Ruapehu Alpine Lifts Limited was formed in 1953. The skifields on Mt Ruapehu have endured under this community-owned non-profit model for almost seventy years. The recent insolvency highlighted issues in governance, structure and stakeholder relationships. This wake-up call can provide a chance for the company to re-emerge with a new-found humility, connection with stakeholders, and raised aspirations for the future. We now have a chance to hand the skifields on to the next generation in a state that we can all be proud of.
What is a Deed of Company Arrangement?
The Ruapehu Skifield Stakeholders Association (RSSA) have consulted with a wide range of stakeholders throughout the insolvency process. This consultation has guided us to form a view on the best way forward for the skifields. The RSSA now recommend that Ruapehu Alpine Lifts Limited enter a Deed of Company Arrangement (DOCA). The DOCA process will restore the company (with important changes) and aims to provide the best outcome for key stakeholders.
What does the DOCA mean for key stakeholders?
A Deed of Company Arrangement is a legally binding agreement between a company and its creditors that outlines a proposal for the company's restructuring and repayment of debts. For the key stakeholders this means:
Iwi: The DOCA proposal aims to respect the enduring interests of Iwi, which encompass a range of concerns such as long-term aspirations regarding the Maunga (their Koro), local training & employment, tourism, sporting youth excellence, and cultural values. The existing company carries with it legally binding concession obligations, relationship agreements, and relationships. By entering into this DOCA those relationships will be retained. We cannot emphasise enough how important good relationships with Iwi are to the very existence of snowsports on Mt Ruapehu. The DOCA also includes a community ownership element, which reflects a humble, grass-roots approach with a deep respect for the mountain itself and the local people. The stakeholder association also anticipates more active involvement from Iwi going forwards. Kōrero is currently taking place currently to determine exactly how that increased Iwi representation might eventually look. Importantly, such processes cannot be rushed on a commercial timeline nor dictated by the company.
Department of Conservation: The periodic renegotiation and renewal of the operating concessions between DOC, Iwi, and the skifield operators over the last seventy years has been a significant undertaking. The existing permissions, balance and structure of these arrangements placed considerable emphasis on the non-profit and community-ownership aspects of the skifield operator. Liquidation would automatically terminate these concessions. Furthermore, a corporate takeover could change the balance of public interest against permitting commercial activity (with significant on-mountain physical infrastructure) within an environmentally sensitive national park. By entering into this DOCA, the existing concessions are preserved, maintaining the current balance and structure that considers the public interest.
Staff: The insolvency process has had a personal impact on the skifield's day-to-day staff. The ongoing uncertainty has already resulted in several redundancies and resignations. This DOCA proposal retains the company and continues all employment agreements, eliminating the uncertainty for the staff. This is crucial as liquidation would automatically terminate all existing employment agreements, creating significant personal risk for individual staff members. Retaining experienced local staff is important, especially those with specialist skill sets.
Life Pass Holders: Life passes are not merely a commercial contract, but also reflect a personal commitment and attachment to the skifields. This DOCA proposal ensures that life pass holders can continue skiing. However, there will be re-activation fee involved as part of restoring the company. The legal right to levy this fee arises from the ability of a DOCA to vary the relationship between a company and a creditor. Life pass holders have already contributed $45 million to the assets on the mountain by purchasing life passes. The additional $7 million that will be generated by the re-activation fee will (wherever possible) go towards the establishment of the long-term rainy-day fund and capital improvements fund.
Creditors: Liquidation terminates a company's liabilities and the subsequent treatment of creditors is determined based on a waterfall of their security interest priorities. In contrast, the proposed DOCA aims to restore the company and generally honour the creditors, albeit with some changes to the timing and amount of payments (these will be specified in the final DOCA). By entering into this DOCA, the company can immediately continue its operations and provide a mechanism for the repayment of debts to creditors. MBIE & ANZ have graciously offered to forgive their debt incurred prior to the Voluntary Administration.
Overall, the DOCA process has been recommended by the stakeholders association because it offers a way to restore the company, preserve important relationships, maintain employment agreements, honour life passes, and provide a framework for creditors' repayment. Importantly, it also provides certainty that the company can immediately commence trading the 2023 ski season.
What does the DOCA mean for the company?
The DOCA process also offers the opportunity to modernise the company by appointing new directors, updating the company constitution and resetting the shareholding structure. The successfully reconditioned company would allow for new investment, better representation, more resilience and set the skifields up to thrive for future generations.
There are several changes required to reset, renew and bring the company forwards:
Directors: The company will appoint transitional directors for the 2023 season who will focus on stabilisation and an orderly restoration of services. These directors will be prioritised based on skills in stakeholder engagement, corporate finance, company turnarounds and winter skifield operations. The vision for the future includes transitioning towards a diverse board of directors with industry-specific skillsets. This will ensure a well-rounded and knowledgeable leadership team capable of navigating the dynamic challenges and opportunities in the ski industry.
Profit Reinvestment: The company's constitution will maintain the community-ownership and non-dividend-paying structure. This will compel the company to reinvest profits back into the skifields, funding necessary infrastructure upgrades, improving guest experiences, and supporting sustainable initiatives. Profit reinvestment is important because it ensures that the company will invest in long-term infrastructure that benefits alpine sports, rather than optimising only for short-term return on investment for shareholders.
Capital Raising Ability: This DOCA process will adjust the company structure to provide new opportunities for the company to raise capital. This will involve changes to permit equity investment, debt financing, and strategic partnerships. By attracting new investment the company can raise the necessary funds to restore operations and rebuild the asset base.
Capital Gains: This DOCA will include mechanisms that allow for potential capital gains for investors. This will involve initiatives such as share buybacks and facilitating secondary transfers between shareholders. By providing potential capital gains, the company can attract and retain new investors, fostering long-term partnerships and financial stability. This long-term approach will still retain the community-ownership and the profit reinvestment mandate.
Contingency Funds: Two contingency funds will be established to make the reinvestment of profits more transparent: (i) a rainy-day emergency reserve fund for use in the event of adverse events such as an volcanic eruption, bad snow year or business disruption, and (ii) a capital-works improvement fund so that future projects can be funded from accumulated cash rather than debt. The contingency funds will help provide confidence to Iwi and DOC that the skifields are a trustworthy and resilient partner. The funds will also provide transparency so life pass, season pass and other stakeholders can see the profit reinvestment mandate in action.
Environmental Focus: The DOCA will emphasise the company's commitment to environmental sustainability. This includes implementing initiatives to reduce the skifields' carbon footprint, adopting renewable energy sources, and preserving the natural beauty of the surrounding environment. By integrating an environmental focus into operations, the company can attract environmentally conscious visitors and position itself as a responsible guest on the mountain, aligning with the obligations to Iwi, the responsibility to the National Park environment, and the growing global customer demand for sustainable practices.
The RSSA have engaged a specialist insolvency lawyer to prepare a proposed Deed of Company Arrangement and PwC will be reviewing the proposal for presentation to creditors at the Watershed Meeting on 20 June 2023.