Everyman debt kept secret
A confidential report reveals Nelson City Council worried that ticketing agent Everyman Records' more than $250,000 debt to the council was a serious financial risk, but kept quiet.
Now Everyman Records is in liquidation, owing $640,000, as the liquidator investigates the company's trading. Owner Greg Shaw, whose other company Migraine Distribution owes another $122,700, has declined to comment.
The Nelson Mail requested documents from the council on its dealings with Everyman. These show that last year, despite the issue of public interest and concern that Everyman Records may be trading while insolvent, the council chose not to publicly disclose the big debt for fear it could jeopardise chances of recovering the money. Instead it did a deal for Shaw to drip feed payments in return for not taking action.
The public-excluded report advised that in a worse case scenario, of the company being put into liquidation, the debt would need to be written off. Now Nelson mayor Rachel Reese acknowledges that is likely to happen.
The documents show that when Everyman's debt to the council had risen to $288,246 in June last year, Shaw signed a confirmation saying that except for the debt to the council both he and Everyman Records were solvent and had no other outstanding unsecured debts. The council then allowed him to pay weekly instalments of $700 and agreed to withhold any further action.
A year on, the liquidator's first report shows Everyman now owing $309,555 to unsecured creditors, which includes $264,711 outstanding to the council, and Shaw, as shareholder, has lost $214,367.
A liquidator must report any suspected offences to the Companies Office.
Liquidator Geoff Falloon said his investigation would have to consider what action he might take but that would probably be in about September. "By then I would have gathered information to make a call to refer or what action to take."
The contract between the council and Shaw for ticket sales for the 2012 Nelson Arts Festival required Everyman to make the first payment to the council for half the net sales by December 19 and the rest by January 25.
However, by April, $204,000 was outstanding and council acting executive manager community services Roger Ball was writing to Shaw, asking him to urgently pay.
It was then discovered $71,200 in Opera in the Park ticket sales was outstanding as well as $7400 for Buskers in Nelson, and Ball gave him an April 30 deadline to pay.
Shaw, through his lawyer Jeremy Glasgow, advised bank finance would be arranged and the repayment made by the end of May. That did not happen, and councillors were advised in the June 17 public-excluded report from Ball: "This debt represents a serious financial risk for council."
The circumstances leading to the buildup of such a significant debt were being investigated by senior council officers and would be reported to the chief executive, he said. The investigation included the adequacy and enforcement of contracts with Everyman records, the efficacy of council systems and processes, and the actions of staff.
Reese, who was then a councillor, said today: "From my perspective and the current chief executive, this type of arrangement is totally unacceptable."
Reese said she had been unaware of the April letters until they were released to the Nelson Mail. She was unable to find any record of a follow-up report to the council after the public-excluded briefing but had been advised that an update, saying a repayment plan was in place, had been given at a September 10 extraordinary council meeting.
The council then entered into a contract for the repayment and the matter remained in public excluded. "While Mr Shaw continued to make repayments, the matter remained confidential as agreed by the previous council," said Reese. Asked what had been done to prevent a repeat of such financial arrangements, she said oversight of revenue streams were now recorded through the finance department rather than operating separately under individual managers.
If the debt was written off it would mean a reduction in revenue for the year so savings would have to be made elsewhere, Reese said.
"It's a bitter pill, but the way this has been dealt with, it was always at considerable risk of this being the outcome."
Hadley, asked if anyone had lost their job over the issues, said there had been a comprehensive investigation, which led to changes being made to the organisational structure.
A debt write-off would show in the balance sheet but nothing was in jeopardy because there would be savings in other areas, she said.
"It's incredibly regrettable that it's occurred and the best thing we can do is learn from it so this does not happen again."
Falloon's priority this week is the discount sale at the store.
His report estimates the inventory at $100,000 and expects to realise $25,000 to go toward paying creditors according to ranking.
With shop fittings and cash float, Everyman's assets are just $27,400. Secured creditors are ANZ, owed $113,900, and eftpos firm Technology Holdings, owed $1495. Preferential creditor Inland Revenue is owed $28,000.
Dealings between Everyman Records and the Nelson City Council:
July 2012: Contract agreed between NCC and Greg Shaw for Everyman Records for ticket sales for Nelson Arts Festival 2012. Everyman to make first payment no later than December 19 for 50 per cent of net sales, with second payment on January 25.
April 14, 2013: NCC writes to Shaw seeking urgent payment of outstanding debt of $204,014.
April 16: NCC acting executive manager community services Roger Ball again writes following phone conversation with Shaw saying his proposal to repay by end of May is unacceptable; first payment overdue by 118 days and second by 81 days. Gives April 30 deadline to pay.
April 24: Shaw's lawyer Jeremy Glasgow writes to NCC saying Everyman accounts are being prepared and Everyman will arrange bank finance to allow payment by end of May.
April 24: NCC writes to Shaw noting outstanding ticket payments of $71,205 from Opera in the Park and $7416 from Buskers in Nelson. Total of $282,635 to be paid by April 30.
May 2: NCC letter to Glasgow, in considering delay to payment, seeks assurance Shaw has no other significant debts, that the bank will provide funds to clear the debt, and if debt not cleared by May 31 that he agrees to pay interest.
June 17: A public-excluded report advises councillors of the debt, with a recommendation that includes considering the issue of the debtor continuing to trade while owing such a large debt. It advises the debt represents a serious financial risk for the council. If Everyman is put into liquidation the debt would need to be written off. It also notes that if Everyman is still trading and selling tickets for other events, it may be trading while insolvent. It also recommends that the matter not be publicly disclosed at that stage, in case it undermines Everyman's reputation and destroys its chances of repaying its debt to the council. Parts of the report supplied to the Nelson Mail are withheld.
June 23: Everyman proposes repayment schedule and notes over the past three years the company has bought and developed a $35,000 Patronbase booking system to accommodate the Theatre Royal, Nelson Arts Festival and other events.
June 26: Glasgow writes to NCC saying Shaw advises that Everyman is solvent, except for the $282,000 debt to the council but the company's annual accounts will take a month to deliver.
July 9: NCC letter to Glasgow agrees to give Everyman time to repay the debt, at $700 a week, and to withhold further action so long as the agreement is complied with. Shaw signs, confirming he and Everyman Records are solvent and have no other outstanding unsecured debts. NCC rejects an offer to buy the Patronbase system.
October 3: Auditor-general's office rejects Nelson ratepayer's request for investigation into repayment arrangement, saying concerns referred to the appointed auditor as part of annual audit.
June 30, 2014: Everyman Records and Migraine Distribution go into liquidation.
July 5: Liquidator's first report shows Everyman's deficit $640,002, Migraine's $122,773.
The Nelson Mail