Do you ever get the feeling there’s a chase but you’re not quite sure how to cut to it?
That’s the way I feel about the sale of The Lakes Golf Club. There’s a bottom line here but I can’t quite put my finger on it.
On the one hand is the story told by club Treasurer Jerry Redmond, who explained to me in an email that The Lakes, which was established in 2006, is in terrible financial shape — a situation that became particularly dire due to a repayment clause in its $3.5 million loan from ACOA. The clause, which came into effect in 2016, is based on “profit before depreciation” and Redmond says repayment constitutes a “substantial” percentage of that profit, although he didn’t specify precisely what percentage. As he explained in an interview with the CBC’s Tom Ayers which aired on Tuesday:
“What really hurts is ACOA … finally came back and said, ‘There is a repayment schedule. Here it is. Here’s your first invoice.’ And that’s when it really hit home that, OK, we could be in trouble.”
(I have asked ACOA a number of questions about this — and other — aspects of the deal and have been promised an answer today. I will either update this when I receive it or write about it next week.)
Basically, the Treasurer’s story is that between operating costs and debt payments, the board could not afford to run the golf club and the offer it received from the Ben Eoin Development Group Inc (or, if you insist, BEDGInc) was a godsend.
That offer, as Redmond explained to me in an email, looks like this:
Along with the Assets, the offer included the taking over of our complete debt which was approximately $5 Million, and included both our Mortgage with Atlantic Central (Credit Union) plus the ACOA Preferred Shares.
Shareholders will also retain their “discount memberships.” In other words, as the CBC’s Tom Ayer’s explained, the offer “does not involve any cash.” The price of The Lakes, then, is “approximately $5 million.”
I went back to check out the total original cost of the Golf Club project and according to ACOA, it was $9.8 million.
A good chunk of this was raised from shareholders. But my calculations (included in last week’s article) show the federal government has put more than $3.5 million into the Golf Club (much of it non-repayable).
What isn’t debatable: BEDGInc has, once again, got itself a bargain.
Dire straits
That’s one part of the story, but on the other hand, two of the six businessmen who make up BEDGInc (Mike Kenny and Glen Brann) were Co-VPs of the board of the Golf Club until what seems like just minutes before shareholders voted to sell it.
As board members, they were presumably in despair over the club’s rickety finances. (As board members, they could also be held to some extent responsible for the club’s rickety finances, but that seems to be one of those facts we’re filing under “inconvenient.”)
As board members, they apparently determined the best course of action was to sell the Golf Club.
So, acting in the best interests of the shareholders, they put the golf club on the market and accepted the highest offer.
Just kidding!
Remember, Kenny and Brann are also directors of BEDGInc, so they didn’t simply decide the club should be sold — they decided it should be sold to them. And the club’s Treasurer (who, you will recall, works for several of the professionals behind BEDGInc), was delighted:
“We were very excited that even anybody would actually want to take over all this debt,” Redmond told Ayers.
Which raises a good question — why would anyone buy a golf club in such dismal financial straits?
Well, because the financial crisis was provoked by ACOA’s demand for repayment and as Redmond told Ayers, ACOA was “quite able and willing to talk to this particular group” about renegotiating those payments, something it wasn’t willing to do with the existing owners.
So ACOA, which told me it was taking “all appropriate actions” to protect the taxpayer’s investment in The Lakes, seems to have decided the most appropriate action would be to assist a group of businessmen to buy it.
All BEDGInc had to do was quietly, in November (while Brann and Kenny were still on the Golf Club board), make its offer.
And so sure were they that this offer would be accepted, they began work expanding the Birches (which they’d also bought) to accommodate their new Pro Shop. Redmond says golfers will also use the kitchen facilities at the Birches, meaning they will no longer need to share facilities with the Cape Breton Ski Club.
Which leads me to the final part of this story.
MOU
If you look at the “project details” for the golf club on the ACOA website, the “client” is listed as “Ben Eoin Golf Club Limited & Cape Breton Ski Club.”
John R MacDonald, a former president of The Cape Breton Ski Club, showed me an unsigned copy of a Memorandum of Understanding (MOU) between the Ski Club and Ben Eoin Golf Holdings and Club Limited dated 15 June 2006, which explains the reasoning behind establishing a golf club in Ben Eoin:
Approximately ten years ago, the Board of Directors of [Cape Breton Ski Club] identified golf as a potential activity suitable for development so as to establish a year-round recreational resort at its site in Ben Eoin…[I]t is felt that the development of a world-class, 18-hole golf facility requires both a significant outlay of capital as well as the establishment of a solid operational plan that will help ensure long term viability.
Under the terms outlined in the MOU, the Ski Hill would lease the land to the Golf Club for 50 years (with an option to extend it for another 50 years) and the lease would:
…provide for a fair and equitable sharing of costs in relation to the annual operation and maintenance of all shared facilities.
The MOU also contained this clause:
Security
Ben Eoin Golf will provide the Cape Breton Ski Club, or vice versa, a first right of refusal to acquire the shares and/or assets of Ben Eoin Golf, or the Cape Breton Ski Club, in the event that reorganization is required that would materially change ownership of either entity.
MacDonald says the Ski Club should have been granted this right of first refusal (ROFR) before shareholders voted to sell the club to BEDGInc.
Jerry Redmond, though, told me:
As far as a claim of a “First Right of refusal” CB Ski knew, of the offer we received, back in November. They had over two months to produce a document regarding this claim and didn’t until 2 days after our Special Shareholder Meeting and vote on February 5th. On February 7th a document was emailed to our Lawyer by a Board member of Ski. From what I know the document was only informally signed by a couple of their members. It was not signed by any member(s) of the Golf Board.
What strikes me is that Redmond didn’t just say, “We looked at our copy of the contract with the Ski Hill and there is no right of first refusal.” Because that contract must have been dusted off and read recently — how could you arrange the sale of the golf club without considering the terms of its deal with the Ski Hill?
And as I noted, what MacDonald showed me was not a contract either but an unsigned MOU, which (even if signed) would not be legally binding. (I don’t know if this is the “document” that was sent to the Golf Club’s lawyer.)
On the other hand, an MOU, according to Investopedia, “signals a legal contract is imminent” and although not enforceable:
…still holds a lot of power because of the time, energy and resources needed to draft an effective and fair document. An MOU forces the participating parties to reach a semblance of a mutual understanding, and in the process, the two sides naturally mediate and figure out what is most important in moving toward an eventual future agreement that benefits both sides.
So it would be odd for the parties who drafted the MOU to completely ditch the provision for a right of first refusal when it came time to draft the final contract — although I’m sure stranger things have happened. At any rate, it’s a matter that could be easily settled by looking at the contract.
It is also interesting to note that Redmond doesn’t just deny the Ski Club’s ROFR, he is actively hostile to the idea of the Ski Club taking over the Golf Club, telling me:
There is zero chance that ou[r] Board and our shareholders would ever agree to trust CB Ski with the future of our club. And I suspect there was the same chance that our two biggest [creditors] would ever agree to it either. Plus CB Ski having any chance of bringing our course and facilities up to world class as promised by the Ben Eoin Development Group. [sic]
But if the Ski Club did actually have ROFR and was willing to match BEDGInc’s offer, would the Golf Club (and its two biggest creditors) have any choice but to “trust” it with the future? That, or cancel the sale?
This does seem like a matter for the lawyers, but here’s the final weird twist. Redmond told the CBC:
At that particular point [when the Ski Club produced its ‘document’], with a 97% vote in favor of this offer, our lawyer said, to myself, that it was going to cost some money to review any document that got received from Cape Breton Ski and I just said, ‘Well, we’re supposed to be turning over all the assets, all the liabilities to this new group, and I didn’t want to enter into any more debt — especially right at the last minute” so I basically said “Unless they want to pay for you to review that document and express an opinion,” I said, “We don’t want to pay.” I said, ‘We just want this thing to happen as voted by our shareholders.”
The idea that the golf club is unwilling to pay a lawyer to ensure the sale is actually legal baffles me — they have a lawyer, he’s presumably handling the sale, wouldn’t it qualify as due diligence (on behalf of your shareholders) to ensure you weren’t violating the terms of your contract with the Ski Club?
And it’s all well and good to say that the shareholders want this to happen, but what if 97% of shareholders voted to put a 19th hole in the middle of the Bunny Hill? I’m exaggerating, obviously, but the point is, what happens when shareholders are asked to approve something they can’t actually, legally do — like, for example, sell the Golf Club without giving the Ski Club its right of first refusal if the Ski Club does, in fact, have that right? Is the vote valid?
Like I said, these do sound like matters for lawyers.
And I, as I’m sure I’ve told you before, am not one.
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