In Part One of this series, I gave readers an overview of my investigation into how the NSW government handed over Crown land to developer CSKS Holdings and updated readers on questions asked by Sydney MP Alex Greenwich and Greens David Shoebridge in NSW Parliament last week.
In this story (Part 2), I explain the findings of a 2008 Office of Liquor Gaming and Racing ( OLGR) Inquiry into the Paddington Bowling Club (PBC). The report was published in 2008 but although readers may find it a little hard to believe, this seems to be the first account of its findings. ( If you find another one, let me know so that I can link to it.)
Part 3 will update readers on attempts by Friends of Quarry Street to prevent development of open space on the Paddington Bowling Club site and overturn the deal which gave CSKS Holdings a 50 year lease on the land. It will also explain how the Paddington Bowling Club was mismanaged in a way that advantaged would be developers.
CSKS wants Woollahra Council to approve a development of a large for-profit child care centre on Paddington Bowling Club (PBC) land it leases from the government on the edge of Trumper Park, a small bushland in inner Sydney. The Centre would replace two tennis courts.
CSKS director Chris Sanchez whose interests have previously been in club catering, hotels and retail development has entered the field of child care by setting up a tiny company Picket Fence ELC Pty Ltd that would run the Centre. Sanchez told me that although he has no experience in child care, he would hire a very experienced director to run the Centre.
Friends of Quarry Street and other residents have lodged scores of objections to the development application, particularly around parking and pedestrian use of narrow Quarry Street which runs alongside the site. But Friends of Quarry Street, other residents and some Councillors say there are also broader issues at stake that affect the entire community.
Tonight Greens Woollahra Councillor Matthew Robertson will move a motion that Council officers should prepare a report on the current state of the CSKS Holdings lease, the rationale for why the NSW Liberal government allowed it to be transferred to the Sanchez company and whether or not the NSW government consulted with the Council.
While some may argue a narrow view that Council should only deal with the development application, Councillor Robertson will draw fellow Councillors attention to the Local Government Act that states that the role of Councillors should be to "protect the interests of residents and ratepayers" and "provide leadership to the community".
How CSKS got control of valuable Crown land.
Much of the story about how CSKS got control of this land is found in the records of a NSW Office of Liquor Gaming and Racing Inquiry set up in 2007 after Woollahra Council blew the whistle on a decision by NSW Lands to sell the site to the Sanchez controlled company. The SMH and Wentworth Courier published several reports on the Inquiry but the report itself seems to have been missed.
The Inquiry was set up by the then Director of NSW Liquor and Gaming Albert Gardner to investigate the administration of the PBC and whether there had been any improper or corrupt dealings in relation to it. The Inquiry followed a four month police investigation into the club that recommended further investigation.
Barrister Brian Guest conducted the Inquiry that included more than 30 days of hearing. His Inquiry could only make factual findings, leaving it to law enforcement and regulatory agencies to decide what action should be taken on the basis of Guest's findings.
The Inquiry transcripts trace the story back to the 1990s when the small Paddington Bowling Club ( PBC),like many similar ones, struggled to compete with bigger registered club venues. PBC was just holding its head above water with a bank balance of $200,000.
From St Trinians to Barefoot Bowls - the PBC directors lose control
Bruce Malouf, an ex-Wallaby rugby union player who was involved in the LJ Hooker real estate agency in nearby wealthy Sydney suburb of Double Bay, came up with a bright idea that he sold to the PBC: a new restaurant for the club called St Trinians with waitresses dressed as naughty schoolgirls. The PBC directors agreed on the basis that there would be no financial risk to the club. The restaurant was launched by TV host Kerri Anne Kennerley who described it as the “ new hot and happening pub.” but it failed after a couple of months.
As the Inquiry was told, Bruce Malouf’s renovation costs blew out from $35,000 to $624,000. Much of the money had been supplied by B52 a small superannuation company in name of Malouf’s mother Mavis. Without seeking Liquor and Gaming Administration Board approval, more than $350,000 was spent on poker machines later disposed of for almost nothing.
The directors still talk today of how shocked they were when the pokies replaced the bowlers' change room and the bowling club Honour Rolls came down off the walls.
Director Terrence Henville told the inquiry that during this period, “ I, for one, am not a businessman - everything just ran away from us, from the renovations to the bar and poker machines .. We really just lost it.” . The directors pressed the Malouf’s and their managers for financial reports but only occasionally got them.
Bruce also gave evidence that the law was ‘way out of his league’. He became unwell and was hospitalised after which his brother Philip Malouf played a role in managing the Club.
After Bruce recovered, he introduced barefoot bowling which was an immediate success. ‘Paddo Bowls - was no longer for the olds’ http://www.paddobowls.com.au/ As Bruce told the Inquiry: “ They flew in from everywhere...everyone was beering and cheering and playing bowls. “ As one director told the Inquiry, even the GPS (private school) crowd from the upmarket pubs made PBC their base, at least for a while.
While the PBC Directors could see the club was busy, they could not work out why it was still making a loss. They asked to see accounts but never received them.
Evidence was later given that more than $200,000 was missing against which no expenditure was recorded. The inquiry heard that other sponsorship funds which were owed to PBC ended up in other accounts. No income from bowling activities was recorded. When the accounts were later reconstructed, the Club was recording losses.
Although a Malouf company was now effectively running the club, the directors were still liable for its management. They soon got another fright. In August 2000, the Malouf company B52 sent the Club an account for nearly $1,200,000. The directors denied in evidence to the Inquiry, and have continued to insist to this day, that there was ever a loan. Philip Malouf gave evidence that there was a verbal agreement about the loan but the Inquiry found there no evidence for the loan. Guest found:
“There is no loan document to support the contention and the directors of the club deny that they ever agreed to any financial liability. They are unanimous in their view that it was always the case that the Maloufs did everything at their own cost and risk and if it didn’t work out they would walk away.”
This alleged loan for which the Inquiry could find no evidence is the single most important factor in PBC losing control of the Crown lease. It remained on the books of the club until at least 2010 when the club last filed accounts with ASIC. No accounts have been filed since then and there was no Annual General meeting last year.
This supposed unpaid Malouf load to the Club meant that PBC was always in debt however well it traded.
In 2002, the old Directors got another nasty fright. They had been signing cheques to pay group tax but instead of it being paid, the Malouf appointed managers left the cheques stapled to the chequebook. The directors received letters from the tax department saying they would be personally liable for the tax debt.
Now the Club was in serious trouble. On the recommendation of Philip Malouf, the NSW Supreme Court appointed experienced Liquidator Andrew Wily as an external administrator. When an administrator is appointed, directors lose control of day to day management until a company becomes solvent again. The old directors were told that if they did not agree to the administrator, they would be liable for debts. Thus began one of the longest administrations in corporate history. It was only terminated by Wily when the Crown finally transferred the lease to CSKS in 2011.
At the Inquiry, Wily said that he accepted that the PBC owed the Maloufs more than a million dollars without asking the Directors if they accepted that the debt existed..
Having accepted without investigation that the loan existed, Wily decided that the only way to make enough money to pay the creditors was to “arrange for the Club to purchase the leasehold land on which it was located and then for the land to be sold to a property developer with the proceeds of the sale being used to pay the creditors.”
Wily introduces Sanchez to Paddington Bowling Club
This is when Wily called in his friend developer Michael Sanchez, who had also been a Double Bay real estate agent. Not surprisingly for a real estate agent and property developer Sanchez told the Inquiry: I was more focused on the property side of things.
Q. When you say "the property side of things",are you talking of the potential for development of the site?
A. Well, the potential for development ….
Sanchez examined the underlying value of the lease that was supposed to be held in perpetuity for the benefit of the public and decided to become involved.
Who is Michael Sanchez?
An early proponent of high rise in the Eastern suburbs, Michael Sanchez was a successful real estate agent, firstly in Maroubra and later in Double Bay. But over the last ten years, Sanchez, his son Christian and their companies including Benchmark have faced several major business challenges that will be covered in a third report.
Michael Sanchez first caused an uproar in 1989 when he formed a company with the then Mayor of Randwick Council Paul Bayutti and knocked down an old mansion Ostara that was about to get heritage protection in order to make way for a development. Bayutti later resigned from the company.
Sanchez successfully fought off bankruptcy in 1992 after he fell into financial difficulties when he employed Andrew Gibbons who was suspended by the Real Estate Services Council.
A few years later, Maroubra residents campaigned against Benchmark's plan for high rise apartments. As the well known journalist Elisabeth Wynhausen who died last year reported in the Sun Herald at the time, Sanchez attracted attention when he sent a barrister along to a residents' meeting who disrupted proceedings. A group of men dressed in Benchmark t shirts were also in attendance. When some of those opposing the development claimed they felt intimidated, Sanchez’s solicitor explained the men's presence was intended to remind residents that jobs were at stake.
In 1998, Sanchez and his wife Lynette acquired a 50% share in a huge development in Port Melbourne on an old publicly owned site. When Macquarie Bank with whom he had already had a dispute became involved in financing the project , one of its senior officers Bill Moss objected to Sanchez being involved. Sanchez sued the Bank and so began a series of court actions that would eventually result in a humiliating loss for Sanchez. The Victorian Supreme Court found in 2002 that Sanchez’s evidence was unsatisfactory and it found that there was a consensus that Sanchez should be removed in the “sense that neither he or any interest associated with him should have ownership or a controlling interest.” This was a significant set back for Sanchez.
Wily, Sanchez and Kirk get together
Back in Paddington, Sanchez called in another long term business associate and planner Brian Kirk who according to Inquiry evidence was also a business associate of Wily. As meeting minutes referred to at the Inquiry showed, Kirk represented Sanchez in early discussions about an agreement with the club and in later negotiations with the government.
Kirk also became President of PBC and remains so today. He signed the document transferring the land to CSKS on behalf of the Club in December 2011 and has provided planning advice for the current development. He told me he could see no conflict in his roles. ( I will report more on Kirk's role as President of the Club in a later story.)
After several meetings, It was agreed that Sanchez’s company Woollahra Gardens ( now CSKS Holdings) would pay the club $50,000 for an option to purchase the land if the government agreed to sell it to the Club. Sanchez also paid the Maloufs $200,000 and took over the so-called loan on their behalf. The Maloufs were now out of the picture.
Sanchez brings in daughter Vanessa Sanchez and husband Marcus Levy
But there was more to the deal. Sanchez required that PBC hire his daughter Vanessa Sanchez and her husband Marcus Levy to run the club. The jobs were not advertised and neither of them had any experience in clubs. Levy was made Secretary of the Club but also formed a management company that ran the club. Vanessa also formed a company that was paid high fees for her work for the Club.
An agreement between Wily, PBC and Woollahra Gardens ( CSKS Holdings) was signed that allowed Sanchez's preferred arrangements to proceed.
Wily suspended for four months
In 2004, Wily had to be replaced by another administrator from his company after he was fined and suspended as a liquidator for four months for failing to detect a fraud and to identify losses which should have closed a business. He was also found to have broken the Corporations Act in a number of company administrations and failed to lodge minutes of meetings and reports within required time.
Payments to Marcus Levy and Vanessa Sanchez
The Inquiry examined in detail payments to these Marcus Levy and Vanessa Sanchez companies. ML Management received $1,378,889 over 4 years and $245,183 worth of frequency points from purchasing goods for the Club. Levy resigned as secretary manager after the Inquiry was announced but in 2007, Wily agreed to pay him even more money. As was pointed out to Levy at the Inquiry, under Section 41L of the Registered Clubs Act, a secretary of a club or his or her relatives cannot enter into contracts with that club. Levy resigned his Secretary role when the Inquiry was announced.
Vanessa Sanchez's company VS Management Pty Ltd also received $686,737. Vanessa told the Inquiry that she did not actually receive these payments but instead was paid a wage out of other family accounts. She told the Inquiry that she did not really understand bigger business issues and that her father was in control.
Marcus Levy and Vanessa Sanchez did improve turnover at the club introducing more corporate bowling. In their opinion, their high fees were justified because they would not benefit from 'goodwill' they were building in the club.
Guest summarised it in his questions to Marcus Levy this way:
Q. ML Management? A. Yes.
45 Q. Really, to boil it down, as I see it, the club has to make a profit of $480,001 before the club gets $1 profit? A. Correct.
The report found that “looked at objectively the consequence of the arrangements with Mr Levy’s management company, ML Management (NSW) Pty Ltd is that the majority of the financial benefit of the turnaround has gone to Mr Levy via ML.”
The Quarry Bistro
The Inquiry also inquired into Quarry Bistro Pty Ltd which provided catering for the club. The Inquiry found this company had no written agreement with the Club and paid no rent or commissions to the club. A large amount of money that was spent at the Club on food flowed into Quarry Bistro Pty Ltd.
Wily was asked whether he made any inquiries about the arrangements with Quarry Bistro and he responded that he hadn't done so and had left such matters to Levy.
An ASIC search shows that Michael Sanchez's son and daughter Christian and Vanessa Sanchez were directors of Quarry Bistro, which was fully owned by Christian Sanchez during this period.
In 2007, the Sanchez family set up Benchmark Hotels for the purpose of investing in hotels including the Allawah Hotel. ASIC records show that both Michael and Christian Sanchez were directors of Benchmark Hotels which at one stage was fully owned by CSKS Holdings. Andrew Wily is now the appointed liquidator of Benchmark Hotels.
Marcus Levy later bought the Lansdowne Hotel in Chippendale. He and Vanessa Sanchez also took up a contract to manage the Crest Hotel bar in Kings Cross. They were still involved there at the time of the murder of Sydney businessman McGurk who was reported to be interested in buying the hotel at the time of his death. At this time Michael Sanchez was reported to be also interested in buying the hotel but as his business interests unravelled, the sale never proceeded.
Land sale knocked back - Tony Kelly becomes the Minister for Lands
Sanchez had originally hoped that he could buy the PBC land reasonably quickly. The first knock back came in November 2003. Tony Kelly becomes Minister in 2004 and two months later application to buy the land was resubmitted.
Evidence at the Inquiry showed that negotiations to persuade the NSW government to sell the land were costly for the Club. Between 2004 and 2007. PBC paid $92,797 on trying to buy the land, This included bills for lawyers, surveyors valuers and $10,000 for 'consultants'. Sanchez told the Inquiry that Kirk was the person who conducted the negotiations along with other unnamed consultants. Part of this evidence was given in confidence after barristers representing Sanchez objected that the matter was commercially sensitive.
The sale was finally approved in 2006 and Sanchez told the Inquiry that as far as he was concerned it would have gone ahead if it had not been for Woollahra Council persuading the Labor government to back out of the deal and set up the Inquiry.
But Sanchez was not taking 'no' for an answer. He told that Inquiry that Kirk was continuing to hold negotiations directly with the "Minister's office" and also approached the Leader of the Opposition Peter Debnam. Debnam had publicly opposed the sale.
The Guest Inquiry report was finalised in 2008. According to a Council document, some public servants in Liquor and Gaming recommended that it be tabled in parliament but the Minister declined. However, PBC was required to post it on its website.
In the following months, then MP for Sydney Clover Moore, Greens MLC Lee Rhiannon and Woollahra Council all asked the Labor government questions about what action would be taken.
In July 2008, the then Minister for Gaming Graham West replied to a question from Greens Lee Rhiannon: The “Director of Liquor and Gaming is currently reviewing the report and other information obtained in the course of the Inquiry to determine if there have been any breaches of State or Commonwealth Law, or grounds for taking complaint action against the Club.”
If you were to assume that the Inquiry would prevent the land transfer to CSKS or that the accounts would be adjusted to reflect the lack of evidence for the loan, you would be wrong. Although the MInister for Trade and Investment Andrew Stoner has not answered questions about what actions were taken, it would seem no prosecutions were laid.
Despite a healthy income, the Club could never make enough money to pay of the million dollar debt. So the PBC stayed insolvent and under Wily's administration.
PBC is required to hold an Annual general meeting each and lodge financial reports with ASIC. No accounts have been filed since 2011 when the 2010 report explained that no annual general meeting had been held due to "complex and drawn out negotiations with the state government".
Kirk who signed this report told me that the Club is now going 'quite OK'. Asked about the failure to file accounts with ASIC and hold regular Annual General Meetings, he said "I suppose we have been a bit tardy, we are finalising them now.' He said, "I don't see that as a major difficulty...I am making sure we get on top of that'. He declined to tell me the identity of the accountant.
Then, on the last business day in 2011, the Lands Department with the approval of Minister Stoner allowed Brian Kirk and Christian Sanchez to transfer the prized site. Although Woollahra Council was not informed, PBC was now CSKS's tenant. We do not know what officers of the Lands Department or the Minister knew about the state of Sanchez family business affairs at that time because the Minister has so far declined to answer any questions about that as well.
(The Shoebridge and Greenwich parliamentary questions and a Woollahra Council report would provide some answers.)
Michael Sanchez certainly knows what he thinks. He told me the Inquiry was an "utterly fruitless exercise. It was an expensive undertaking by OLGA ( office of Liquor and Gaming) which showed nothing other than the club was being run immaculately – in fact the template that was shown was the template that should be used in all clubs. That was the upshot of the Inquiry. It was a wasted exercise . You read it and tell me what you think…"
I have read it and in my third report, I will further explore the affairs of PBC, what the Council were told by the NSW government about the transfer of the PBC lease to CSKS Holdings and the business activities of Michael and Christian Sanchez during the period leading up to the transfer.
Note: Let me know if you know more or find inaccuracies in this report. My blog applies the MEAA code of ethics. I strive for accuracy and will correct any errors. I can be contacted on email@example.com or on Facebook or Twitter. I'm always interested in receiving more information. Some minor editing changes were made after this article was first published on March 10, 2014.