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ECONOMICS REFERENCES COMMITTEE
Liquidators and administrators
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ECONOMICS REFERENCES COMMITTEE
Liquidators and administrators
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ECONOMICS REFERENCES COMMITTEE
(Senate-Wednesday, 14 April 2010)
NASH, Mr Gregory
DOHERTY, Mr Bill
WOOD, Mr Bernard Nicholas
GLEESON, Mr Paul
WILLIAMS, Mr Ronald Frederick
FONG, Mr Ian Kim Seng
HOLMES, Professor Scott
WRIGHT, Mr Richard Bruce
MAHER, Councillor Edward James
ACTING CHAIR (Senator Hurley)
- Senator WILLIAMS
Content WindowECONOMICS REFERENCES COMMITTEE - 14/04/2010 - Liquidators and administrators
CHAIR —Welcome, Mr Williams. Would you like to make an opening statement?
Mr Williams —Yes. Good morning, senators. The Adamstown Rosebud Sport and Recreation Club includes the Adamstown Bowling Club. I joined the board in 2003-04 and after we had our first financial report it was obvious that we were trading insolvent. Our auditors at the time recommended we keep trading even though they knew we were insolvent. The ramifications of that for the board were not very positive of course, so we looked for other advice. We were looking for somewhere to go and went to the Yellow Pages and found an ad for Mr Stuart Ariff. He was the only one in there at the time who came up with company restructuring, administrations and assistance to get out of any trouble that they were in.
We went to see Mr Ariff and the first thing he said was that we should go into voluntary administration. This we did. We met with the board. Mr Ariff dictated a motion to the board which the board passed and appointed Mr Ariff as administrator. A company deed was drawn up by Ariff with the creditors. The debt at the time was only $300,000-odd so we were pretty small-fry overall. The deed went for four years for $4,000 a month and each month we religiously made that payment—never failed. There was one time it was claimed to be late which we were not, and they were on the doorstep wanting the cheque.
We had no trouble with the company with Ariff up until the time when there was a newspaper report stating that Ariff was in trouble with ASIC about fees with Carlovers, in particular. At this stage we were concerned. I rang ASIC just for information as to where we stood with the charges being laid against Ariff. I was told to put a complaint in online. At the time it was not a complaint, it was more of an inquiry as to where we stood and what to do. But we put a complaint in on behalf of our staff mainly querying about staff entitlements and what would happen to them. We got a standard reply back acknowledging the complaint. A week later we got a formal reply to say that because we were a cooperative they did not want to know us and that we should go and see the Office of Fair Trading or get legal advice.
We let that go until September when the newspaper reports again stated that Ariff’s licence to act as an administrator was cancelled. Our secretary then contacted the Department of Fair Trading to see where we stood. She was told that we must appoint another administrator. I was not happy with that, so I rang the co-op myself and they said the same thing: that we had to appoint another administrator. Then they said, ‘Put a complaint in online’, which I did so I got it back in writing from them. Have you ever tried to put a complaint in online to any of these people? It is not easy.
We then tried to appoint another administrator. We went through the phone book and picked out another one, Jirsch Sutherland. After about a month we managed to get one of their representatives to come to our board and he gave us a spiel saying that we had to get another administrator appointed through the courts. He also told us there was no money left in Ariff’s account, that all his records had been destroyed and not to do anything until the creditors chased us. That was not acceptable. We were virtually going around in circles. I think that mainly because there were reports in the newspaper on the plight of the club we got a bit more attention. I was contacted by several people, including Mr Bill Doherty, a couple from Sydney and a few other people who had been in the same position with Ariff. I also sent emails off to various ministers and the Department of Lands, to whom we owed money, the tax office and eventually the Office of Fair Trading contacted us. They came back and did a mini-audit of us. They verified that we had made all the payments up to date. All payments had been made bar the last two which were outstanding at the time of Ariff’s disbarment. We did not make those last two payments. We were telephoned by one of Ariff’s employees not to make those payments as well. I do not know his name.
From then on we were just in limbo. We looked like we were going to close because we were also told that because Ariff had not paid the moneys we were still liable to pay that money back because of the way the deed was arranged, which we could not do. We could not afford to get legal advice. Everyone we spoke to could not tell us what to do or where to go.
Eventually the Office of Fair Trading did come to our assistance and they have gone through us now. I also made a complaint to the police of fraud and theft and the police are now looking into it. I have just been advised that they are trying to trace through the bank accounts where the money has gone to out of Ariff’s accounts. I was advised yesterday that the Office of Fair Trading have now appointed another administrator on our behalf and that will be sorted out in the next few days, I hope. Because of all this involvement happening just before the end of the year we have lost about 50 or 60 bowling members, which has really knocked down the income of the club, so whether or not we survive remains to be seen. We are still battling.
I still think, as Mr Doherty remarked, if it had not been for the press and the attention we got off the press I do not know where we would be, whether any action would have been taken at all.
CHAIR —Thank you very much for telling us about what has happened to you. You said ASIC was not prepared to assist you because you are a cooperative?
Mr Williams —That is correct, yes.
CHAIR —What are the legal implications of being in a cooperative that exclude you from ASIC’s attention, do you know?
Mr Williams —Apparently ASIC only look after registered companies whereas being a cooperative we come under the state government, the Office of Fair Trading.
CHAIR —They were not prepared to help you either, I see.
Mr Williams —Initially, no. They just told us, because we appointed the administrator in the first place, to go and appoint another administrator ourselves, which we could not afford to do.
CHAIR —How would you like to see the system changed so that a group like yours could end up with a more just outcome?
Mr Williams —The whole system needs to be revised I think so that a fairer or a more positive response to any complaints be looked at instead of just being told to refer off and do it yourself. You get boards like us of small clubs where business expertise is limited and small boards like us need guidance from other people.
CHAIR —You need an advisory service that you can ring and talk to.
Mr Williams —Most definitely.
CHAIR —That is a very good point.
Senator WILLIAMS —Correct me if I am wrong, but some time back when I read your submission were you making payments to Mr Ariff who then had to forward the payments on to reduce your debt; is that your case?
Mr Williams —The deed of arrangement was that we made our monthly payments into his account by cheque, or we posted him a cheque and he would deposit it into whatever account that he did. He took out his initial disbursements and no payments to creditors were to be made until September 2009, last year.
Senator WILLIAMS —Was the situation though that you had made payments for 10 months and only had two months to go, or something, and it all fell apart; is that right? Was that your case?
Mr Williams —That is when it fell apart, that is correct.
Senator WILLIAMS —For those 10 months you were making payments against the principal of debt of the club; is that right?
Mr Williams —That is correct.
Senator WILLIAMS —You made those payments to Mr Ariff but he never paid them off your debt; is that correct?
Mr Williams —That is correct.
Senator WILLIAMS —You thought for that period of 10 months that you were probably working very hard and you are obviously very committed to your club and you wanted to survive?
Mr Williams —Yes.
Senator WILLIAMS —You made those payments for 10 months assuming—
Mr Williams —Four years. We paid those for four years.
Senator WILLIAMS —You assumed that he would forward on those payments to reduce your debt of the club?
Mr Williams —Yes, clear us of administration, yes.
Senator WILLIAMS —He never forwarded any of them on?
Mr Williams —None whatsoever.
Senator WILLIAMS —With two payments to go from your club you realised that nothing had been paid off your debt?
Mr Williams —Yes. I am sorry, no. At that time, no. We did not know because actually at that time the debts were not to be paid until September. This was all in about August when he was disbarred.
Senator WILLIAMS —As I have said before, we are not a court. Obviously each of us here has our own personal opinion about things. We are legislators and we have to look to see what can be changed in legislation to make this industry better, because obviously it needs some serious change. There are rogues out there. There are people that I personally would not like to know out there.
Let us look at the corporate watchdog, ASIC. How would summarise your response from ASIC?
Mr Williams —Negative.
Senator WILLIAMS —They simply say, ‘Look, you are not a corporation, therefore you are nothing to do with us.’
Mr Williams —Exactly.
Senator WILLIAMS —Let us go to the Department of Fair Trading in New South Wales; what reaction did you get from them?
Mr Williams —Also negative. Go and get legal advice and appoint yourselves another administrator.
Senator WILLIAMS —How do you classify your club? You are not a corporation. You are not a company. What are you?
Mr Williams —It is a cooperative.
Senator WILLIAMS —Under your cooperative is it not under the state laws to see that the laws are enforced? Is it not under the Department of Fair Trading to see that under your cooperative if someone is doing something wrong they should be the corporate watchdog over your property?
Mr Williams —That is correct, which is what the Office of Fair Trading is supposed to be all about, yes.
Senator WILLIAMS —Have you taken it to your local state member?
Mr Williams —We did, yes, Miss Jodi McKay.
Senator WILLIAMS —Did you get any reaction?
Mr Williams —We did.
Senator WILLIAMS —Did she raise it with the department?
Mr Williams —I do not know. I do not know who she raised it with, but we did get reactions, yes.
Senator WILLIAMS —Any positive reaction?
Mr Williams —Yes.
Senator WILLIAMS —Did the Department of Fair Trading pursue Stuart Ariff?
Mr Williams —I do not think so. I do not think anyone has pursued Stuart Ariff. I believe the Department of Fair Trading have organised within the Supreme Court to get a change of administrators, which were appointed yesterday. Mr Paul Gidley has been appointed through the court by the Office of Fair Trading.
Senator WILLIAMS —You paid Mr Ariff moneys and he was supposed to pay off your debt; is that correct?
Mr Williams —That is correct.
Senator WILLIAMS —He did not pay it off the debt; he kept it.
Mr Williams —He kept the lot.
Senator WILLIAMS —Isn’t that theft?
Mr Williams —Definitely. That is why we reported it to the police. It was theft or fraud—either way, yes.
Senator WILLIAMS —Embezzlement or whatever you want to call it.
Mr Williams —Yes.
Senator WILLIAMS —That is a criminal offence. Why has the state not taken the issue up on that very issue as a criminal offence.
Mr Williams —They have now, I believe. I have a letter from the minister that the local police authority is investigating. It took about three months to get a response. It was slow but the local detectives are checking. They took out a search warrant and they got the account that our cheques have been paid into and they are now going through the banks to get a statement to find out where the moneys went to from Ariff’s account.
Senator WILLIAMS —I would take this back to the minister for the Department of Fair Trading—
Mr Williams —Yes, I have said that—
Senator WILLIAMS —There has obviously been a wrongdoing done. Of course, everyone is innocent until proven guilty, but there is obviously a very strong case of wrongdoing and you would think that the minister would recommend to the DPP to take appropriate action.
Mr Williams —I fully agree.
Senator WILLIAMS —I would expect that to happen but perhaps that did not happen.
Mr Williams —No, it did not. It surprised me that nothing has happened. We are probably too small. The amount of money that we are missing or has been stolen from us is insignificant for the department.
Senator WILLIAMS —Whether or not it is small it is still a criminal offence if you steal money, no matter whether it is one dollar or it is $100 million it is still an offence and you would expect the appropriate authorities to take action on that.
Mr Williams —I fully agree. I did bring this up. I sent emails to the minister of police, the Premier of New South Wales—there are that many I have forgotten them—confirming that it is a theft, or fraud, and apart from stealing the money from us in the first place they have also stolen the money from the government, which is the Department of Lands. They stole $45,000 off them. They have also stolen money from the tax department, not us.
Senator WILLIAMS —This is an issue for this committee obviously when it comes to cooperatives, et cetera, that perhaps when we hand down our recommendations it should be considered by the committee to notify the state departments of fair trading saying: perhaps you need to tighten your regulations when it comes to liquidators, administrators, et cetera, with the cooperatives?
Mr Williams —Most definitely. From what I understand we are the first and only cooperative to be in this situation.
Senator WILLIAMS —I wish you well. I hope your club survives.
Mr Williams —We are trying. We have cooperation now from the Office of Fair Trading. They have actually been very good. They have been in contact with ASIC and are apparently working together. Now we are working with the Department of Lands and the local state member, Jodi MacKay, trying to work something else out to go forward.
Senator WILLIAMS —Good luck with it.
Senator PRATT —I want to ask you about your interactions with ASIC. Clearly it appears that they do not have jurisdiction by virtue of the fact that you are not a corporation.
Mr Williams —True.
Senator PRATT —But you would think that if your complaint was corroborating other complaints that had also been made to some extent ASIC would have an interest in the way he was conducting his affairs within your co-op.
Mr Williams —That is what I fully expected. That is why initially I framed them as an inquiry to say, ‘Where do we stand? Do we keep payments up? Where is our money going?’ But I was just told straight out to put a complaint in online, which was a negative reply virtually: ‘Go elsewhere.’
Senator PRATT —You were also informed that you were not advised of Stuart Ariff’s demise as your administrator. I am a little bit confused about whether because you are not a corporation the extent to which you were obliged to put yourselves under administration as a club or not. Clearly you felt like you had a moral obligation to do that as a way of—
Mr Williams —Initially when we went into voluntary administration?
Senator PRATT —Yes.
Mr Williams —The way we were trading we could not afford it. The interest on the debt that we owed the tax office and the lands department was killing us. We just could not continue trading.
Senator PRATT —Administration is supposed to be about cleaning up bad administration so that you can return to being a viable and ongoing entity.
Mr Williams —That is exactly what I thought.
Senator PRATT —It would seem complete anathema that you would go from bad practice that you were clearly struggling with, with good intention, as a club to kind of go, ‘Okay, we have to clean ourselves up’, to then being completely rorted?
Mr Williams —It was only at the end when we were shafted.
Senator HURLEY —Clearly the board acted ethically. They saw there was a problem. They took logical steps. There was an audit and then you took logical steps to go to the voluntary administration, so you acted quite properly throughout the entire process.
Mr Williams —I believe we did. We went to get advice from someone we considered a professional accountant specialising in helping companies in financial trouble.
Senator HURLEY —I am just wondering about any other board that might find itself in this position. Is there any state government or federal government sponsored advisory body? I am thinking of the Enterprise Connect people for private business that can assist companies with running their businesses. Is there anything similar for community organisations?
Mr Williams —Clubs New South Wales I believe does provide a service for struggling clubs to put something in place, yes.
Senator HURLEY —Is that financial advice? If you had foreseen in the early stages that there was going to be a problem, could you have gone to them for legal advice?
Mr Williams —They do provide a legal service but it comes at a cost. There are always options in hindsight.
Senator HURLEY —Exactly. That is why I emphasise that clearly you did the right thing. You expected to get good professional advice and in fact—
Mr Williams —When you are in legal trouble you go to a solicitor.
Senator HURLEY —Exactly.
Mr Williams —We were not happy with our auditor at the time, so we went elsewhere.
Senator PRATT —Your submission raises the fact that you started with Mr Ariff and then you realised you were having problems, so you contacted a local insolvency company only to find that that company had links back to Stuart Ariff; is that correct?
Mr Williams —That is right. That is what the Office of Fair Trading told us, to go and appoint another administrator. Again, in the phone book Jirsch Sutherland came up as specialists in administrations.
Senator PRATT —How did you discover Jirsch Sutherland and the link back to Ariff? How did you discover that again?
Mr Williams —Mr Bill Doherty knows the manager, which is Tina Battye, which was—
Senator PRATT —Only by other people who had been burnt were you able to discover—
Mr Williams —Mr Doherty gave me a lot of information from people who had been burnt, yes.
Senator PRATT —Finally an accountant was able to refer you to another insolvency firm called Paul Gidley of Gidley Insurance; is that right?
Mr Williams —I have a very good friend in Newcastle in business. He referred me to his accountant for advice and to his solicitor who gave me some advice as well which went back to his accountant and the accountant recommended Paul Gidley.
Senator PRATT —Are you satisfied now that you are receiving appropriate advice and service?
Mr Williams —Yes, I am quite happy with Mr Gidley. He is excellent, yes. The fees are still high, I believe.
Senator PRATT —I am sure they are.
Mr Williams —I do not know how much it is going to cost us yet. That is still the worst part of it. To meet our requirements we had to sell three poker machines to pay off our current debt to the lands department and the tax office to clear those debts and the remaining $8,000 to be paid to complete the deed of arrangements, so I do not know how much more it is going to cost us. It is going to annoy me if we have to pay any more.
Senator PRATT —It would seem to me that regulatory institutions should really be making sure that all of these firms were at the very least up to the minimum standard. Perhaps you have finally somewhere reliable in Gidley & Shaw. How is it for you as a consumer of these services already in a vulnerable position to try to make your way through this quagmire?
Mr Williams —It is like turning around in circles. You have to try to employ somebody that you can trust. Unless you know somebody or have a recommendation, it is hit or miss, I suppose.
Senator PRATT —One of the things that has been put to us as a committee is how difficult it is. In a general sense people are usually only consumers of these kinds of services once in a lifetime and that therefore it is a true situation of buyer beware in terms of a capacity to really understand what you are getting yourself in for.
Mr Williams —It is true that if you do not know where to turn you have to find somewhere to go where you can get an honest answer, yes.
Senator PRATT —In your view would that put the onus back on the regulators to make sure that the industry as a whole is up to standard?
Mr Williams —I would say so, yes.
Senator WILLIAMS —Just out of interest, you said you had to sell off three poker machines. How many do you have left now?
Mr Williams —Thirteen.
CHAIR —What do you sell a poker machine for? What sort of price do they attract?
Mr Williams —The entitlement of a licence is about $60,000 because you have to sell them in groups of three.
CHAIR —Are they each $60,000?
Mr Williams —No, for the three.
CHAIR —They are $20,000 each.
Mr Williams —It depends on whether you are in the club industry or the hotel industry. You cannot sell between the two, unfortunately.
Senator WILLIAMS —For the hotel industry it is a lot more though—
Mr Williams —Yes.
Senator WILLIAMS —It is about $120,000 a machine.
Mr Williams —Yes. I would have loved to have been able to do that. When you sell three the government takes one.
CHAIR —In tax do you mean?
Mr Williams —No, when you sell three licences the buyer only gets two and one is taken out of circulation.
CHAIR —Thank you. Your evidence has been very interesting.