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E.A. & Branches, Opinion 2020 

'Stuff ' just keeps dissappearing on Facebook and Forums!
'Stuff ' just keeps dissappearing on Facebook and Forums!
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November 2020

HOW THE E.A. VOLUNTARY ADMINISTRATION PROCESS UNFOLDED.

THE CORPORATIONS ACT

I have a very strong opinion regarding the suitability of the Corporations Act and ASIC's role in overseeing its' compliance when applied to sporting organisations such as E.A. Equestrian Australia is a not for profit company limited by guarantee and as such must comply with the Corporations Act administered by ASIC. More on this major problem.

The Corporations Act is administered by ASIC. This Act specifies how a company must be run and the exact procedure and processes that must be followed when a company enters Voluntary Administration. Korda Menthas' Craig Shepard and Kate Conneely were the appointed Administrators and were also bound by the Act; within strict parameters of The Act their actions and roles are well defined with minimal flexibility.

 

Each of the State Branches stand alone, separate to EA but linked via a mutual agreement - the Memorandum of Understanding. The individual State Branches are independently incorporated (but differently to E.A.) they also come under the Corporations Act but are largely regulated by differ bodies, not ASIC .

 

As only E.A. is in Voluntary Administration, not the State Branches, the Branches are only affected in so much as under the existing (I will call it 'old') constitution the 6 State Branches were the only members of EA entitled to vote on EA Constitutional changes. The E.A. Administrators have no legal responsibility regarding the State Branches individual governance beyond following the requirements of the Corporations Act as it applies to E.A. 

THE PROCESS - FIRST CREDITORS MEETING

Broadly speaking the E.A. Voluntary Administration process involved the Administrators calling a creditors meeting. A vote by EA creditors entitled to vote there carried the motion of pursuing the option of looking at a legally binding Deed of Company Arrangement (DOCA) where E.A. would be able to continue trading their way out of Voluntary Administration under strictly specified conditions. This involved the Administrators looking at viable DOCA's, calling a second creditors meeting and putting these DOCA's forward to the meetings' vote.

 

So what is a Deed of Company Arrangement?- A deed of company arrangement (DOCA) is a binding arrangement between a company and its creditors governing how the company's affairs will be dealt with — and is agreed to after the company enters voluntary administration.

Amongst the options tabled, not carried, at the creditors meeting was to place E.A. into receivership. 

THE KORDA MENTHA DOCA- ENDORSED AT THE SECOND CREDITORS MEETING

Selecting/ Authoring DOCA's to go forward to the second Creditors meeting : The Administrators, Korda Mentha, under instruction from the first creditors meeting, undertook extensive stakeholders engagement. They correctly identified the most important issue that created the EA instability and governance issues that resulted in Sport Australia withdrawing Government funding to EA leading to Voluntary Administration– the fact that the EA constitution did not permit participating members (i.e. grass roots members) a vote on any EA matters, including constitutional  changes; the 6 State Branches were the only members entitled to a vote. The constitution, being the most important governing document needed to be changed in the most fundamental way, to give the grass roots members a vote on all EA matters; this would feed through to permitting these members to finally have a say in their ‘Peak Body’.

The final aim of the DOCA was to specify the required reforms that would satisfy Sport Australia that EA  was stable, their Constitution was fit for purpose, well run and had the support of its members, with the result that Government Funding would be restored to EA. so that EA could trade out of voluntary administration.

At the second Creditors Meeting the Administrators put two Deeds of Company Arrangement's (DOCA) to the vote; one devised by the Administrators themselves and another devised by the State Branches. The Korda Mentha DOCA was overwhelmingly accepted.

"HOUSTON WE HAVE A PROBLEM"

REFORM IS HAMSTRUNG - THE OLD CONSTITUTION  BLOCKS A ‘NEW STRUCTURE’

 

The (old) EA Constitution was allegedly forced on EA by Sport Australia as a condition for EA’s eligibility for government funding back around 2010; this completely disenfranchised the grass roots members of the organisation by making the State Branches the only members of EA entitled to vote on constitutional changes or EA issues, leading to a completely un-democratic governance where ordinary members had no voice, other than via their Branches.

To enact the Deed of Company Arrangement following the second creditors meeting the requirement was for EA Constitutional changes. BUT the process involved complying with the old EA constitution where only the State Branches were entitled to vote. The Voluntary administrators DOCA main selling point to the grass roots members who voted for it was a major constitutional change that would have large ‘flow on effects’, as these voters understood it was providing the grass roots members with the right to 1 unencumbered voting entitlement per member on all EA matters.

 

This result, if ratified (by the State Branches!) would remove the State Branches previous majority control of the constitution by changing the constitution to give the 5 Branches 5 votes, 1 vote each; with the 20,000+ grass roots members finally having one vote each. This change would come with the possibility of the grass roots members voting for outcomes that the State Branches did not support.

 

The grass roots members overwhelmingly supported this major change as they understood it to be (see following). Unsurprisingly, the State Branches ignored their members wishes; yes, the constitution was changed but not as the grass roots members expected, the Branches did not vote to reduce the State Branches controlling power and essentially still retain major control over the EA constitution via clause 40 and other clauses inserted by the Administrators as 'Corporate best practice'. Korda Mentha DOCA permitted other changes to the EA constitution that the State Branches voted to support; in my opinion serve to further dilute the power and input from 'grass roots members'. For me 'he who controls the Constitution is in majority control', the State Branches still control the EA constitution.

The grass roots members 'took their eyes off the ball', dazzled by the possibility of having a vote regarding their own sporting organisation they failed to read/understand the 'fine print in the Korda Mentha DOCA. The 'grass roots members' are now even more alienated from their State Branches and EA.

Administrators took this opportunity to insert into a DOCA that they authored a number of other EA constitutional changes that they considered 'corporate best practice', along with the required financial clauses to protect creditors. 

 

The changes to the EA Constitution 

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DOCA LEGAL WORDING – MISLEADING AND CONFUSING TO THE NON ‘LEGALLY EDUCATED’

The causative factors for this ridiculous outcome is the ‘old constitution’, combined with  the ‘flexible’  weasel wording of the Korda Mentha DOCA that led grass roots members to mistakenly believe that the State Branches would either have to vote to give all grass roots members democratic voting rights regarding EA matters including the constitution OR result in EA being placed into administration.

Excerpt from the Korda Mentha DOCA

“ 7 .TERMS OF DEED OF COMPANY ARRANGEMENT

… to consider  a special resolution to amend the constitution of the Company to change the Governance structure (Special General Meeting.)

The proposed amendments to the constitution of the Company will be circulated with the agenda for the Special General Meeting, and will broadly include, without limitation, the following:

1.recognising the Participating Members as a class of members of the Company with the same voting rights as currently held by the Members;”

As the saying goes "the devil is in the detail", the DOCA was no guarantee!

At no stage was this perception clarified by those in the know' as erroneous,  despite furious social media activity from members. Furthermore, there was a degree of ‘hysteria’ amongst members entitled to vote at the creditors meeting, the majority believed that the State Branches had to change the EA constitution to provide grass roots members and unencumbered vote on all EA matters including the constitution or face Equestrian Australia placed into insolvency, being disbanded – no Olympic participation, no FEI membership, no competitions, no insurance, etc. the end of their sporting world! This belief was wrong!

Essentially, the outcome was a ‘fait accompli’,  why would the State Branches relinquish their control? They didn’t, the ‘legal weasel words’ in the Korda Mentha DOCA permitted this outcome and the members were non the wiser until the ‘hammer fell’.

The Administrators carried out the required basic legal processes with the result being that the creditors, including grass roots members, voted to accept a Deed of Corporate Arrangement devised and put forward by Korda Mentha.

But!

Unfortunately, grass roots members would have to be legally trained to understand the implications of the wording of this deed, the grass roots members certainly weren’t, and the Administrators did nothing to explain the ‘functional effect’ of the terminology used in their DOCA  prior to the vote at the second meeting that accepted their deed:

In practice the wording of clause 7 in the DOCA meant that the State Branches would talk about (i above) but had the right to not accept it, leaving the ‘grass roots members’ still disenfranchised, disillusioned and disappointed, which is exactly what has eventuated.

He who controls the constitution, controls governance, the State Branches still control the constitution.

THE DOCA IS ENACTED:

WHAT THE GRASS ROOTS MEMBERS OUTRAGE IS ABOUT- CLAUSE 40

Clause 40 of the Revised EA Constitution – does not deliver a democratic unencumbered 1 vote ,1 member on all EA matters

 

The State Branches proposed and voted to accept the following wording for one of the constitutional revisions, see also Nominations Committee:

“40. Alteration of Constitution

The Constitution can only be altered by Special Resolution, which does not have any effect unless on the same resolution, at least 5 of the Branches vote in favour;”

 

The State Branches were allegedly intransient on their insistence on the wording of their clause 40, despite significant grass roots members opposition - 422 signatures – Riders for Reform  to Clause 40’s veto power; the denial of the 1 vote 1 member that the grass roots members had expected. Regardless of how you look at this clause it does not represent democracy or 1 vote, 1 member. Whilst the clause does not appear under the 'Voting at Annual General Meetings' it cleverly appeared elsewhere in the E.A. Constitution.

 

I do not accept that the functional effect of clause 40 is insignificant regarding diluting the voting power of the ordinary members. This clause provides two State Branches with the combined power to veto any constitutional change that the majority of ordinary members support. When clause 40  is combined with clauses 15.1  and 20 in the new EA constitution the functional effect is to curtail the input of grass roots members and retain the current power structure.

 

Craig Shepard told me that the obtaining the (limited) voting rights for ordinary members was a significant ‘win’ for the grass roots members. I cannot comprehend this assurance for the reasons stated above and the fact that this result has fallen way short of members expectations: a completely un-encumbered vote on all EA matters.  He gave me the impression that Sport Australia would ‘rubber stamp’ the outcome and return funding to EA as a matter of course despite the outcry from ordinary members (which Sport Australia has done since) he could have used 445G of the Corporations act to seek clarification/ratify and/or to amend the DOCA to accurately reflect the wishes of the grass roots members or at least get the courts opinion on the Clause 40, as a petition submitted to Korda Mentha requested that they do. Unfortunately, K.M chose to ignore the petition.

 

I understand that the New South Wales Branch has declared that they will not use this veto power! So why did they vote in support of the veto? This does not pass the pub test!

In hindsight the grass-roots members belief that the outcome of the State Branches vote regarding Clause 40 was not in accord with the DOCA was incorrect. Unfortunately, the Administrators failed to fully explain to the ‘members’ the actual legal interpretation of  ‘… to consider  a special resolution to amend the constitution of the Company to change the Governance structure (Special General Meeting.)”; the effect of which essentially permitted the Branches to vote exactly as they did.

THE SORRY SAGA CONTINUES -PG 8

WEAZLE
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