1. Fonterra is not permitted to pay a dividend to a non-shareholder.
2. A dividend is the pro rata distribution of profit which has no direct correlation with production. The sharemilking agreement that pays a percentage of the payout is predicated on production. This distinction is highlighted in a situation where the production for the season is less than the number of shares held and conversely, where the production of the season is greater than the number of wet shares held.
3.  The industry is focusing on the issues arising from dividends which is destructive to the relationship between the parties and largely irrelevant. It would be far more constructive for the parties to negotiate a new agreement that focused on properly remunerating the sharemilker for the work that the sharemilker does, based on a percentage of the milk price. If, in order to retain the sharemilker, the owner needs to pay the sharemilker 51 or 52 percent, then that is a matter for the parties to agree to.
4. Providing for the payment on the milk produced based on the milk price is very simple to draft in an agreement and easy for the parties to understand. Conversely, trying to calculate a percentage of the dividend is very difficult.
5. By excluding the dividend from the calculation of the payment there are no potential issues with retentions. At the moment, there is scant regard to this issue in the current sharemilking agreement. It is expected that Fonterra will be retaining profits in the future. As you will undoubtedly know, the retentions are retentions from the dividend to be paid. It makes no sense that a sharemilker could claim a proportion of the retentions which legally are the entitlement of the shareholder.

If you would like to learn more about our solution to these post restructuring issues, attend our free seminar at Reporoa War Memorial Hall, 11am to 1pm on 17 March 2010.