Sustainable Growth and Capital Constraints: The Demutualization of Lilydale Co-operative Ltd.

Lilydale Co-operative Ltd was one of Canada’s largest and most geographicallydiversified co-operative poultry processors. In 2005, Lilydale voted to end its 65-year existence as a cooperative and converted to an investor-owned firm (LilydaleInc.). The motivations for Lilydale’s organizational change are examined focusingon access to capital and using the sustainable growth model as the framework.For sustainable growth, a balance is required between increased actual sales andchanges in financial management measures. For much of its history, Lilydale’s actualsales growth rate exceeded its sustainable growth rate. The firm may have beenmaking financial decisions without considering all financial commitments, includingincreasing requirements to distribute equity to retiring members. Long-termdebt was very high during the ten years prior to the decision to restructure thecooperative. Although the time period is short, since conversion Lilydale has hadmore reasonable growth rates.