ODMA spent 73% of its net worth without consulting membership

The figure was revealed in the organisation’s annual financial report for the year ended 30 June 2015, handed out at the door to mbers who attended its annual general meeting in Sydney on 11 Novber.It raises the question of what is the ‘undertaking’ by the company as set out in its morandum and articles of association, as well as the role of directors of the company in making such a momentous decision without consulting the (shareholders in the case of most companies, but mbers in the case of a company limited by guarantee, as is the case with ODMA).In essence, the ‘undertaking’ is the major activity of a company, which in the case of a company limited by guarantee is known when the taking out of mbership is being considered and that actually takes place.So it becomes a matter of whether it is considered using 73 per cent of ODMA’s net assets to purchase the goodwill of Eyetalk is regarded by mbers as going outside the company’s ‘undertaking’ and/or goes outside what is set out in its morandum and articles – i.e. whether an expenditure of such a substantial proportion of the company’s assets is acceptable or whether it is excessive, given the size of the company, without consultation or approval and whether it was prudent financial behavior.Like most companies, ODMA’s morandum and articles give its board wide powers to act on behalf of mbers, however the size of the sum paid for Eyetalk adds an unprecedented dimension to the company’s actions.The report shows substantial increases in costs for the year ended 30 June 2015 versus the year before, including ployee expenses increasing from $172,994 to $497,393 (an increase of $324,399) and administration expenses increasing from $34,823 to $213,085 (an increase of $178,26).Also, finance costs increased from nil to $25,333 and Eyetalk acquisition costs increased from nil to $40,796.In addition, $375,000 was borrowed during 2015 versus nil the previous year.On the other side of the coin, Eyetalk’s revenue for the 2015 year (11 months since its purchase) was $617,587.The report indicates the purchase of Eyetalk’s goodwill from proprietors Margaret McCann and Tony Hanks in August 2014 cost $825,323. Given that and given the substantial increase in costs since the purchase, mbers might consider the price paid for the publication was high in light of what appears to be a modest profit.In its statent of financial position, the report shows intangible assets of $825,323 as at 30 June 2015 compared to nil the previous year.It also shows that cash and cash equivalents have fallen from $1,128,124 as at 30 June 2014 to $590,043 at 30 June 2015.A note to the report shows revenue of $639,630 from ODMAfair during 2014 versus nil during 2015. That is because ODMA2015 was held in July and under the agreent with the organiser of the 2015 trade fair the dividend from that event was not payable until after all creditors were paid, which was after 30 June 2015.Curiously, despite the use of 73 per cent of ODMA’s net assets in making the purchase, the report says: No significant changes in the nature of the Company’s activity occurred during the [2014-15] financial year other than the acquisition by the Company of The Eyetalk Reference Guide.