs once the harvest was sold.
Whilst the crop sale agreements ensured the ongoing maintenance of the plantations in the short term, the almond plantations soon faced another threat. Almond tree flowering and the subsequent crop are dependent on cross-pollination by bees. Without pollination the annual crop yield is low. The potential 2010 almond crop was forecast to be worth around $100 million.
The final hurdle in saving the almond plantations was to achieve a sale to a purchaser who had the resources for long term management. Following an extensive sale campaign which included interested parties from the US, Europe and Asia, we were successful in completing a sale of the orchards to Olam, a Singapore-based producer and processor of nuts and other agricultural products.
The sale was undertaken in very difficult circumstances. The worldwide price of almonds was at an all time low, supply costs were elevated by the ongoing drought and there was an unprecedented spike in worldwide fertiliser costs. Moreover, the Global Financial Crisis meant that few interested parties had the financial resources to raise the $128 million required to complete a sale. To exacerbate the situation, we also required the purchaser to commence funding management several months prior to an actual sale. And the ability to sell the assets without the encumbrance of the managed investment schemes could only be confirmed by the courts after a sale had been agreed.
The successful sale of the almond properties to Olam in November 2009, just seven months following KordaMentha’s appointment, ensured the plantations had adequate financial resources to meet their high ongoing costs and that they would continue to contribute to the economy of rural Victoria.’