CALLED TO ACCOUNT: HSG tackled over audit date change

CRITICAL details in the Newcastle Knights ownership agreement will be changed after months of wrangling that has put Hunter Sports Group offside with the Knights Members Club and Old Boys.

The Newcastle Herald has been told HSG proposed changing the date of its annual financial report to the Knights Members Club from December 15 to February 15 the following year.

But the members club, supported by the Knights Old Boys, refused because they feared changing the date would prevent them accessing the $20million bank guarantee that underpins the deal.

According to the original agreement, dated August 5 last year, the members club has 20 business days from a January 1 trigger date to access the bank guarantee, or indeed exercise its buy-back option, if HSG has not met its financial obligations.

As the agreement stands, HSG must present on December 15 a statement from their auditor to the members club board covering:

¦ Sufficient trading capital.

¦ Any financial top-up required by HSG to meet its $10million of guaranteed sponsorship.

¦ Junior development funding.

¦ Newcastle Rugby League funding.

¦ Heritage matters retaining the club’s location and name as the Newcastle Knights, blue and red colours, and home games being played at Hunter Stadium.

The Herald has been told HSG sought permission from the members club to move the reporting date to February 15. This was to save HSG additional auditing costs and align with the group’s accounting schedule to include football operational costs of the ‘‘rugby league year’’ (November 1 to October 31) and the commercial operations bound by the calendar year.

The members club board argued this was unacceptable as it would mean moving the reporting date to a date that fell several weeks after the window to access the bank guarantee had closed; or, metaphorically, closing the stable door after the horse has bolted.

Members club directors argued that if the reporting date moved then the trigger date to access the bank guarantee had to move to March 1 to keep the dates aligned.

The Herald has been told HSG chief executive Troy Palmer proposed changing the reporting date at a meeting in May with members club and Old Boys representatives, but it was agreed at that meeting that the date would not change.

About two weeks later, it is understood members club chairman Peter Corcoran told Palmer the members club would agree to the change of date, but Corcoran’s opinion was not shared by other directors on the members club board.

The issue came to a head at the members club’s annual general meeting on July 4 when Troy Fletcher – the Old Boys’ representative on HSG’s Knights advisory board – asked Corcoran if agreeing to change the date was in the best interests of Knights members.

Fletcher asked Corcoran if he had sought independent legal advice regarding the date change, and Corcoran said that he had.

Corcoran told the AGM that the December 15 date in the original agreement was of no consequence, but the Herald has been told that date was included intentionally by the previous Knights board during sale negotiations with HSG last year, as it allowed for a reasonable time to reflect on that year’s trading figures, and that the bulk of sponsorship income for the following season would have already been received.

Since the AGM, the issue has been discussed at sometimes heated meetings between HSG management and representatives of the members club and Old Boys.

The Herald has been told that during that process, HSG management raised the subject of the Old Boys’ privileges, including a corporate box at home games and catered marquee at their annual reunion day at the last home game of the season.

It is understood that during discussions early last week between HSG management and representatives of the members club, it was agreed in principle to change the reporting date and the trigger date to satisfy all parties, but the formal paperwork and exchange of legal documents could take several weeks to finalise and is expected to come at a considerable cost.

Calls from the Herald to Palmer were directed to Knights chairman Paul Harragon, who said HSG and the members club had acted in good faith throughout their negotiations.

‘‘As chairman of the advisory board, I acted as the link between the members club and HSG during the process. There was a bit of a mix-up in the agreement in respects to the calendar year and the football year, and it was just a matter of sorting through all that,’’ Harragon said.

‘‘Through that, the members club came up with a solution, HSG agreed with it and in the end the answer was quite simple, and that was to move all the dates forward.’’

Corcoran would not discuss details of negotiations between the members club and HSG, but said they were aimed at providing the best result for both organisations.

‘‘In all commercial agreements, there are always some aspects that need to be looked at and spoken about, and I think that over the last six months we’ve found that there were a couple of things that in the light of current corporate reality that we needed to discuss with HSG and come to an agreement on,’’ Corcoran said.

‘‘That’s been ongoing, and there’s been a bit of to-ing and fro-ing ... so what we’re doing at the moment is going through a process to maintain the integrity of the privatisation and to make sure that the benefits to HSG and to the members club are maintained.’’

Fletcher would not comment yesterday when contacted by the Herald.

HSG’s bank guarantee reduces from $20million to $10.3million from January 1 next year, then increases annually in accordance with the Consumer Price Index from January 1 each year for the remaining eight years of the agreement.

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