Salient. Official Newspaper of the Victoria University Students' Association. Vol 44 No. 9. May 4 1981
Constituent Guarantees
Constituent Guarantees
The general tosses of STB were, and still are, manifested in its bank overdraft. It was recognised that if the company were to be able to continue to trade there would need to be some guarantee given the bank in respect of the overdraft, as STB had no asset against which it could be secured. On this basis it was agreed in August 1978 that overdraft guarantees totalling $100,000 would be provided by the seven NZUSA constituents on a pro rata basis.
At the time it was agreed amongst all constituents that all would participate in giving the guarantees. At that time, had the guarantees not been given, STB would probably have been wound up, NZUSA would probably have covered the losses of the company, and then the losses would have been divided on a pro rata basis. The rationale for providing the guarantees was clear: either the losses were covered immediately, or a guarantee for a similar amount would be required (actually a smaller amount owing to the arrangements relating to the Australian debt) in anticipation that the trading profits of the company would reduce the debts, and eventually clear them completely. At that point the guarantees could be released without any cash having been required from the constituents.
Obviously the scheme proposed could only work if STB actually made a profit, but in view of the massive revenue from the ISIC scheme this seemed a valid assumption. Providing the travel operation was able to cover its costs, substantial profits from ISIC sales would generate the required revenue to recover the losses.
On the basis that other constituents were doing likewise, VUWSA signed its guarantee for the pro rata share of the overdraft, some $17,000. Three other constituents did likewise. After much delay and confusion, promise and counter-promise it became clear that three of the constituents (Canterbury, Massey and Auckland students' associations) were not going to honour their earlier commitments and sign their share of the guarantees.
Consequently by 1979 there were insufficient guarantees to cover the overdraft and the bank was beginning to ask leading questions. The STB Board attempted to resolve the impasse by offering those constituents who had already taken up guarantees the opportunity to increase them. They endeavoured to sweeten this otherwise tasteless pill with the offer of a guarantee fee of 4%p.a. on the value of the guarantee. Victoria and Otago increased their guarantees to $40,000 each on this basis.