FISHING INDUSTRY NEWS ARTICLE
DECEMBER 2017
BROTHERS AND SISTERS BEWARE!
A policy phenomenon which appeared in FRAP 2015/16 sector policies can have devastating effects on a group’s historic fishing allocations.
Despite there being no mention of it in the 2013 General Policy which applies to all the sectors being allocated in 2015/16, the brother / sister and holding company / subsidiary criterion has snuck its way into 2015/16 sector policies. The relevant provisions state:
“(f) APPLICANT’S INVOLMENTS AND RELATIONSHIP WITH OTHER APPLICANTS
(i) ENTITY AND SUBSIDIARIES INVOLVEMENT
A company and its subsidiaries may not be granted more than one right in a fishery, so as to avoid fronts and monopolies and to promote broader access to the Horse Mackerel resource. Applicants are required to disclose their relationship to other applicants for the allocation of rights in the fishery, as well as in other commercial fisheries. If an entity and its subsidiary both apply for a right in the same fishery, the holding / umbrella / parent company will be preferred with due regard being taken to the department’s transformation objectives.
(ii) BROTHER / SISTER CORPORATIONS
If two or more entities which are owned and controlled by the same person or persons or shareholders apply for a commercial fishing right in the fishery, and qualify for allocation of such rights, then the department may consider allocating a fishing right to one of the qualifying entities only “or dividing the TAC / TAE between the qualifying entities”.
To date the above sector policy provisions have been applied in the Hake Inshore, Horse Mackerel and West Coast Rock Lobster Sectors in such a way that certain group’s historic allocations have been considerably reduced.
How does it work?
Essentially if two companies, A and B, are owned say 61% (ownership and control) by company C, and both A and B applied for a fishing right in the same sector, the DA could allocate only one right to either A or B (or divide tae/tac between the two) – of key importance is that the one right is not a right with the previous combined TAC or TAE of A and B, but rather a right with the historic quantum of only one of these previous rights holders (or a portion thereof). In these circumstances a group’s historic combined quantum (previously housed in separate entities) could be halved by a stroke of a pen.
The same principle would also apply in a situation where a holding company X and subsidiary Y (owned by X with a majority shareholding) both applied in the same sector. One right could be allocated to the holding company X and no right allocated to the subsidiary with the result that the historic combined tac/tae is potentially halved or substantially reduced.
What is the department’s logic in applying such principles?
The policy states that it is “to avoid fronts and monopolies and to promote broader access to” the resource.
Whilst these goals may be admirable, these policy provisions do not actually achieve such goals. In particular it makes little sense to reduce a group’s allocations using purely this principle where a group has built up employment, investment and infrastructure commensurate with the historic combined allocations of the group companies. Whereas a group which holds its allocations in one rights holding entity (rather than split into various entities) and which has lesser or the same scoring credentials as the former group, is not subjected to such a cut in allocation due to principles.
Therefore the application of this principle is arbitrary in nature and likely to be challenged depending on whether the losing party has the muscle to take on the establishment.
Looking ahead to 2020 allocations, the sector policies for these allocations are likely to contain the same or similar policy provisions.
One could attempt to object to these provisions when commenting in the public participation process preceding such policies; or to launch a legal challenge against the application of such provisions.
However, the smart move (and subject to other commercial considerations) maybe to restructure and where possible consolidate rights allocations per sector into one sector entity. If this option is chosen the initiation of such restructure should be sooner rather than later for the following reasons:
- The consolidation of rights will require a Section 21 application in terms of the MLRA, which traditionally can take 6 (six) months or even 1 (one) year to obtain;
- Under the new structure it would be important to have a number of years performance prior to the 2020 rights allocation process.
No doubt FRAP 2015/2016 will also highlight other issues which will have to be looked at by aspiring applicants with 2020 looming.