Bank trouble tipped Otago's hand

The imminent expiry of a $1.2 million BNZ working capital facility may have forced directors of the Otago Rugby Union to propose voluntary liquidation instead of having administration forced on them in July.

The 126 year-old sporting club faces liquidation in the High Court in Dunedin on Friday unless an unlikely $1 million bailout can be put together in the coming days. Both local and national government figures have poured cold water on a public-sector bailout.

Financial statements filed with the Companies Office show the Union has run consistent losses since 2007, including a $5.9 million shortfall in 2009 mostly due to an over-inflated valuation of the now-abandoned Carisbrook stadium.

The Carisbrook losses pushed the Union’s equity into negative territory in 2009 where it has remained since.

While accounts for the 2011 financial year have not been released, a flagged $862,000 loss would put the Union's equity $2.25 million into the red.

BNZ loan expiring
The main liability of the Union is a $1.2 million working capital facility provided by BNZ and its three-year term is set to expire on July 31.

The 2010 accounts note “If the Union were to lose the cash advance funding facilities provided by the BNZ it would be unable to pay debts as they fall due and would not be a going concern.”

The auditors report for the 2009 financial year, curiously missing from the 2010 accounts, flagged “fundamental uncertainty” over the future of the Union.

“The financial statements have been prepared on the going concern basis, the validity of which depends on the ability of the Union to meet future working capital cash flow requirements within its existing funding facilities or if required, by generating additional revenue, reductions in costs or arranging future funding facilities,” auditors Ernst and Young noted.

The July 31 expiry date of the working capital facility fell just before the start of the ITM Cup, and the looming liquidation of the Otago Rugby Union has thrown the teams’ participation in the competition into doubt.

Local council consistent benefactor
The financial accounts show the Union’s local body, the Dunedin City Council, has offered regular and generous support for the sporting club.

Each year the DCC granted the Union “rates relief” of around $25,000. And in 2007-8 a $2 million loan from the council to the Union attracted interest of only 4% and was secured by a tenuous third mortgage against Carisbrook.

That $6 million loan was repaid, according to the accounts, but reports suggest the Union accrued a $420,00 debt to the Council from unpaid rent.

Unsecured creditors are reported to be owed $130,000 while a list of secured creditors filed with the Companies Office shows trade suppliers Steel and Tube Holdings, Tasman Liquor, Technology Holdings, Thorn Rentals, Fuji Xerox Finance, Royalwolf Trading and Adidas New Zealand are all owed monies.

The New Zealand Rugby Union has also provided consistent support with $900,000 said to have been provided last year, and $200,000 for the first two months of this year. The financial accounts show at least $325,000 was provided annual for the Union between 2008-2010.

Questions over prior solvency
Despite the support of the DCC and the NZRU, the Union appears to have been under water for some time with current liabilities exceeding current assets in every year since 2007.

Total liabilities exceeded total assets by the sums of $753,000 in 2009 and $1.4 million in 2010. The 2011 deficit is expected to be larger still.

Player salaries, a cost component that grew quickly in the lead-up to the global financial crisis, are understood to be a major contributor to the Union’s decaying financial position.

Otago’s player contracts for the provincial competition are handled through a company called Otago Rugby 1st XV, and amounted to $1.6 million in 2008.

While the total spent on players gradually declined in subsequent years, the $1.1 million allocated in 2010 still significantly exceeds the $700,000 target recently professed by the Union board as sustainable.

Otago Rugby Union president Sir Eion Edgar did not return NBR calls this morning.