http://www.theherald.com.au/story/1189543/hsg-dont-always-do-as-they-say-tew/?cs=305
THE matters which have been reported in the press over the past seven days indeed the previous six months have caused concern to all of us who hold the Newcastle Knights dear to our hearts.
The Knights Members Club board is currently considering heading down a different path to that which was originally agreed and contracted with Hunter Sport Group (HSG) on behalf of the Newcastle Knights members, and I believe the current directors of the Knights Members board need to consider their decisions, and the consequential impacts of their actions, very carefully.
To assist members, and the broader community, to have a better understanding of the circumstances behind current events, I provide this summary of some of the background to the negotiated sale contract which was agreed and eventually signed off on behalf of the Newcastle Knights Members.
The sale contract between the Knights Members and HSG, which was entered into on August 5, 2011, comprised a number of agreements some of which are quite complicated all of which are interrelated and concurrent totalling some 500 pages.
The sale contract includes a number of covenants which are required to be met by HSG, and which were painstakingly negotiated over a long period of time so as to ensure not only that the members had certain rights but so the members could have an expectation of authority to enforce those rights if necessary.
To contemplate changes to one of the component agreements independently of other concurrent agreements comprised within the total sale contract is to invite a risk. Risk of watering down the members rights to appropriate reporting information; risk of watering down the members rights to an expectation of sufficient funding of their club; risk of failure to have a sufficient guarantee underpinning funding obligations; risk of an inability to confirm if all profits are being retained within the club entity; risk to the authority of members to enforce those rights upon HSG if necessary.
A number of covenants included in the sale contract were agreed and are applicable to the specific funding obligations and were negotiated with a number of objectives in mind including:
■ That the club would have adequate working capital;
■ That the club would have a coloured minimum of financial commitment to sponsorship and junior development;
■That the club would be economically viable and capitalised to a superior level to that which existed previously;
■That all revenues received over and above operating expenses would be retained within the Knights club entity;
■That the factual outcomes specific to that capitalisation would be independently audited and the results available to the members in an agreed timeframe;
■That the timing of those actions would allow a retrospective look across the year and be carried out at a time in the season which ensured that sponsorship and other major revenues were in place and that expenditure was known and committed; and
■ In the event that the final month (or 15 days) of the year (December) was an estimate it was specifically agreed by both parties to include an ability to carry over any surplus funding (which may have been underestimated or not available) into the following years assessment. Therefore, there was no disadvantage to HSG in the event that they received additional (unforeseen) revenue in that period and the sum would be applied to the next years audit considerations;
■ That where a deficiency was evident the members would have authority to enforce the funding obligations and therefore ensure that funding obligations would be met in accordance with the covenants in the sale contract;
■ Underpinning the contract and the funding obligations is a bank guarantee. The bank guarantee can also serve as a tool for the members to use in the event the members seek to enforce their rights under the covenants of the contract.
The auditor has defined responsibilities as is set out in the sale contract.
The auditor is required to confirm the objectives of the funding obligations are being met. The auditors confirmation of those objectives cannot be conditional or fettered in any way. In the event funding obligations are not met then the members have authority to enforce them.
The members authority is genuine and can be applied in a number of circumstances including:
■ In the event of a breach of one or more of the covenants in the sale contract.
■ In an insolvency event.
I understand that HSG have not adhered to the timeframes, nor supplied information in an appropriate form as is a condition of the sale contract in spite of its knowledge of its responsibilities well in advance of its 15 December audit deadline.
It is my experience that HSG representatives do not always do as they say they will do. Nor does it always spin the truth. As in the case earlier this year when HSG representatives claimed publicly that HSG had no prior knowledge of tax liabilities. In fact, the tax liabilities information had been provided to the HSG CEO, Mr Troy Palmer, prior to HSG signing the sale contract in August 2011.
I am interested in the reasons for the Knights Members board agreeing to vary the contract covenants and also hearing from them an explanation as to how those proposed changes are in the best interests of members.
I trust chairman Nick Dan and his fellow directors will think carefully and objectively before agreeing to vary the contracted covenants particularly in respect of protecting members rights and ensuring members authority to enforce those rights is not watered down and is not placed at risk.
