This post received today from Rob Hamlin was first submitted to the Otago Daily Times for publication at The Analyst blog. The newspaper’s suggested edits are shown in italics.
The conduct of the ORFU over the last couple of years has left a legacy of some 180 small creditors owed some 680,000 dollars. These traders now face a difficult situation, which the recent activities of various well placed worthies have done little to alleviate. These traders now have to make simultaneous decisions on two major matters rather than one. They have to decide whether to pursue their debts. But they also have to make up their minds whether they will continue to trade with the undead but still insolvent ORFU ‘zombie’ organisation that these worthies have rescued from an imminent, thoroughly justifiable and necessary corporate execution and autopsy process. It is most unusual for an organisation of this size, in such an apparently ruinous financial state and with such a poor track record of settling its debts over such an extended period of time to survive a crisis such as this. The fact that this is not a private limited company, but is an incorporated society takes us into completely new and unknown territory.
By a mixture of vague promises and third party support, the ORFU appears to have extricated itself from around three quarters of its multi-million dollar debt on consistent terms of a cash return of zero cents on the dollar. In all cases, except possibly the bank, they also seem to have secured agreements that trade, and presumably credit will continue to be furnished to the ORFU on established or even enhanced terms by these creditor organisations.
A pattern has thus been established and it would be a reasonable presumption on the part of any of the remaining creditors that similar terms in both of these areas will be sought from them on a case by case basis when contact with the ORFU is established by each individual creditor, as the ORFU clearly desires. No general creditor meetings have been called. Only a rather cheeky request via the media appears to have been issued inviting these creditors to get in touch with the ORFU’s accountants individually – presumably if and when they feel that they need to.
Some commentators on the ODT website have noted that I am a specialist in food marketing, and have invited me to consider the supply and demand of pies within the rugby stadia of this town. The food industry is a brutal one, in which not getting paid is an ever present danger, and I therefore spend a good deal of my time teaching and advising on such matters. Their suggestion is therefore an excellent one, and I will discuss the first of these two issues – debt recovery from the ORFU, not from the point of view of an academic, but what the hypothetical owner of ‘The Pied Piemaker™’ Ltd (get it?) might do if they were owed some $12,000 by the ORFU.
The first matter to deal with is the distraction of the recent public fundraising for creditors.
Remarkably some or possibly all of this money appears to have been paid into a sports research charitable trust that is co-controlled by Eion Edgar, an individual who through his presidency of the ORFU and trusteeship of the CSCT has had a governance role over many of the activities that have led to the difficult situation that these small creditors now find themselves in. The conditions under which the money has been paid into this trust are unknown, but if specific conditions were not attached to it when it was paid in, then the terms of the deed of the Eion and Jan Edgar Charitable Trust indicates that Sir Eion and his wife now have undisputed control of these donations as part of the general assets of their trust, and thus total discretion over how, when and to whom it is disbursed.
There is the potential for confusion here between the roles and interests of the existing non-dedicated trust that Sir Eion proposes to use for repaying ORFU creditors and his proposed charitable trust for funding amateur rugby – previously a core role of the ORFU/debtor. For these reasons I would not expect them to be the same organisation. Perhaps he will confirm that this is so?
A commitment has been made to pay out all remaining creditors on a pro-rata basis, with each creditor receiving an equal percentage of what is owed to them. One would expect that this will occur within a very short period of time, in order that creditor negotiations relating to the remainder of the debt can proceed in a timely manner and without distraction. A reasonable period of time would in my opinion be one month for the cash that has been raised up to this last weekend – as President of the ORFU, Sir Eion should have no problems obtaining a complete list of creditors and the sums owed. If Sir Eion and his associates raise any more money for creditors after this point, then that can be paid out subsequently – if ORFU debt is still an issue.
As an aggrieved piemaker, I would therefore presume that these third party funds would play no part in the poker game that is about to take place between the ORFU and myself – apart from potentially reducing the value of the stakes in my hypothetical case from $12,000 to perhaps $9,000. There is no reason why these funds could not be paid to the ORFU directly as a reimbursement after final settlement and presentation of evidence that they have paid specified amounts of money to creditors. Until these third party funds had been received by me, I would make no assumptions relating to them, and therefore continue to pursue for the full amount owed.
Were these third party funds to reappear as an active factor in my bilateral negotiations with the ORFU, I would be exceedingly displeased. For example, were it to be suggested to me that receipt of a portion of these charitable donations was conditional upon my extending further credit to the ORFU, or in some other way modifying my requests for direct payment of the amount outstanding, I would be on the telephone to the Charities Commission and the media in fairly short order.
Having dealt with that distraction I can now turn my attention to the matter of getting my money back off the ORFU. The first decision is whether it is actually worth bothering with. Extracting money from deadbeats is a time consuming, expensive and unpredictable business – especially if the deadbeats in question are well connected and experienced professionals at the game. The sums involved, or the level of personal irritation, thus have to be significant to warrant action. Bad debts are written off all the time by companies with no further action, and without the law getting involved. By requiring specific action from me in order to initiate negotiations (I am apparently expected to phone their accountants if the ORFU owe me money), the ORFU seem to be inviting me to follow this line of inaction.
However, I am very irritated by the ORFU’s conduct, and the sum is significant to me (as a small trader, it will come straight off my personal income), and it has been outstanding for many months. The first thing for me to appreciate is that I have but a single weapon, the capacity to place the ORFU into compulsory liquidation. Compulsory liquidation is particularly undesirable to the ORFU for two reasons. The first is that the ORFU will be completely destroyed as an organisation by the liquidation process. The second is that if I, as a creditor, succeed on forcing the ORFU into liquidation, the liquidator appointed by the Court will be my nominee, or that agreed by the creditors as a group, not a nominee of the ORFU.
The possibility of facing the dissection of their organisation by a hostile or evenly handedly aggressive liquidator answerable to the creditors, rather than to them, may be a major incentive to the officers of the ORFU to settle with me in full, or even to liquidate the ORFU themselves if their financial dealings within and around the organisation have been anything less than lily white. The Companies Act allows liquidators to pursue Company Directors personally in some circumstances. Whether, in the absence of directors, these rules can be applied to their equivalents on the boards/managing committees of large and insolvent incorporated societies is unclear. It really does need to be clarified if this type of organisation is to continue to engage in commercial business on the scale that it is doing in New Zealand these days. There is no doubt that being the defendants in the necessary test case would be a very unpleasant experience indeed. It is upon my potential capacity to precipitate these unpleasant events that my bargaining position will be based.
However, my capacity to forcibly liquidate the ORFU is only present under very specific circumstances, and if I get it wrong at any point in the extensive legal process, I could end up getting no money and a hefty legal bill for both my own and the ORFU’s costs, to make the point. The first thing to be done is to establish that an ‘undisputed invoice’ can be presented. I will have one of these if I have written records (e-mail is fine) that show that specified goods were delivered to a specified location on a specified date for a specific payment on specified terms. So, for example, if my records contain an order/quote for 1,000 steak and kidney pies to be delivered to Carisbrook on August 17th, 2011, an invoice for $1,750 dated August 21st for payment in full by the 20th of September and a string of written reminders/demands issued after September 20th, then this has the making of one undisputed invoice. But if any of this supporting documentation is missing – then there could be problems.
Once all the relevant invoices have been checked to make sure that they can be presented without obvious means for disputation, it’s time to pick up the telephone and call the ORFU as requested. Space does not permit for all the various stories the ORFU could spin down the line to be laid down here. However, once the talking was done, and the ORFU’s position and intentions with regard to paying for my pies had been clearly established, a written confirmation of my understanding of what had been offered, and a requirement for prompt written acknowledgment would be sent to them for the purposes of record. This confirmation needs to be written carefully so that it cannot be misrepresented subsequently as an acceptance of terms.
If, after careful consideration, I am not satisfied with the ORFU’s response, then it will be time to call my lawyer, because it’s from this point on that small mistakes can get very expensive. During the initial conversation with the ORFU, I would have signalled my intention to file a statutory demand for payment, more commonly known as a ‘Section 289’. A statutory demand for payment is related to a specific invoice or set of invoices, and may be submitted without the legal involvement – although it’s unwise to submit one without very careful consideration and professional advice. If I decide to do this, then a Section 289 may be submitted on a standard form and the ORFU would have to either pay the debt in full within fifteen working days or initiate formal disputation proceedings with the Court within ten. If neither is done within the time limit, then I can apply to the Court to have the ORFU compulsorily liquidated.
The ORFU are extremely unlikely to do neither, so they may decide to pay me in full, which they are legally entitled to do while in business on a case by case basis without consideration to other creditors who have not made similar formal demands. They may try to keep my mouth shut about it by putting a confidentiality condition on the payment. Well – as it’s twelve grand of my cash, and I’m not paid to fight other people’s legal battle for them, I might well take that offer – if it’s made to me.
However, they may also decide to dispute the invoice in court. Possible grounds inspired by some that I’ve seen before may be: “We were a few pies short Yer ’Onner” “They were square pies not round ones Yer ’Onner” “We never saw that invoice Yer ’Onner” or “We don’t pay anyone within eight months Yer ’Onner – It’s our normal business practice.” It’s here that careful homework pays off. A well-documented invoice is very hard to dispute under normal circumstances and an order to pay will be the likely outcome.
But regrettably these are not normal circumstances. There is one specific argument that could get the ORFU off the hook: “A group of kind gennelmen is raising some money to help us pay our bills Yer ’Onner. As they hasn’t finished yet Yer ’Onner, we don’t rightly know as to how much we owe Dr bleedin’ Hamlin at the moment – and neither does he. Once they’ve finished, then we’ll both know, and we’ll pay Dr bleedin’ Hamlin then – Honest!” Now this one might cause real problems. Especially if the President of the ORFU and his associates, which include at least one ORFU board member take a significant period of time to conclude their charitable fund raising activities. When dealing with a Section 289, the Court may decide to enforce payment, strike the demand down or extend its terms of payment until certain conditions are met. In business, delay can be as destructive as denial. This is the reason why I would be keen to see this particular trust’s involvement in these matters swiftly concluded with a full payout of donated funds to creditors.
The risk with Section 289 notices is that if you issue one, and then the invoice is disputed rather than paid, then, win or lose, you do run the risk of incurring some very hefty legal bills. If the invoice is struck down after protracted argument in court, even if it is on what appears to be a technicality, then you receive no payment, but you do receive a bill for both yours and the other parties’ costs amounting to many thousands of dollars.
However, let’s say that the ORFU neither pay nor successfully dispute or extend the terms of the invoice. Are they completely at my mercy? No, not yet. I am free to apply to the Court to liquidate the ORFU, but it would be unwise to do so precipitately. Liquidation on creditor application is not a foregone conclusion – and once again the process costs money – My money. The ORFU may defend the application to liquidate them. Maybe on the grounds that they are solvent (in which case they pay the bill – that’s fine), but they may defend on the grounds that an immediate liquidation at my request would disadvantage the other creditors. ‘The fact is Yer’ Onner that we’re doing great stuff right now that’s going to bring in lots of money very soon for all of our deserving creditors, but if the rotten Dr. Hamlin liquidates us now, on ‘is own, then it’ll muck all that up for them’.
Usually these arguments don’t work, as insolvency is very much a ‘here and now’ condition, but we are dealing with an unusual situation here. The ORFU has powerful friends – they would not have survived recent events if they did not. There does appear to be a tendency to give these pseudo-corinthian sports organisations and their celebrities the benefit of the legal doubt – maybe because of the afterglow of what they once were. The extraneous charitable cash pile adds an aspect of legal doubt that might act as one source of good raw material. Other creditors may also support the ORFU’s argument for a variety of reasons, adding to the bedlam around my solo application. Argument and delay cost money and my $12,000, and more, could well disappear in the process. Eventually it may all get too much, and one of the more brutal aspects of civil law may come into play. Right or wrong, if you run out of money – You lose.
There is also the issue that I could fight my way through all of this, successfully put the ORFU into liquidation, and still end up with nothing but a large bill. In a company liquidation only shareholders stand behind unsecured creditors in the queue to be paid. With an incorporated society, there aren’t even these poor saps to sit on, so I would be right at the bottom of the heap. Thus the issue of exactly how much money the ORFU actually does have to pay its debts, and who else may be in the creditor line has to be carefully considered before deciding whether or not it’s worth pursuing them into liquidation. I could end up paying the bill and someone else gets the payout – now that would be annoying! The problem is that the only way that you can really get to know the answer to this question is to liquidate them – Catch 22.
In the absence of hard information, judgment has to be used. Can the ORFU be trusted to tell the truth? How do we figure that one out? Well, what has happened to people who have trusted them recently, e.g. the DCC – Hmm! Are they hiding assets? Well – let’s just look at two loose threads. The notes to the accounts in 2006 that show property with a combined capital and depreciation value of nearly a million dollars being spun off into an unnamed charitable trust that paid just under $20,000 in return. Otago 1st XV (previously Remanet) Ltd appears to be a shell entity that has Wayne Graham on the board, operates out of Carisbrook, and is owned by two people on behalf of a shadowy trust, the Otago Professional Rugby Trust. It appears from the notes to their filed accounts that between 2005 & 2010 the ORFU has paid Otago 1st XV/Remanet Ltd $8.6 million to provide players for the ITM cup team – which one would have thought is a service that the ORFU would be well capable of performing for themselves.
That’s over nine million bucks of ORFU money going into apparently semi-detached entities via just two threads. Now all of this money may have been spent on the worthiest of causes. But Otago 1st XV Ltd, for example, are not required to submit accounts to any public register, so it’s impossible for me to establish if this is so. If only 10% of the payments that have been received for the ‘value’ that they have provided to the ORFU over the last few years has been retained as profit by the company, then there’s enough money available to the directors to pay off all the small ORFU’s creditors with change to spare. Just exactly what is the purpose of this Otago 1st XV company – Hmmm!? If I think about that one for a while, my attitude may really begin to harden, but it is moot as to whether even the most aggressive and well-funded of liquidators could actually pierce these corporate veils. And there we shall leave it.
So that’s the story of Rob Hamlin the aggrieved piemaker of Carisbrook. The only good thing that can be said about his situation is that it’s hypothetical – 180 others around this city aren’t so lucky. I can only regretfully conclude that a single small creditor owed this kind of amount stands very little chance of recovering any of their debt if the ORFU remain determined to settle upon the same terms as their major creditors have allowed them to. As the average debt is only about a quarter of this amount, then it looks like the majority of creditors may never see their money again. I do not believe that Dave Cull and his fellow councillors have assisted these local corporate employers and ratepayers one iota by striking the deal that they did – rather the opposite in fact.
However, it’s not all gloomy. Most of the expert sources that I have spoken to say that the small creditors should ‘get together’, and if enough of them did so, then by sharing resources and deploying a significant proportion of the outstanding debt for a common purpose, the impossible might just become feasible. The question is: How? The answer ironically may be an incorporated society. It would be exceedingly difficult for any creditor to be the first mover of such an ‘unpopular’ initiative. So I am prepared to perform this facilitating function.
If you are a creditor, then you may e-mail me on ORFUcreditors@hotmail.com in confidence. If it looks like enough creditors have the necessary will to act together on this matter, then I will arrange a meeting with a view to discussing the establishment of such a society. Even if joint legal action does not occur as an outcome of the foundation of such a society, it is nice to know that you are not alone in your misfortune, that you do not have to face the ORFU unsupported and that you do have friends in this town to turn to both now and in the future. I am indebted to my expert advisors and to one anonymous but well informed source with regard to the above discussion.
Posted by Elizabeth Kerr