PAA axes holiday homes scheme

Whilst a lot more work, perhaps the most equitable thing to do is share the sale proceeds amongst those who contributed over the years.

As a separate initiative, the PAA could establish a legacy trust and invite members to contribute to this if they wish

There may be fiduciary restrictions to consider before simply pouring any sales proceeds into a seperate entity (irrespective of its intentions)

I wonder if this topic will engender any discussion on this site.

A PAA member asked me to take a look at this scheme when the announcement was made.

I was a bit incredulous to learn how badly the scheme must have been managed - 7 properties x 365 days = 2555 property nights per annum. If there really are 23,000 credits, that's 9 years of credits - how could they ever meet that liability? This could not have been an issue that arose overnight in a Black Swan fashion.

The second thing I commented on was the basis for the scheme cashing out the credits. You would struggle to rent holiday homes for $100 a night; if the liability is really 23,000 nights, that's $2.3 million of accommodation at today's prices.

But it seems contributors are only going to get the money they have paid in back. That amounts to a few hundred thousand dollars it would seem. I wonder who the professional was who would certify that paying back cash outlaid over the years was actually a fair way of meeting the liability.

A picky question of course is how was the liability recorded in the annual accounts? Would be interesting to go back over the last few years and see how the liability was included in the accounts.

The third thing I wondered about was if the issue was meeting the annual expenses, i.e. cashflow, what other alternatives were there? From memory, the property deficit was only $10,000 p.a. Why couldn't the solution be to sell one of the houses and use the interest earned on that to fix the cashflow issue. It wouldn't of course solve the problem of how to fix the imbalance between nights credit and nights available.

The cynic in me wonders whether its just not a way to grab the equity in the properties and then allocate it via the legacy trust to someones' (plural) pet projects?

There is a lot of misinformation around the sale of these houses too. It is not a member vote at a special meeting, it's a done deal! Why not change the rules so only financial members can participate? This is what I am sure was always intended. This would instantly fix the problem with the contingent liability on the balance sheet.

I agree with pragmatic, any proceeds should be distributed to those who contributed over the years, based on the number of years of contributions.

There is very little information around this legacy trust and the money could be consumed very quickly by attempting a "consumer awareness campaign".

The whole truth of the matter is that the scheme worked perfectly well when ALL PAA members had use of the homes and paid to buy and maintain them as a compulsory part of their membership fees, except that there should have been a 20 year expiry date on all credits to avoid a build up. Most of the 23,000 credits are owned by people who have not and will not use them.

Then in 2000 it was decided that membership and use of the homes would be optional and that's what crippled the scheme.

Instead of going back to the homes being a compulsory part of the membership fee (a few dollars per month over 1100 members)the current board last year more than doubled fees to $74 per night (!) plus a $150 booking fee, and put a three year limit on use of credits- the final nail in the coffin and one third of the members resigned!

With better management, the scheme could have run forever. And yes, why is the money not going back to those who brought and maintained the homes over many years???

Does the PAA have a record of the number of non-financial members with holiday home credits who are now actually deceased? How many of the non-financial members have been actively booking the homes? As Arty says most will probably never use them anyway. It seems to me there has been a barrage of emails with half truths and deliberately ill-thought solutions to solving this issue. Is this contingent liability actually on the balance sheet? I don't recall seeing it there.

As Murray says the use of the sale proceeds is inequitable. The deficit is insignificant and would be easily resolved by recruiting a few more financial members. How is this legacy fund to be used; will they use the capital or just the interest? How will it be invested? There are many unanswered questions.

The bottom line is the scheme could be run effectively and this is not a democratic decision!

Undemocratic ? Indeed it seems so.
Attend the PAA meeting at The Sorento , One Tree Hill, 11.00 am Thursday April 23rd and help the democratic process to avoid what the cynic above is implying as a possibility, and thereby obtain a fair deal for everyone - right now it is not !

I cannot recall asking existing contributing members if they were willing to pay higher fees as an alternative to retain the scheme. Also how about asking those non-contributors with credits if they would agree to waive some unused credits, informing them that it would otherwise lead to the liquidation of the houses. Asking those to donate their unused shares to the "legacy trust" is exactly the same as asking them to forfeit their credits in order for the scheme to survive. Many of those have probably passed on. Those who established the scheme had in mind that likewise responsible people would have access to affordable holiday housing and not leaving some intangible "legacy" behind.

why has the PAA Board, given up so soon, when only 6 months ago the Board, felt sure that they had fixed the Problem. Sure several have resigned from the HH Scheme. However, their credits would run out in 3 years.
Selling the lest used Property, would more than cover the cost of running the Scheme. Looks like the Board have taken the Easy Option, or just cant be Bothered, by Winding up.
Their Argument of cheap Hotel Rates are a Joke. The Industry has had its highest Occupancy for years, thus pushing up Room Rates, just check out Trivago etc. No Hotel Room compares with a Beautiful HH Pad. Setting up a Legacy Trust is a Cop out, when it wont benefit the Members who Paid for them, worst still, not Compensating us at current Hotel Rates to buy back the Credits. All this amounts to Grand Theft.

Further to straight-shooters idea, I don't believe PAA even know how many of the theoretical 23,000 credit holders are likely to use them in future. Why not just write out to all the credit holders who are traceable asking them to contact PAA within one month if they wish to retain the use of their credits, making it clear that a non reply will be taken as an assumption that they will allow their nightly accommodation credits to be cancelled.
This way you at least know what the real number of nights owed to people are, and can base decisions on reality rather than guesswork. Then if the homes or a couple of them are to be sold later, at least the number of people you have to pay out is much reduced!
And for heaven's sake at least offer the existing credit holders the opportunity to retain all or most of the houses by paying a small fee each year in respect of each week's accommodation they are owed for the future.
The board seem determined to rush through a decision without considering other alternatives!

I agree pretty much with what everyone above is saying and I only hope the Board of the PAA are reading these comments. I believe they are going to lose members as a result of what they are doing here. Of course following the merger with the NZMBA the housing scheme members are now in a minority. It was always intended that way, they were restricted from joining the scheme to preserve its integrity. Who wouldn't vote to get something for nothing! They and other PAA members who were not in the scheme have not contributed anything towards the value of these assets and now will benefit from the proceeds of the sale. If this voting is to be fair then only current members of the housing scheme should be eligible to vote on the future of the scheme. I think selling the homes to fund "consumer awareness" is a hair-brained scheme and it will take many millions of dollars to achieve any result. Even the fact that this has been suggested is conformation this "legacy trust" should not be created.
As Murray said the return of $'s paid for holiday nights is inequitable; they should be funding replacement accommodation. So by Murray's conservative calculations that's a $2.3m contingent liability! Surely better to keep the homes and do what is sensible; that is address the tiny $10,000pa deficit and ensure only financial, contributing members can use the homes ... there, the problem is solved!

Another way of verbalising the alleged inequity of the proposed cashing out of credits is as follows:

The subscribers view
It seems the subscribers thought they were buying the right to use the holiday homes in the future.

The Board's view
The Board's proposal says that the subscribing members were effectively making deposits into a non-interest bearing account at the PAA.

Scheme Rules
My enquirer couldn't produce a set of the Scheme's rules, but s/he was darned sure they would not have contributed if the Rules had been written in the way the Board now proposes they be interpreted.
Maybe the Board should just produce the Scheme Rules as part of the SGM documentation to show what the actual contract between subscribers and the organisation was?

I wish I had found this discussion before. I'm surprised the mainstream media aren't tearing the PAA to shreds over this. Here's an email I sent to the board after I found out that they were planning to wind the scheme up. No reply of course...

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Let's not mince words. The scheme has collapsed because of truly spectacular financial mis-management over a long period of time by people who should have known and done better. This leaves the current board and members in this quagmire. While I say this as someone who has been a member but not at all involved in the running of the scheme for 20 years, it's obvious to anyone who can use a calculator that allowing a debt that is well over 60 years worth of holiday credits to accumulate across only a handful of properties was going to be problematic at some point.

I think that the HHS was a wonderful idea that has been allowed to fall by the wayside and should be resurrected. The fact that it is "difficult" or "contentious" is irrelevant. Action needs to be taken but throwing the baby out with the bathwater only benefits those unfortunates who have to deal with the decision, not the members.

I don't think the solution to running the scheme effectively is actually that complicated.

• Sell the two least used houses from the scheme
• Pay out all people who want to cash in credits at around $20 per credit (yes I know this is less than we paid for them but I think it's a reasonable compromise and reflects maintenance costs and the cashflow deficit)
• Increase the holiday home scheme membership fees to $70/month. (This would still be a bargain and around a half to a third of market rate to rent these places short term and also less than most timeshares)
• Limit membership numbers to a ratio that works for the number of houses owned or increase properties as cashflow permits.
• Credits need to expire at some point (after 3 years?), perhaps creating a refund of around 1/3 of what was paid for them.
• Require all people holding credits who are not a HHS member to pay a $25 a month maintenance fee to retain the credits. Any debt freezes the balance. Six months of non-payment forfeits all credits. It's stupid to allow an eternal debt to build up.

I suggest that the last bullet point be implemented ASAP and you might find that this will immediately solve the cashflow crisis if not the problem of oversubscription. Give it a year and you could find that your credit debt is also significantly reduced. The only reason we are reaching a crisis point is due to lack of action. It would be foolish to make "slash and burn" decisions and lose such a great asset due to apathy.

I stopped my membership when it looked like I may be purchasing credits I would never get to use but I would like to rejoin if the above was implemented.

I am staggered that a "professional" association of financial advisors has managed to balls this up so badly and seem incapable of sorting it out.
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This whole thing has been appallingly badly handled. I think some of the original advisors who set this up would be turning in their graves.