The chairman and CEO of troubled Ritchies Auctioneers withdrew shareholder advances totalling more than $1-million, exacerbating the firm's financial distress, the company's former president alleges.
Stephen Ranger, the former president and chief operating officer of the Toronto auction house, told The Globe and Mail yesterday the debt that CEO and majority shareholder Ira Hopmeyer allegedly accumulated by personally withdrawing company funds against his shares was a major obstacle to Mr. Ranger's attempt to buy and "salvage" the company, with help from entrepreneur and former Ritchies chief financial officer Fraser Elliott.
The accumulation of shareholder advances allegedly paid to Mr. Hopmeyer is documented in letters between Mr. Ranger and Mr. Hopmeyer negotiating the purchase of Ritchies, dated between September, 2008, and June, 2009. But Mr. Hopmeyer said yesterday that he never made the withdrawals. Instead, he said, a $1-million loan he refers to in one of the letters was cited only "for tax purposes."
Ritchies's financial distress became evident in July when it was unable to pay some consigners from a joint sale with Sotheby's that yielded $3.5-million in sales. After Mr. Ranger informed Sotheby's that Ritchies couldn't meet its commitments, the New York auctioneer severed its ties with the company. Mr. Elliott resigned as CFO in June, but said he was still consulting with Mr. Hopmeyer on the company's financial affairs after the split. On July 31, Mr. Elliot laid off all 27 Ritchies staff when the company couldn't make its payroll, with Mr. Hopmeyer's knowledge.
Mr. Hopmeyer has been trying to revive the company by rehiring a skeleton staff and meeting clients by appointment, but many consigners say they are still owed money for past sales.
"Had there not been such huge advances made to [Mr. Hopmeyer], we wouldn't have made a profit this year, but we would have been able to obtain financing and maintain solvency," Mr. Ranger said yesterday. He resigned on July 28 over differences with Mr. Hopmeyer.
The total amount of the advances is documented in offer letters written by Mr. Ranger, who then held a 10.1-per-cent share in Ritchies, and Mr. Hopmeyer, who owned 89.9 per cent and wielded total control of company finances.
Mr. Ranger made an offer in September, 2008, to pay Mr. Hopmeyer $2-million over five years for control of the firm. He said he did not receive a response, and two months later, upped his bid to $2.5-million for a 75-per-cent share in Ritchies, with Mr. Hopmeyer retaining a 25-per-cent share, in a subsequent letter. That offer was tabled again on April 27.
Each of Mr. Ranger's letters include the provision that the offer was contingent on Mr. Hopmeyer repaying "loans" he had allegedly taken, which Mr. Ranger said yesterday left the company dangerously short of cash and now total more than $1-million.
"It is essential that you pay back the outstanding shareholder advance. Without this, a transaction is not possible given the company's cash position," Mr. Ranger wrote in the letter dated April 27.
Mr. Hopmeyer replied with an undated counteroffer, asking for $4-million paid over several years for all the company's shares. He then wrote: "My C$1-million loan would be repaid to the company on the completion of this transaction."
On June 29, Mr. Ranger rejected the counteroffer, and added: "Repayment of the loan is clearly vital to the immediate survival of the business and necessary for me or any prospective purchaser to even contemplate the purchase of the business."
But Mr. Hopmeyer said yesterday he never took shareholder advances and that the $1-million he referred to in his counteroffer was "a tax play to help the company."
"We inflated the price by $1-million, and [that $1-million] would be put back in as a shareholder loan to help him buy the company, as a book entry," Mr. Hopmeyer said, adding "it's how deals are done."
Mr. Ranger said that statement is "incontrovertibly false."
On July 29, the day after Mr. Ranger resigned, Mr. Hopmeyer told staff in a meeting that Ritchies would forge ahead. The next day, Mr. Elliott held a staff meeting in Mr. Hopmeyer's absence to discuss the company's plans. But on July 31, Mr. Elliott called a third meeting, told staff there was not the money to make payroll, and laid them all off.
Mr. Hopmeyer previously told The Globe he had "no idea" how staff were dismissed, a claim Mr. Elliott disputes.
"[Mr. Hopmeyer] was certainly aware I was going to let the staff know that they were going to be let go," he said. "I was acting in the capacity of an associate [of Mr. Hopmeyer's]."
Mr. Hopmeyer countered he believed at the time he had struck an agreement to sell Ritchies.
"We had already agreed to [Mr. Ranger buying Ritchies] on [July 30] and what they did after that was their business, not mine," Mr. Hopmeyer said.
Mr. Elliott disagreed with that assessment yesterday. "There was nothing signed and nothing agreed to at the time," he said. Mr. Ranger added: "We were trying, but did we have a deal? God no."
© The Globe and Mail
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