Another email

Some more correspondance this afternoon from The Friends of the Canberra Railway Museum group. This comes ahead of the re-convening of the case in the ACT Supreme Court on Friday.

The friends email contained the latest newsletter from the former CRM Volunteer Coordinator and a short couple of lines from the ex-President. 

It appears that the Friends Group intends to oppose the appointment of Deloitte’s to the position of Trustee to the Canberra Railway Museum Trust, however, that is about all they say. There is no reason given for the opposition, nor who they would intend to appoint in Deloittes place. So, still no plan, organisation or funding. 

The newsletter piece from the former CRM writer is interesting but only so in the person in question is still meeting with Government representatives and lobbying, despite Deloittes making it clear that only they can speak with any authority on behalf of ARHS and its members. It is difficult to ascertain where this third party fits in the scheme of things. He doesn’t appear to be a member of the friends working group, nor is he working with the provisional liquidator (given the lengthy letter to them that he published to members and the way his article is worded, which comes across as slightly unhinged).  Like the Friends group though, there seems to be a lack of understanding as to the depth of the situation the Society finds itself in. The reference to information being hidden because of Commercial in Confidence is an unfortunate expose of that lack of understanding in the legal oblibations and ramifications that this process entails.  

Friday should be interesting.

An interesting email

An email popped up this morning. The name was not familar and the email address was made up but the content was interesting to say the least.

The dropbox link contained a pdf search record from an online information broker connected to ASIC. ASIC has a number of connected entities that enable the public to search their database for information on registered business’s and office holders. 

This one related specifically to the former CEO of the ARHS ACT.

The record shows the individual in question as a active shareholder in a PTY LTD company called ACCESS Railway Services. This appears to be a company linked to the one responsible for the Canberra to Port Botany scrap train. 

I have penned out the individuals address because I understand he has not lived there for some time. However, I did use it to confirm that this was the same person that was the former President and CEO of ARHS ACT.

It appears that the CEO of the ARHS ACT was a financial shareholder in a linked company that he negotiated a commercial contract with and then oversaw the operation of on the behalf of ARHS ACT (his employer). A blatant conflict of interest.

It should be noted that there is no date on the shareholding, but a further ASIC search on the document number reveals it was lodged on the 19.3.2015 roughly one month after the company was registered. The Port Botany scrap train commenced operation in May 2015.

To be frank, this is an appalling breach of trust for ARHS members and volunteers by a man who was employed by the Society in good faith and had his wages paid for by the hard work of Society volunteers. 

There are a number of potential implications to this arrangement, but most seriously for members is whether this relationship played any part in the termination of the scrap train contract, something which Deloitte is pursuing according to the statement of service and which is generally considered a factor in the ARHS’s demise. 

Whoops…

In the last couple of days, things seemed to have taken a bad turn. Following the Friends letter talked about in the previous blog, the weekly update on activities came out. In it was mentioned that a presentation had been made at the last Eastlake meeting (Id missed this one unfortunately due to a family birthday) by the Friends group about the “new” Rail Discovery Centre.

Unfortunately it appears that the liquidators commercial in confidence documents were used in this presentation. What exactly was shown I do not know but an email to all members came out Saturday morning from Deloitte.

In it, the liquidator stated that he believed that the public release of these documents without his authority had compromised his ability to restructure the organisation. It also restated that the Friends group were not authorised by the liquidator to make representations on behalf of either the Society or the CRM Trust.

Finally, it appears that there will no more member driven newsletters or volunteer days at Canberra Railway Museum, a severe blow to those on the ground volunteers that were trying to do some good and had nothing to do with the actions of the Friends.

Where this leaves the future of the Society and the CRM is unknown, however it can only be regarded as a definite backwards step and a sign that the tolerance of the liquidator has run out.  Whilst the Friends have claimed to be representing members best interests, they have had the exact opposite effect and potentially ruined any chance there was for a restart.

A number of members and volunteers took to social media over the weekend to vent their frustration at the situation with some interesting information revealed in the process regarding some ‘smoking guns’ in the Societys last couple of years, suggesting theres a lot more to be revealed regarding the actions of the Societys former CEO thats yet to come to light.

News from the friends

An interesting item arrived from the Friends of the Canberra Railway Museum very early yesterday morning.  I initially signed up as a member of this email group mainly to keep an interest in things and for the social meeting information.

Also attached was a membership form for a new association started by the friends group called the Canberra Rail Discovery Centre Incorporated. 

A ABN search online reveals that this group was incorporated on the 19th of January 2016- One month before the Council resigned following the no confidence vote given by members in November 2015. Given the involvement of some of those ex-councillors in this new venture, the timing interesting.  The ‘just in case’ scenario in the email implies foward thought and intent- Were those councillors aware that the Society was on the brink of financial collapse and decided to allow it to happen, with the intention of swooping in and claiming the assets when it did? Add in the previously mentioned non-disclosure (to the membership) of the defaulted payments to the ATO in November 2015 and more shades of grey appear. 

Ex-ARHS members are invited to apply but to leave the bottom two lines blank, namely who they are being nominated by and a seconder for that nomination.  This would appear to allow the friends group to quickly gather names and strengthen the legitimacy of the group in court dealings whilst potentially giving them a mechanism to reject members at a later date.  

It is important to note is that the Friends working group are asking for this support without issuing any constitution or corporate structure. Members could quite rightly ask what form this association will take and what rights will they have. They could also ask what representations are being made in court on behalf of them by the Friends working group acting in their names. ARHS members as a majority did not vote these people onto any board (No board/council is currently ‘in office’). Are they already installed as directors of this association? If so, what is the limit of their term? Can any member apply to be a director given suitable qualifications?

There is also comment on the unsustainable nature of the societies business in early 2016 regarding changes in the market.  There is no question that the model was highly dependant on the ESPEE operation (A reflection that in setting up ESPEE, the Society took its eye off the ball regarding its primary purpose and was underesourced to do both), however, if the commercial operation is no longer an option (in itself an interesting about face from a number of the working group who were intimately involved in setting up ESPEE and championing it as the only way foward), what do the friends working group intend to replace it with? The costs of restarting even a static museum operation will be significant and as noted in the email it is unknown what the ultimate outcome of the liquidation will be, preventing any accurate modelling. The liquidator himself makes it clear in the statement of service that none of the models he has examined are sustainable without additional funding at start up. Government may one potential source but ultimately the Government will likely base their opinion and any funding discussion on advice from the liquidator.

Re the working group itself, although there are people geniunely working for the best outcome, there are no new names involved and it is hard to see how a fresh approach is going to come from the Friends (particularly given three of the names were executive officers of the Society up to 20 February 2016). Two of the members of that working group personally own rollingstock that would presumably be housed on site at the new ‘discovery centre’, setting up a potential conflict of interest from the very start. It also remains to be seen whether this group has the ability to work together in the longer term. Two former ARHS presidents with extremely differing priorities and past history are among the number and while at present there is a common goal, looking longer term, will they still be able to work together 5 years down the track? Again, the liquidator provides a fair comment on this in the statement of service:

So does this association have a chance at success? The problem faced by ARHS members is there is no certain scenario or outcome regarding the liquidation but it doesnt appear that there are any 11th hour ‘white knights’ that will stop that process and the selling of assets remains the only tenable solution to recovering the creditors debt. Until it is known what, if anything, will remain at the end of this process, any future plans remain ‘what ifs’. The friends acknowledge that and yet are asking the former ARHS membership to trust them to secure a potential future. Admirable as this sounds, the problem remains that theyve yet to offer any real solution to the sustainability question and the potential for future internal conflict is present through a lack of structure and constitution. This means that any future operation may be compromised from the start.

Project LANs

This blog has been put together with the aid of a couple of fellow members who wished to draw attention to one of the areas The Society continually wasted money in.

At the time of its collapse, the ARHS had one of the largest fleets of stainless steel sleeping (comprising ex-Southern Aurora Carriages) in the state, comprising 6 LAN Single Berth Sleepers, 6 NAM Twin Sleepers and 1 DAM sleeper.  In addition, a number of cars owned by the former President and Vice President were also stored on site. Of these cars just 1 LAN and 1 NAM were deemed as fit for traffic during 2016, the last year of operation.  The rest of the cars were unfit for operation due to a number of defects in wheels, bogies, drawgear and brake systems.

The Society once operated sleeping car tours away, sometimes to stage shows in Sydney or Melbourne or to regional centres on ‘weekender’ style trips. However, by 2014\2015 a combination of factors had led the number of these trips to dwindle to 1 or 2 a year, normally to a major event like New Years Eve, the Temora Warbirds Flying Show or Australia Day in Sydney.

The letter of service issued by Deloittes refers to a book entry named ‘Project LANS’. This relates to the purchase of 2 LAN type cars from a private owner in the Hunter Valley in 2014. In the 2015\2016 Annual Report, the value given is $14,545.00, reflecting the purchase cost of the 2 carriages (Relocation costs were extra and covered below).  Both cars were non-operational according to maintenance employees, requiring substantial mechanical and interior work before they could be considered fit for purpose.

The Society’s purchase of the 2 cars co-incided with some private carriage acquisitions made from the same private seller to the then President (1 car) and Vice-President (4 cars) of the Society.  A train was operated on 2nd November 2015 to bring all the cars back to Canberra, with the Society paying costs.  The private owners paid their portion some months later (The Society bore those preparation and transport costs until that time though).

As a side note, this influx of carriages created some problems upon arrival as the Museum yard was full. The private cars were stored on the North Shunt for a period before the President instructed employees to move some of the Canberra Railway Museum Trust owned vehicles into Canberra yard allowing the private cars to then be stored within.

The question all this leads to is was there a need for these 2 carriages in the first place? The official reason given by the Council at the time was that the cars were earmarked for conversion to Lounge Cars.  This would have involved gutting the interiors and refiting them with social type seating and bar facilities, as well as the mechanical work required to bring them up to scratch. Unfortunately, at the time of purchase neither business case or costing was put to members to show what the Society would end up spending or the return expected once the car was back in service.  Nor, has either been sighted in the time since.  It is also worth noting that another air-conditioned carriage was already part way through a conversion, however it had not seen visible progress for some time.

The conclusion to be drawn is that this was an ‘impulse’ purchase based on overly optimistic views on future operations and income.  Given the lack of sound business projections, this reflects poorly on the part of the Council and the General Manager. Although the amount (What the Society ended up paying in terms of preparation and transport costs is unknown) appears a small one in the scheme of things, it must be kept in perspective that the Society was a small business that quite often lived month to month and did not often have large amounts of cash to play with.   It is the opinion of many members that the money would have been much more productively spent maintaining the sleeping carriages already owned by ARHS, most of which were out of service due to defects by late 2015.

 

44s1

Another standout in the liquidators report is the mention of 44s1.  This locomotive was purchased by the ARHS as the first locomotive for the fledgling ESPEE operation in September 2012.  On the surface this was a necessary step as the agreements with Office of Rail Heritage precluded the use of 4807 and 4403 on commercial operations and hiring locomotives off other owners ate into the profit margin of the operation.  Based on accounts from volunteers involved at the time, it would seem that the engine was not in operable condition though- Recently refurbished wheelsets and traction motors intended for Loco 4468 (Donated to the society by CFCLA, with the refurbishment of the components funded by the sale of locomotives 7315 and 7319 to the Manildra group) were shipped to South Australia where the locomotive was stored at the time and placed under the loco before it was transferred to NSW. Unfortunately, en-route, one of the traction motors failed necessitating the cutting of an axle pinion.  This rendered the locomotive inoperable until it could be repaired and it sat idle at the Museum until it was transferred to Goulburn in 2015.  Despite this movement, it remained stored there, presumably due to lack of money to fix it until the Society was placed into liquidation.

It is at this point we look at what Deloittes has to say about the locomotive:

The total purchase cost of the locomotive to the ARHS would have been in the region of $265,000.00 (I do not know whether the $25,000.00 deposit was in addition to the first yearly payment or part of it).  This seems a significant sum given this was a 40-50 year old locomotive in average condition (Volunteers and staff at the museum expressed the opinion that the engine blocks and generator equipment in both 4403 and 4468 were in better condition) but would probably been justified had the locomotive had any earning potential. As can be seen above regarding its condition, it didn’t and it was only made moveable (The condition of the wheels underneath 44s1 precluded any movement) by taking components (refurbished using society money from the sale of the 73 class locos) destined for another Society owned loco, ie robbing Peter to pay Paul.  Any future potential for the engine was then further squashed by the in traffic failure on the delivery run.

Further complicating matters is that it was only discovered late in 2016 that a condition in the hire purchase agreement was that the locomotive was not to be used in commercial operations, apart from those operated on the behalf of CFCLA.  ARHS Members, who had outlaid money through volunteer work in train operations and donations to the 4468 project as well as those who donated to purchase the 73 classes in the 1990s, were never informed of this condition and that the engine that was supposed to be for commercial work would never be able to fulfil that function.

Even if the engine had entered society ownership, there would have been a further amount to be paid to repair the damaged traction motor. This would have given an engine that was operable, but there still would have been questions over the Society’s ability to finance and support further work, given its extremely narrow window of operations.

From even a casual observer’s standpoint, it would appear that this was an extremely risky commitment from the then General Manager and Council, given in 2012 ESPEE was essentially still a start up business without an ongoing contract. Furthermore, it must also be questioned why the CEO (The General Manager became the CEO in 2014) and Council did not draw the same conclusion as Deloittes and seek to cancel the agreement once it became clear that it was a significant financial drain on Society finances without any chance of return.  With it starting in 2012, 2016 was year 4 of the agreement, meaning that the majority of the payments had been made, probably amounting to close to $200,000.00.  It goes without saying that this money could have been far better spent and was sorely missed when December 2016 rolled around.

ARHS Financial Findings

Below is the first analysis on the Deloittes Letter of Service regarding ARHS ACTs collapse.  This post primarily deals with some of the financial findings with further input after questions to ARHS Members, Former employees and council members.

The liquidators have reached this conclusion after extensive forensic financial auditing of financial records going back 24 months from November 2016.  In short, this has been a long term systemic failure with the likely result of ARHS’s members never really getting a true picture of how the business was travelling.  Indeed, a comment among many on the ground volunteers during the period when ESPEE (The commercial freight arm) was operating freight trains on a regular basis was “Where is the money going?”

In the last 24 months, ARHS had 2 paid employees dedicated to financial work- A full time professional paid bookeeper, and a part time ‘corporate services manager’ (Self titled, but person performing the role was a Tax Agent with considerable experience).  Additionally, working above them was the organisations CEO and at board level, an honorary treasurer. The accounts were also audited annually by an independent professional chartered accountant.  So the question is, with that many people dedicated to the financial side of what was by definition, a small-medium business, how were the books determined by Deloittes to be ‘largely inaccurate’ and where were the errors being made?

Furthermore, conversations with a number of Council members and employees from the period March-October 2016 revealed an almost complete lack of transparency with regard to information regarding finances.  An example is that the operations manager at the time was unable to obtain data on ticket sales to support his costing models for heritage operations- Ie, he had no idea whether trips such as the Western Safari, Gosford and Wollongong weekends were coming in under, on or over budget.  This situation is widely acknowledged by all as having changed when the treasurer changed in September at which time the desperate situation became clear. It is also worth noting that both the bookkeeper and “Corporate Services Manager” resigned their positions not long after.

On the face of it, this seems extremely dubious and begs the question of how on earth it went backwards so quickly.  The answer to this is relatively simple though as from Jan 2016 to its winding up in October, the ESPEE business essentially collapsed due primarily to the loss of its one significant contract, the ACCESS scrap metal train, in January.  From that point on, ESPEE could only pick up adhoc work like railsets, ballast trains and crew hire, significantly undermining the income stream of the Society.  Furthermore, according to a number of former employees, they had been employed by the then CEO on the basis of the Access contract and the financial security it supposedly gave.

All this would not have been a significant issue if the ARHS had enough redundancy in its business model (such as through heritage operations) to cover such an eventually as a contract loss.  Due to limited resources and an overly optimistic attitude from both the council at the time and the CEO regarding plans for the future, it didn’t, nor was there a plan for scaled reduction in employee numbers or financial planning around forced redundancy costs.  In essence, all the eggs were in one basket.

The termination of the aforementioned Access Contract is mentioned specifically and, according to a number of the 2016 Council members, the information that it had been actually terminated by ACCESS was unknown to them.  For the liquidator to be pursuing ACCESS on the matter of termination clearly indicates that it is felt there is a more than reasonable case that the termination was not in line with the contract.  The employee in charge of ESPEEs operations, expressed during members meetings and social functions that ACCESS were simply waiting on approval to expand their Fyshwick site as an explanation that the train was not operating.  Clearly, someone knew and kept that information from members and the other employees.  The effect, whether deliberate or not, was that members and employees acted on the belief that the revenue stream would be restored and this was simply a dry patch, something familiar to the Society.

The mere fact that the Society ran up this debt with the Tax office beggers belief and serious questions must be asked as to how this occurred, as an accurate tax component (Tax rates being known and defined figures) should have been built into all costing models, be it heritage or commercial. It would seem almost as if at some point ARHS simply stopped paying.

This is significant as it places a financial payment default prior to the November 2015 meeting at which the vote of no confidence was carried against the then council. At no stage during that meeting was it disclosed to the membership that the Society had defaulted on the plan, nor was it disclosed in the handover to the new council of January 2016.  Indeed, a creditors\debtors list (shown to the author by a member of said council) submitted at one of the early meetings of the new Council is missing any reference to a debt in excess of $59,000.

The above details are merely the start. However, there are already clear indications pointing to people (be they elected or employed) be out of the depth when it came to running a business. When the going was good, few questions would have been asked and many assumptions made. Once it turned though through the loss of a single contract, the cracks started and the flaws in the systems became well and truly apparent.

More to come.

ARHS Liquidators report back

Yesterday, 22nd May 2017, the appointed liquidators for the ARHS ACT and Canberra Railway Museum reported back to the ACT Supreme Court and ARHS membership. Whilst this report is designed to inform creditors the basics of why they haven’t recieved monies owed to them and what they can expect to get back through the liquidation process, it does give a glimpse of some of the main reasons for ARHS’s collapse. The document is also written as a straight up facts sheet. Supposition and suspicion are not included, leaving people to draw their own conclusions with regard to the content. I have now read the document a number of times and will be posting excerpts with further information from the people involved.