Payout wasn’t a loan, auctioneer says
The roughly $1 million in loans to Ritchies owner Ira Hopmeyer that derailed a buyout of the auction house were cited in the company’s 2007 books as "unsecured, non-interest bearing and have no specific terms of repayment."
The description comes in notes referring to the company’s balance sheet prepared by accounting firm Fuller Landau.
As of June 30, 2007, "advances to shareholder" and "advances to affiliated companies" totalled $1.2 million, up from $771,590 the year before.
But in an interview Friday, Hopmeyer insisted there was never a loan. "It’s not on the books as a shareholder loan," he said. "It’s more retroactive advances, for payments I put in."
The draft balance sheet for 2008 lists almost $700,000 in loans to Hopmeyer and related companies, along with $271,000 in "other receivables."
Asked if he still owes the company any money, Hopmeyer said: "No, it’s my company."
In letters exchanged over the past year between Hopmeyer and a potential buyout group including former president Stephen Ranger, there is frequent use of the term "shareholder loan." Ranger wanted the money repaid.
In a June letter, Hopmeyer proposed a deal that would value Ritchies at $4 million. He concludes: "My C$1 million loan would be repaid to the company upon completion of the transaction, i.e, the receipt of my 89.1 per cent of the $4 million."
At the time, Hopmeyer owned 89.1 per cent of the company; he now owns 100 per cent after Ranger relinquished his shares. Hopmeyer said he only referred to a "loan" because that’s what the Ranger group called it.
When Ritchies couldn’t make good on roughly $750,000 owed to consignors from a May art auction staged jointly with Sotheby’s, the latter had to step in and pay consignors. Under the partnership, which dates to 2002, it had been Ritchies responsibility to handle payments to Sotheby’s cash advance america.
Sotheby’s is now an unsecured creditor of Ritchies, according to minutes of a staff meeting held July 30, which Hopmeyer did not attend. It was staged instead by investor Fraser Elliott, who was part of the group, including Ranger, that was attempting a last-minute purchase of the firm.
That bid also faltered over the loans to Hopmeyer.
The entire staff of more than two dozen people was subsequently laid off when Ritchies couldn’t make payroll.
"It appears that corporate cash was converted to loans to the shareholder and/or entities beneficially controlled by the shareholder," said forensic accountant Charles Smedmor, managing director of Smedmor & Associates and an instructor at Seneca College.
"A key question in such cases is the extent to which such loans are indeed collectible."
Hopmeyer has vowed to carry on, with a sale later this month. A note from Hopmeyer on the company website reads:
"To ensure safety and security of the merchandise and the proceeds of sale, we are pleased to let you know that our lender has hired Sterling Bailiff to conduct Ritchie’s (sic) September 22nd and 23rd auction."
It adds: "To all consignors who may be owed money from our June 2009 sale, we are in the process of attempting to determine a go-forward plan."
While the company’s books listed liabilities including a term loan of more than $200,000 in both 2007 and 2008, Hopmeyer said in an interview that Ritchies now has only one secured creditor, an individual. "His security is far less than the value of the assets here," he said. "That’s why he’s staying in.
"If he doesn’t get paid, he’s coming after me personally."
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