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Australian Turf Club and Racing NSW clash over administration appointment
Trevor Marshallsea
ANZ News
The Australian Turf Club (ATC) has moved to reassure members it is on a sound financial footing, prompting Racing NSW (RNSW) to issue a lengthy explanation as to why it has attempted to appoint an administrator to manage the club’s affairs.
As the club’s Supreme Court action disputing the regulator’s authority to appoint an administrator awaits resumption on Thursday, both sides set out their stalls for what looms as an engrossing legal battle with their written depositions on Tuesday.
The ATC sent its members a 630-word “Member Update” from chairman Tim Hale SC, stating the club’s board “does not accept that Racing NSW possesses the legal authority to remove the duly elected directors of the Club or to appoint an administrator in their place”.
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RNSW then issued a “Participant’s Bulletin”, which came to 5,097 words, comprising a letter to Hale from RNSW chair Saranne Cooke, detailing why the regulator believed it was appropriate to appoint an administrator.
The letter also included an indication RNSW would stop acting as guarantor on the ATC’s debt facilities.
RNSW announced on Monday it had appointed Morgan Kelly of Ernst and Young as administrator, with the intention that a sub-committee would later assist him. The ATC’s directors filed for an emergency injunction in the Supreme Court late on Monday. The matter was held over until Thursday.
In its highly detailed letter, RNSW set out a long list of reasons for why it had lost faith in the ATC’s board, leading to it appointing an administrator.
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“The only reason we are putting this letter out is because the ATC has today misrepresented the situation in a notice to its members,” the RNSW email began. The ATC members notice was issued at 12.09pm. The 5,000-plus word RNSW participants’ bulletin was sent at 2.00pm.
RNSW’s reasons included expressed concerns over the ATC’s financial viability, governance issues, the club board’s alleged inability to adequately perform its role, and its alleged failure to identify cost savings and revenue opportunities.
Its letter to Hale said: “Racing NSW considers that this (administration) determination is both necessary and unavoidable to ensure the proper discharge of its statutory functions and duties.
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“It is not a decision taken lightly, nor is it one arrived at precipitously. Rather, it is the culmination of months of escalating concern regarding the ATC’s financial viability, governance issues, and the apparent incapacity of the ATC Board to discharge its duties to a standard commensurate with the scale, importance, and public trust inherent in its role.”
RNSW in September gave the ATC two weeks to show cause why it should not be placed into administration, a period later extended by three weeks.
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In his update to members Hale, who was elected chairman in July following four years on the board - and after Peter McGauran’s resignation in the wake of the botched proposed sale of Rosehill - explained the board’s legal defence was based on “clear and compelling” reasons.
“The Australian Turf Club is financially strong and operationally stable,” he wrote.
“As of today, the Club holds approximately $29 million in cash and continues to meet all financial obligations as they fall due. Our balance sheet is supported by more than $400 million in land and property assets, including strategically significant holdings at Canterbury and Camellia (Rosehill), both of which have substantial long term value, particularly with appropriate rezoning approvals.
“It is also important for Members to be aware that Racing NSW currently owes the Australian Turf Club $1,208,218.20 in outstanding payments, of which $799,467.70 is more than 120 days overdue. This amount remains a receivable of the Club.”
The update added the ATC was “actively pursuing several commercial contracts and partnership opportunities”.
“These initiatives have been thwarted as a direct result of restrictions imposed by Racing NSW during the show cause process,” the update said.
“Notwithstanding, the Board continues to progress commercial efficiencies, new revenue initiatives, and cost reduction measures to further strengthen the ATC’s financial performance,” the update said.
“We are also engaged in constructive, positive refinancing discussions with the Commonwealth Bank regarding our existing debt facility.”
The update also alleged the board “sought Racing NSW’s approval to appoint an interim Member elected director to fill a current vacancy, ensuring strong Member representation during this period”, but “that approval has not been granted”.
Stating that the board was “firmly committed to defending the independence of the Australian Turf Club”, the update added that throughout the show cause process, the ATC had “engaged openly, constructively, and in good faith”.
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“We provided detailed written submissions, extensive financial and strategic material, and independent expert advice addressing each issue raised by Racing NSW,” Hale wrote. “The Board unequivocally rejects any suggestion that it has failed to develop or articulate a coherent and credible strategy for the Club’s future.”
In its letter, RNSW said its concerns had not abated during the five-week show cause period it gave the ATC to demonstrate why it should not be placed into administration, and in fact had intensified.
“The ATC Board was unable to articulate or provide a credible, coherent, or disciplined strategy to stabilise or improve the ATC’s financial performance,” the letter read.
“The material advanced was overwhelmingly reactive, superficial, and devoid of rigorous commercial analysis. Far from demonstrating leadership, the ATC Board’s focus appeared to be limited to short-term, distressed asset disposals, pursued without adequate strategic planning and in circumstances where there is a significant risk that assets will be sold grossly undervalue and thus impair the ATC’s balance sheet.
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“The ATC did not demonstrate, at the appropriate level of detail, how it would increase revenues and decrease costs in the future.
“The ATC Board also failed to adequately address the corporate governance issues raised by Racing NSW. The information provided by the ATC did not provide Racing NSW confidence that they would be able to implement and adhere to best practice corporate governance going forward.”
RNSW expressed concerns surrounding the ATC’s financing from the Commonwealth Bank, mentioned by Hale. The club has a loan of $30 million it needs to pay back to the bank by October 10 next year, for which RNSW is guarantor.
“The ATC’s current financial position presents a real and unacceptable risk that Racing NSW would be called upon to honour guarantees exceeding $30 million,” the letter read. “Such an outcome would directly imperil industry funds and undermine Racing NSW’s statutory obligation to act in the best interests of the NSW thoroughbred racing industry as a whole.”
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Addressing RNSW’s role as guarantor on the ATC’s debt facilities, the letter also highlighted analysis by advisory and investment firm KordaMentha, which ATC used in response to the show-cause notice.
It said this analysis “proceeded on a critical and erroneous assumption, namely, that Racing NSW would extend its guarantee of the ATC’s debt facilities”.
RNSW also took aim at the ATC board in terms of “corporate behaviour”, highlighting communications between Hale and NSW MP Mark Latham around the time of the state parliamentary inquiry into the proposed sale of Rosehill.
The regulator also accused the ATC of “a degree of inertia and complacency that is indefensible” in relation to addressing its financial situation. It highlighted one plan regarding a potential sell-off of an asset adjacent to Rosehill racecourse, the Rosehill Bowling Club.
“To the extent that the ATC had any plan in this regard, it involved the sale of assets, including in the first instance the Rosehill Bowling Club, on an expedited basis with the result that the sale had the potential to be at a value much less than if a sale was conducted as part of a structured plan,” the RNSW letter said.
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“Further, Racing NSW understands that any sale would be subject to approvals required under the Registered Clubs Act. Racing NSW is also cognisant that the ATC has obligations under its original contract to purchase the site, such as replacing the bowling greens elsewhere at Rosehill should the Bowling Club land ever be sold. These obligations would inhibit any sale.”
RNSW’s letter said the regulator had formed eight concluding views:
That the ATC Board had “ceased to be effective”, had fallen short of the standard “a competent board would be expected to meet”, that one or more ATC directors had “breached their directors duties”, “failed to comply with the ATC Code of Conduct”, and had “acted contrary to accepted standards of corporate behaviour”.
RNSW had also concluded the ATC Board was “in a state of disfunction”, that “the relationship of trust and confidence between Racing NSW and the ATC Board has broken down”; and that “there is a lack of fairness, confidence and commercial morality in the ATC’s company affairs”.
Of these eight concluding views, RNSW “considers that any one, or combination of more than one, of these conclusions justify the appointment of an administrator”.
