The following letter was sent this morning by the BC Métis Federation to the MNBC Board of Directors…
Dear MNBC Board Members;
Once again you as a board appear to have outdone yourselves with your latest maneuver to borrow an additional $1.6 million from the Royal Bank of Canada (RBC) resulting in the second mortgage against the property owned at 30691 Simpson Road (referred to as the Métis School) finalized at the end of December 2011. We assume this mortgage was the result of an improper resolution brought before MNBC delegates at the 2011 MNBC Annual General Meeting held September 24th and 25th.
We believe it was improper because this resolution was presented the day of the MNBC AGM meeting itself on September 24th, 2011 (attached) with no advance notice. The MNBC is a nonprofit corporation and under the Society Act of BC resolutions require 14 day advance notice. Interesting enough MNBC posted a resolutions package prior to the MNBC AGM and the attached resolutions was not part of this package posted on the MNBC website. Our point is further reinforced by the fact that MNBC’s own Constitution was contravened in accordance with Article 71:
71. All legislation, legislative amendments, constitutional amendments and resolutions shall be considered and given first reading by the MNGA in accordance with the provisions of the Métis Nation Governing Assembly Act.
The MNBC borrowing resolution was drafted by MNBC legal counsel and clearly this individual must have understood the requirements of a society and more importantly the requirements set out in the MNBC Constitution. We know these matters do not seem to be relevant to the MNBC board but it is simply another point of illegitimate actions by the MNBC board. Furthermore it is unclear how RBC reviewed this necessary legal requirement before approving another mortgage. There are legal remedies to address this matter but such an approach seems pointless given the financial state of insolvency the MNBC board has created today.
Regardless this latest move by the MNBC board with no announcements, no clarification, and no transparency continues to showcase your mismanagement. I wrote to each one of you most recently dated December 21st, January 3rd, and January 6th. It seems highly unlikely that you as a board would not be aware of this latest decision to borrow more money and begs the question about why would the MNBC board not make this significant matter public? Does this new borrowed money from RBC provide outgoing board members enough time to cash manage MNBC needs before you vacate office in 7 months? What financial business case was used to secure an additional mortgage?
The second mortgage is for $1.6 million financed at prime plus 5%. This equates to 8% and is a very high rate of interest these days in comparison to other existing MNBC loans that are currently identified at 3%, 4.25%, and 4.4%. The high charge is obviously a reflection of the high degree of risk that RBC attaches to the affairs of MNBC. This is going to cost MNBC a further $10,667 on the 20th day each month out of cash flow, beginning January 20th.
In our opinion there are two scenarios that can be drawn from this information. The first scenario might suggest the $1.6 million is new MNBC money, in addition to existing loans and lines of credit, out of which some of the current debt might be paid but that remains unclear without full public disclosure. Under this scenario money might be available for MNBC to fund some activities for a while or replace the million in deferred program revenue from 2010-2011. MNBC net assets will be further diluted by $1.6 million to increase the level of corporate insolvency to $4,506,009, including the school deficit.
The BC Métis Federation can’t see this as a realistic situation that the bank would enter into. Therefore our second scenario is that in our opinion it is most likely that RBC have offered another mortgage to pay off very important old debts or liabilities in return for improving their security and for a higher rate of interest.
The challenge is this new MNBC debt financing creates an extra $10,667 dollars of cash flow required to cover interest alone beginning January 20th and we must ask the board out of what funds?
MNBC is further in debt than before and MNBC has few, if any, sources of revenue. This does not appear to be sustainable and we estimate that MNBC has minimal credibility with governments to secure new funding to support the increasing costs. Let’s review where MNBC was financially at last March 31st, 2011:
- $2,050, 604 – First Mortgage on the School
- $3,587, 908 – Three lines of credit
- $2,264, 067 – Confirmed Organization Debt
- $239, 534 – Loss at the Métis School by March 31st, 2011
The total financial risk on these matters is $8,142,113 not to mention deferred program revenue of 1,096, 113.00.
Whatever the real situation it appears the addition borrowing of $1.6 million will improve in any way the seriousness of MNBC’s financial state. What about repayment of principal? What is the term of the new second mortgage? The fact is the total financial risk is substantial. For example, MNBC still owed $2 million as of last March 31st, 2011 and had repeatedly deferred the payments now due June 2012.
According to the MNBC 2010-2011 Financial Statements and the second mortgage MNBC will have to pay over $27,000.00 a month in interest alone for the two mortgages by June 2012. This is in addition to other MNBC lines of credit, outstanding payables, program payables, and operation. How is this sustainable? Where is the money MNBC leaders assured would be the result within two years of purchasing the property?
Given this new information we ask MNBC board members once more, what is the status of the sale of the Métis school MNBC announced in a press release dated December 12th? How does this new mortgage affect the sale for which it appears there is no surplus equity remaining anyway? We also still question whether MNBC President Dumont is paid a salary despite the same press release of December 12th suggesting that the MNBC board is no longer paid salaries.
The BC Métis Federation continues to be appalled by MNBC’s lack of public disclosure and full accountability although asked repeatedly for information. We provided MNBC an opportunity to disclose this information about the new second mortgage for almost three weeks but it is clear no information is forthcoming from MNBC. We assume the MNBC board considers this a solution and a way to address the ongoing MNBC financial crisis in the short term. We also assume MNBC did not publicly announce this new debt because MNBC believes mortgaging the future an additional $1.6 million is a responsible approach? Yes to date MNBC has realized increased debts, has not kept commitments to report on debt recovery, and needs to borrow against assets that were supposed to improve the financial sustainability of the MNBC.
There are so many unanswered questions and it remains unclear how MNBC intends to repay the significant interest charges for the increased debt financing? MNBC has continued to severely affect key programs such as youth projects and employment and training funding that continues to be lost. Ultimately we are confident MNBC will “defer” significant program dollars this fiscal year 2011-2012, not having the ability to replace the previous year funds as noted in the MNBC Financial Statements and further requirement MNBC to try and replace these dollars in the future.
The fact is MNBC administers federal and provincial programs and services and these programs are not for debt financing capital asset costs. MNBC has never properly explained the financial risks to MNBC citizenship card holders when the property was improperly purchased in 2009 and as a board MNBC has consistently realized major annual deficits for the past three years. Therefore MNBC has been unable to operate without losses and the addition of substantial new debt at such a high rate of lending is irresponsible. The fact that RBC approved another mortgage is shocking to say the least in the midst of this ongoing financial crisis.
Clearly MNBC is using program dollars to pay the increasing debt load and reallocating from MNBC lines of credit to stay afloat; “robbing Peter to pay Paul”. This point and so many other questions raised in this letter and previous correspondences remain unanswered.
The current MNBC financial situation has already impacted programs and services and this continues to remain unacceptable.
BCMF Board of Directors
Métis People of BC
MPs (British Columbia)