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Exchanges of Settlement Quota Shares

Abbreviations

This document makes regular use of the abbreviations listed in the left hand column below for the words or names etc that are listed in the right hand column:

AFLAotearoa Fisheries Limited (as entity of TOKM Gp)

AHCAsset Holding Company (of a MIO)

FMVFair market value

MFAMaori Fisheries Act 2004

MIOMandated iwi organisation

NORNormal ie non-settlement quota shares

S (or s)Section (of the MFA)

SETSettlement quota shares

Te OhuTe Ohu Kai Moana Trustee Limited acting as corporate trustee of Te Ohu Kai Moana Trust

TOKMGpTe Ohu Kai Moana Group

Roles of MIOs and AHCs in Exchanges

Settlement quota shares (SET) are vested in AHCs, which are wholly-owned by MIOs. The AHC holds assets on behalf of the MIO. Generally a company would decide as part of its business strategy on whether to acquire or dispose of assets. The MFA providesunder Kaupapa 11 of Schedule 7 that the AHC will develop key strategies for the use of SET. This includes any programmes to re-organise the SET it holds, including by exchanging SET.

The MFA sets out further requirements for reorganising settlement assets. Kaupapa 11 of Schedule 7 also requires that MIOs must exercise strategic governance over their AHCs, including the approval of any plans to reorganise SET assets. The MFA also requires that the MIO ensure that Iwi members have prior notice of the MIO’s ability to approve such a course of action by including a policy on exchanges in their annual plans.In addition, the MFA provides that it is for MIOs to undertake quota exchanges using SET quota shares – in doing so a number of the actual processes involved with quota exchanges will have to be undertaken by officers of AHCs as the persons authorised to deal with the assets. This paper follows the requirements of the Act and sets out each participant’s responsibilities.

Overview

Introduction

This document deals with exchanges (or swaps) of settlement quota shares (SET)[1] as provided for in Part 4 of the Maori Fisheries Act (MFA). The MFA provides a number of detailed processes and restrictions that apply to exchange of SET.

Section 173[2] of the MFA provides for the exchange of SET for other quota shares between two parties. In this type of transfer there is no monetary exchange..

Such exchanges are subject to:

  • key conditions in s173 (1) and (2) and
  • the criteria and process set out in s 174, and
  • any rules made in accordance with s176 and s54 and then published in the Gazette.

The key principle of exchanges is that the overall value of the commercial Maori Fisheries settlement quota shares held by any MIO or an entity within the TOKM Gp cannot be diminished.

SET cannot be exchanged for a negotiated price, but rather must be exchanged for other quota shares of an equivalent fair market value. Accordingly, Te Ohu proposes that for any package of SET to be swapped, the overall value must be within ± 10% of the “Fair Market Values” published in a schedule that Te Ohu proposes to post on its website every 6 months.

Key Conditions of exchange

Parties:

  • One of the two parties in any exchange must always be –
  • either a MIO
  • or an entity within the TOKM Group
  • The other party can be any other registered party[3];
  • An exchange can be proposed / initiated by either of the parties.

Any MIO or TOKM Group entity must hold SET of the same fair market value (FMV) at the end of the exchange.

Quota shares:

The quota shares to be received by the MIO or TOKM Group entity in the exchange transaction must be:

  • of equivalent FMV in total as the SET that the MIO or TOKM Gp entity offers; and
  • either entirely SET
  • or entirely non-settlement [normal] quota shares (NOR)

at the commencement of the exchange, but

  • must be entirely SETat the completion of the exchange.

Criteria:

The proposed exchange must comply with the exchanges policy expressed in the annual plan of any MIO (and its AHC) participating in the proposal.

Process:

The process required by the MFA is shown in Figure 1 over.

  1. The MIO or TOKM Group entity involved in the exchange must:
  • apply to Te Ohu for consent to the proposal using the Application for an Exchange of Settlement Quota Shares form [See form in Appendix 1]
  • the application must include:
  • quota shares and fair market value details
  • specified supporting documentation including the exchanges policy of the MIO and its AHC
  • any other information required by the form
  • the Te Ohu fee and the FishServe exchange registration fee
  • an undertaking to reimburse Te Ohu for any relevant additional FishServe fees for the exchange see pg 13
  • authorised signatures (refer footnote on Pg 8).
  1. Te Ohu will assess the information provided and either consent to or decline the proposed exchange. Note Te Ohu’s role is only to ensure that the designated process has been followed and FMV used– it does not have any role assessing the merits of any exchange.
  1. Te Ohu will endeavour to complete its decision within ten (10) working days, provided applicants have completed the form correctly and supplied all the information required.
  1. Upon consenting to the application –
  • Te Ohu will:
  • complete and sign the relevant part of the form that sets out the transfers and the directions to FishServe for the placement and/or the removal of settlement quota interests as dictated by the incoming and outgoing quota shares; and
  • lodge that form and the applicant’s transfer fees with FishServe for registration of the exchange;
  • notify MFish regarding the placement and/or the removal of settlement quota interests; and
  • notify the applicants.
  1. If the application is refused -
  • Te Ohu will:
  • notify the applicant of the reasons for the refusal; and
  • propose options to continue.

Example:

  1. Attached as Appendix 2, there is an example of –
  • the circumstances that might lead to an exchange; and
  • the various quota stocks and values involved.

Exchanges of Quota Shares

pursant to sections 173 & 174 Maori Fisheries Act 2004

Procedures for MIOs and TOKM Group entities

(as a party to an exchange)

Required Actions / Checklist of Procedures
Step / Description
1 / Develop a proposal for an exchange of some of your Settlement Quota shares for an amount of quota of equivalent fair market value (FMV) from any other registered quota owner
Ref s174(1) / Policies
  • Has your organisation’s annual plan set out its policy on exchanges of quota shares? Does your proposal comply with that policy?[4]
  • If the other party to this exchange[5]is a MIO or TOKM Gp entity, does that organisation have its policy on exchanges of quota shares in its annual plan and does the proposed exchange also comply with that policy?
  • Are the quota shares to be received by you in the exchange –
  • either entirely settlement quota shares (SET)?
  • or entirely non-settlement quota shares (NOR)?
NB: multiple exchanges involving wholly SET or NOR quota will be considered by Te Ohu to achieve the “equivalent fair market value” result[6] .
Calculation of FMV
  • Using the methodology required by the s176 rules promulgated by Te Ohu, calculate the market value of the quota shares that you are offering to the other party
  • Using the methodology required by the s176 rules promulgated by Te Ohu, calculate the market value of the quota shares to be received from the other party
  • Are the market values the same or within ± 10% of each other for both lots of quota shares?
NB – do not proceed to Step 2 unless the answer to each question above is “yes”

Exchanges of Quota Shares cont’d

Required Actions / Checklist of Procedures
Step / Description
2 / Document the exchange proposal in the prescribed manner and form
Ref s174(2) and s176(2)(h) + (j) /
  • Using the form “Application for Exchange of Settlement Quota Shares[7]” - (available from Te Ohu and FishServe) complete Part 1 or 2 with the required details of the exchange proposal
  • Ensure that you
  • follow the instructions provided on the form, and
  • complete all applicable sections of the form
  • Assemble the supporting documentation to support your application
  • Ensure your authorised signatories[8] sign in the place provided at the end of your Part of the form and attach the –
  • Te Ohu consent Fee ($50.00);
  • FishServe exchange registration fee[9]; and
  • Supporting documentation

Required Actions / Checklist of Procedures
Step / Description
3 / Present the completed application to Te Ohu
Ref s174(1) + (2) /
  • Post, courier or hand deliver the form (including the fee and attachments) to Te Ohu using the address details on the form
  • Te Ohu will advise you in writing re
  • receipt of your application, and
  • details and decision of the consent process

Section 176 Maori Fisheries Act 2004

RULES

(for the exchange of settlement quota shares)

Introduction

  1. Section 176(1) provides for:
  • Te Ohu to make and amend rules to be followed during the sale and exchange of settlement quota shares (SET).
  • Rules must be made and/or amended following the process set out in section 54 of the Act (Refer Appendix 3 for s 54 and s 176).
  1. Section 54 requires Te Ohu to at a minimum:
  • identify MIOs that will be affected by such proposed rules;
  • inform the MIOs; and
  • allow MIOs at least 20 working days to make written submissions to Te Ohu on the proposal.
  1. Finalised rules must be:
  • consistent with the Act and any other enactment or rule of law; and
  • notified in the Gazette.

Rules for Exchanges

  1. Section 176(2) provides for rules to include (but not be limited to) the following matters in relation to exchanges:

Section / Outline of Rule
s176(2)(g) /

Rule 1

The means for determining –
  • fair market value for SET that is exchanged, and
  • the resolution of any disputes of that value

s176(2)(h) /

Rule 2

  • The recovery of costs by Te Ohu for their processes required to administer exchanges of SET, and
  • Costs may be paid by or deducted from a MIO

s176(2)(j) /

Rule 3

  • The information that must be supplied to Te Ohu and
  • The form and timeframe in which information must be supplied

Application of Rules

  1. Section 176(3) provides for any rules made to apply to:
  • all SET and/or all MIOs;
  • specified SET and/or a specifically named MIO; or
  • SET and/or a MIO of a category specified in the Gazette Notice.

Proposed Rules for Exchanges

Rule 1
Fair Market Value for Quota to be exchanged / Maori Fisheries Act reference:
s176(2)(g)
Background
  • The Act requires that any exchange is at fair market value so as to maintain the value of the settlement for any MIO.
  • While this could be left to the parties to demonstrate in each exchange, it is likely to be extremely inefficient and impose an additional cost on any exchange that could outweigh the value of the exchange.
  • It is considered of greater benefit to have Te Ohu obtain market data and publish this as the general default values to be used but allow MIOs, at their own cost, to bring evidence of alternative values including the reasons for those alternative values (eg impending TACC cuts, drop in market prices due to exchange rate changes etc) in instances where they consider the defaults to be inappropriate.
  • Te Ohu will obtain market data from the average weighted values of annual quota transfers set out in the “Blue Book”, a monthly FishServe publication. That publication includes :
  • Quota Shares Transfer Prices Year-to-date figures for the Oct, Feb and Apr fishing years
  • the Quota Shares Transfer Prices for the period 1 Oct 2001 to the period being examined
  • The Blue Book is compiled based on rules agreed among the industry in 2001. Consequently it is a reputable product containing consistent data and is the best available “standard”.
  • Te Ohu will review this Blue Book information twice a year and determine its schedule of market values (for exchanges). It is proposed to use:
  • the Year-to-date figures if available, then
  • the 1 Oct 2001 figures if there are no Year-to-date figures; and
  • in the situation where the Blue Book does not provide any data on a particular stock, Te Ohu will source an independent market valuation for that stock. Any such valuations/stocks will be denoted in the Te Ohu schedule.
  • The Te Ohu schedule will be posted on its website and these values shall be the default values from that date until replaced. This data will be posted by the end of April and October.
Rules
1a(i) The fair market values of quota shares for use in an exchange shall be those values notified in the Te Ohu schedule unless a fair market value is established in accordance with the dispute resolution provisions set out in Rules 1 b (i) to (iii).
1a(ii) The Blue Book will be the principal means that Te Ohu will use to determine the fair market value of quota stocks for use in an exchange transaction as notified in the Te Ohu schedule. Te Ohu will use:
  • the Year-to-date figures if available, then
  • the 1 Oct 2001 figures if there are no Year-to-date figures
1a(iii) In the situation where the Blue Book does not provide any data on a particular stock, Te Ohu will source an independent market valuation for that stock. Any such valuations/stocks will be denoted in the Te Ohu schedule.
1a(iv) The total values of all the stocks to be exchanged by both parties must be the same or within ±10% of each other and the values derived from the Te Ohu schedule.
The means for determining the resolution of any disputes of fair market value contained in the Te Ohu schedule are as follows:
1b(i) Any disputes between a MIO (or its AHC) and Te Ohu regarding the values on the Te Ohu schedule, are to be resolved by the MIO and Te Ohu by negotiation in the first instance, or by an agreed independent valuation in accordance with Rule 1 (b) (iii).
1b(ii) Any disputes regarding FMV between parties to a proposed Exchange are to be resolved by the parties, through negotiation or by an independent valuation. Te Ohu will not provide advice or intervene in such a dispute.
1b(iii) If Te Ohu disputes the FMV proposed by a MIO or the MIOs in an application for consent of an Exchange, then Te Ohu will advise the MIO or the MIOs in writing of its FMV assessment, and require the MIO(s) to:
either
  • agree a new value with the other party and make the necessary amendment on the consent application form;
or
  • provide an independent valuation together with any supporting reasons for the proposed FMV to Te Ohu’s satisfaction.

Rule 2a
Recovery of Te Ohu’s administrative costs for Exchange consent processes / Maori Fisheries Act reference:
s176(2)(h)
Background
  • Over the longer term Te Ohu will, through its Annual Plan process, set out the degree of recovery of its costs for the performance of its administrative processes associated with consenting to proposed exchanges of settlement quota.
  • The costs will be recovered by a fee payable at the time of making application for consent. Te Ohu would not process the application unless it was accompanied by the application fee.
  • In the interim however, Te Ohu will only partially recover the costs and any extra costs will be met from transitional funding.
  • During this time MIOs (and their AHCs) will be developing their long-term strategies and undertaking initial adjustments.
  • This application fee does not include the FishServe fee for the registration of the exchange, and unless the party to the exchange has pre-pay exemption status or direct debit arrangements with FishServe, this FishServe registration fee must be paid by cheque and accompany the application form when it is presented to Te Ohu.
Rule
2a(i) The interim Te Ohu application fee for consent is $50.00
Rule 2b
Recovery of any additional costs that Te Ohu meets for FishServe fees / Maori Fisheries Act reference:
s176(2)(h)
Background
  • The Te Ohu application fee does not include the FishServe fee for the registration of the exchange, and unless the party to the exchange has pre-pay exemption status or direct debit arrangements with FishServe, this FishServe registration fee must be paid by cheque and accompany the application form when it is presented to Te Ohu.
  • Where the application does not contain any cheque for FishServe, and no pre-pay exemption status or direct debit arrangements with FishServe are in place, Te Ohu will not forward the exchange to FishServe until a cheque is received or payment arrangements are organised.
  • However, where there are small differences between the amount in the cheque received and the FishServe registration fee and the amount of that cheque is insufficient to cover the required FishServe registration fee, Te Ohu will forward the short-paid amount to FishServe to expedite the registration. Te Ohu will notify the applicant of this amount and the process to recover it, in conjunction with the exchange proposal decision letter.
Rule
2b(i) Te Ohu will invoice any applicant for the costs involved where it has funded a part of the FishServe exchange registration fee on behalf of that applicant.
Rule 3
The form of the information to be supplied to Te Ohu for the Exchange consent process and the timeframe for its supply / Maori Fisheries Act reference:
s176(2)(j)
Background
  • To obtain consent to an exchange of settlement quota, as required by s174(1)(b), the parties to the exchange must provide information to Te Ohu on the “Application for an Exchange of Settlement Quota” form.
  • This “Application for an Exchange of Settlement Quota” form has been developed specifically for both the consent and the registration processes of the exchange and is available from Te Ohu and/or FishServe. A copy of the form is attached as Appendix 1.
  • The form must be completed in accordance with the instructions provided. It sets out and describes all the information that both parties to an exchange must supply.
Rules
3(i) Parties to an exchange of settlement quota shares must use the “Application for an Exchange of Settlement Quota” form.
3(ii) Where any party to the application is a MIO/AHC or TOKM Group entity, that party must provide
a)a copy of the AHC's policy on exchanges, and the confirmation of that policy by the MIO
b)a copy of the MIO’s policy on exchanges of settlement quota included in the MIO's most recent Annual Plan, and
c)A copy of any supporting valuation if non-Te Ohu valuations have been used.

Appendices