CONFLICT OVER FINANCIAL STATUS OF NIUE’S MATAVAI RESORT

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ALOFI, Niue (December 7, 1999 – Tala NET News)---The Government and the Matavai Board of Directors are currently in conflict over the financial status of the Matavai Resort in which the Government has a 51% stake and Hima Takelesi and local business man Russel Kars hold a 49% share.

Mr. Takelesi, an Independent member of the Niue Assembly, had accused Premier Sani Lakatani of dragging this matter into politics because of Takelesi’s involvement with the Independents’ vote of no confidence plan.

(For background, see Vote of No Confidence in Lakatani Government To Be Debated In Niue and Niue Likely Moving Toward Its Second Election In 12 Months.)

Both Premier Lakatani and the Matavai Board of Directors issued press statements on the matter.

PREMIER SANI LAKATANI

SUBJECT: Matavai Resort

Good evening.

It was not mine, nor Cabinet’s intention, to go public on the Matavai Resort problem until a satisfactory solution was finalized. It saddened me, however, to learn from this morning’s Radio New Zealand news bulletin, that Mr. Hima Douglas (Takelesi) has publicly accused me and the Government of refusing to resolve the Matavai Resort problem "for political reasons". With Cabinet’s approval, I now find it necessary to tell you, the people, the facts and the circumstances concerning this matter.

When the NPP led Government took office late in March one of the very first things which confronted us was that we had inherited a number of problems the previous Government had not resolved or attended to. One of these problems concerned what has become the Matavai Resort dilemma.

On the 20th of April, my attention was drawn to the fact that the Matavai Resort and its Board of Directors were in serious trouble, financially and legally.

Matavai Resort is a company registered in New Zealand under New Zealand law. As such the company and its Board of Directors have certain responsibilities and legal obligations to report to the Companies registration authorities in New Zealand about the companies financial affairs.

About this time last year the Government Auditors from New Zealand expressed concern about what they believe to be misleading accounting statements from the Matavai Resort Management. In December last year the Auditors officially reported to the Government and the Board of Directors that they were not satisfied with the Matavai Resort accounts because the accounts did not reflect the true financial standing of the company.

Consequently the Directors were informed that the Controller and Auditor General had reported the matter to the Registrar of Companies in New Zealand.

On the 20th of April the then Attorney General reported to me and Cabinet that the New Zealand Ministry of Commerce had pointed out that under New Zealand law it was a serious criminal offence to produce misleading financial statements, the penalty for such offence being up to five years imprisonment or a fine of up to $200,000. In the case of the Matavai Resort the Directors were held responsible for the misleading financial statements. Each of the four Directors was individually informed in writing by the Ministry of Commerce about the problem on 13 April 1999. One of the Directors is Mr. Hima Douglas.

Immediately after Cabinet’s attention was drawn to this matter, the Government’s Offshore Solicitors in Auckland, Kiely Thompson and Caisley were consulted. On their recommendation, Mr. John Collinge, who specialized in this type of legal matter, was retained by the Government to investigate and report to Cabinet as to how the problem might be resolved, especially about the question of criminal charges. As a result the Government asked the Commerce Ministry to defer any further action until the Government and the Board of Directors of Matavai Resort work out a solution.

At the same time Cabinet directed me to invite the two private shareholders of Matavai Resort, Mr. Hima Douglas and Mr. Russel Kars to indicate what their intentions were about the matter. I met with the two shareholders concerned but they did not put up any concrete proposals.

Cabinet then decided to ask Mr. Collinge to suggest what options were available to the Government. Accordingly Mr. Collinge provided a report with an analysis of a number of options open to the Government. One of the options suggested was that a "rescue package" should be worked out. Cabinet consequently asked Mr. Collinge and Government officials to provide Cabinet with a "rescue package" proposal.

That proposal was recently tabled in Cabinet, but Cabinet decided to postpone making a final decision until it had discussions with the Audit team leader who is expected to be here soon.

At the heart of this issue is the fact that the financial statements submitted to the authorities were misleading (which is tantamount to fraud). The accounts produced indicated that Matavai Resort was financially a going concern, when in fact it was insolvent, in other words bankrupt. If the Government were to rescue Matavai, and the two private shareholders, the cost or loss to the public purse will be at about half-a-million dollars.

Having now been obligated to provide you with the facts surrounding this unfortunate matter, neither I nor Cabinet wish to be drawn into what Mr. Douglas has started as yet another "political football."

It is a pity, more so because Cabinet’s efforts to improve air services has been primarily for the purpose of keeping tourism facilities like Matavai afloat. Yet some of those with personal vested interest in the industry want to sink me and the Government.

 

MATAVAI RESORTS LIMITED BOARD OF DIRECTORS

PRESS STATEMENT

Matavai Resorts Limited is a Company owned by the Niue Government, Mr. Russell Kars, and Mr. Hima Takelesi.

The Company has fully paid up shares of $200,000, with 51% of the shares being held by the Government and 49% by Messrs Kars and Takelesi. The company was registered in New Zealand because Niue lacks the necessary legislation to enable it to be registered in Niue. The company is therefore bound to operate according to the laws of New Zealand. As such, its audited Financial Statements are required to be submitted to the appropriate New Zealand authorities.

The establishment of the Matavai Resort Hotel was funded by way of the paid up share capital and various other advances from NZODA and Government. The bulk of the funding is provided by the New Zealand Government through its Overseas Development Assistance Programme in the form of a loan of $2.4 million. This assistance was channeled through the Niue Government to Matavai Resort Limited.

The hotel began operations in late 1996. Since it’s opening, the hotel like other accommodation projects on the island has struggled because of the low number of tourists. It has struggled to generate sufficient revenue from its operations to meet its running costs. Unlike the Niue Hotel, which receives direct funding from Government, no financial assistance has been provided towards the operating costs of the Matavai Resort Hotel from Government.

Without the financial support of NZODA the hotel would not have been able to keep it’s doors open.

The problems being encountered by the Company is related directly to compliance with New Zealand accounting standards.

It is not about "Misleading Accounts" or implied criminal activity by the Management or Directors of the Company, which has been bandied about in the media of late.

The following is a simple explanation of the problem.

While the hotel has been able to meet normal operating costs, it has not been able to meet payments of the "Interest" on its loan, which is owed to the Government. Normal accounting standards requires that the assets are depreciated and this cost is charged against operations. The assets of the Matavai Resorts are valued at well over $2 million and the annual cost of "Depreciation" is therefore quite substantial. The cost of Depreciation for 1998 for instance was $140,000. Without this cost, the Hotel would have had a Trading Profit rather than a Deficit.

Because of the high costs of these two items (Depreciation and Interest on the loans), the Hotel would need to generate approximately $200,000 surplus over other expenditure before it can show a profit. This is no mean task for any business operating in Niue and has been impossible to achieve especially given the low numbers of tourists arriving in Niue since the hotel opened its doors. The Hotel has therefore shown a substantial Net Deficit result since it began operations.

The accumulation of these deficits has meant that by the year ended June 1998, these totaled substantially more than the value of the Company’s paid up Capital of $200,000. This is what has led to the " Going Concern Qualification" contained in the Audit Report. The company Balance Sheet showed a "Negative Equity" position, which is by New Zealand standards unacceptable for a company to be operating under. The Auditors gave a qualified opinion that because the "going concern" assumption is not appropriate; the accounts "do not comply with accepted accounting standards"

The Controller and Auditor General is legally required to report this state of affairs to the New Zealand Companies Office. As a result of this, the New Zealand Companies Office was obliged to inform the Directors of the Matavai Resorts Limited that it is possible that an offence has been committed against Section 41 of the Financial Reporting Act (NZ). The Company Office also suggested that the Company may wish to consider the adoption of a corporate structure that will not fall within the requirements of the New Zealand Financial Reporting Act.

The Board of Directors reported this to Government in April 1999. Government at that time gave an assurance to the Board that it would actively assist the Company and seek legal and other appropriate advice in order to find a remedy for the Company’s predicament. The Board has been advised that a "rescue arrangement" has been developed that would satisfy the NZ Audit Office and the NZ Company’s Office and is waiting for Niue Cabinet approval. The Board is still awaiting Government’s advice as to whether this agreement would be proceeded with.

R.L. Kars Chairman, Board of Directors Matavai Resort Limited November 25, 1999

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