A cache of internal documents has laid bare the full financial catastrophe inside the remnants of the disgraced Health Services Union’s former East branch. The summary of the true state of the HSU’s books, compiled by lawyers Slater & Gordon and accountants VJ Ryan & Co, and obtained by Crikey, shows that in the two-year period between the 2010 merger of the NSW, Victorian No. 1 and Victorian No. 3 branches and June 30 this year, over $7 million was wiped from the union’s asset base – from $8.7 million to just $1.6 million. The deed poll documents starkly illustrate, for the first time, the full fiscal trainwreck that occurred in the aftermath of the tie-up. The NSW union (including an overlapping shell called the “NSW branch”) contributed $5.6 million in assets to the combined entity but emerged with just $1.3 million, according to a concise summary. The Victorian No. 1 branch started with $2.1 million in assets, incurred $614,000 in losses over two years, and came out with $1.4 million. The smaller No. 3 health professionals branch started with $970,007, incurred losses of over $2 million and emerged with liabilities of $1.1 million. A pre-merger balance sheet shows HSUEast in a comparatively healthy financial state, with millions of dollars in membership fees flowing into its coffers from the combined union’s then-50,000 low-paid members. The union, controlled by former ALP national secretary Michael Williamson, then ratcheted up its leverage ratio to borrow heavily against its property assets.

Federal Court justice Geoffrey Flick placed HSUEast and the HSU’s federal branch in administration in June, declaring the union had stopped functioning effectively. Administrator Michael Moore and two state-based deputies are now in the process of disentangling the entrails -- re-allocating debts and revenue and demerging the three constituent parts -- to prepare for fresh elections in early November. Overall at June 30 this year, the combined union had total assets of $31,846,316 set against total liabilities of $30,226,160. But Crikey understands the amounts and splits are contested and are currently being thrashed out between current HSU officials and the administrator. For example, a separate demerger balance sheet puts the No. 3 branch’s current net assets at $347,788 and the No. 1 branch at $1.1 million. A liabilities schedule to the deed poll and the demerger balance sheet show three major items of interest: a massive Commonwealth Bank loan of $17.3 million to the NSW branch, a $2.9 million “loan” allocated to the Victorian No. 3 branch from NSW and a loan from the No. 3 branch to the No. 1 branch of $297,788. Last year the Commonwealth Bank facility was topped up by a further $6.2 million from $13.3 million. Some of that was to cover credit card debts. Despite the bank’s status as a secured creditor, it expressed concern that the money might not be recovered and its lawyers are believed to have been keenly raking over the books as the administrator picks through the wreckage. Kathy Jackson, who previously served as No. 3 branch secretary, claimed earlier this year that a $4.5 million mortgage had been taken out against the union’s previously debt-free South Melbourne premises. At the start of the period, the No. 1 branch had loans of just $125,399. One HSU insider told Crikey the likely reasons for the dramatic decline in the organisation’s finances related to lost members, reckless expenditure and the payout of sacked officials. The NSW branch has believed to have lost 5000 members -- from 35,000 before the merger to 30,000 this year. The Victorian No. 1 branch lost 3000 -- from 15,000 to 12,000 and the No. 3 branch has gone from 5000 to 3500. The proposed demerger balance sheet also contains some other surprises. Amazingly, the NSW union shows an amount of $5.7 million for a "defined benefit fund liability" -- which senior HSUEast employees including Williamson were set to claim in retirement payments (defined benefits are lucrative retirement schemes provided in lieu of superannuation and provide a percentage of an average salary in retirement for life). A further $2.3 million is set aside for "employee entitlements" and well as a $1.4 million provision for redundancies. The branch lists $25 million in assets, mostly land and buildings. Prior to his resignation in August, Williamson was earning just under $400,000 a year. Also of interest is another seemingly inflated figure. The No. 1 branch -- previously controlled by Jeff Jackson -- owes the No 3. branch $297,788 for a "loan" incurred prior to 2010. This, according to the schedule, is:
"... to be offset against any service fee payable by Vic No 3 Branch to Vic No 1 Branch under the Transitional Service Agreement to be entered into between Vic No 3 Branch and Vic No 1 Branch."
The terms of that agreement are expected to be made public soon. Last week, Williamson was arrested on 20 charges of hindering police after he allegedly directed associates to destroy incriminating documents when NSW Police from Strike Force Carnarvon moved on the union in May. A criminal probe is also continuing inside the Victorian fiefdom previously controlled by Kathy Jackson and ex-husband Jeff Jackson. The full Temby report into the NSW union, released in July, alleged millions of dollars in overpayments to contractors, including $3.12 million provided over four years (and probably millions more over the last 15 years) to printer Communigraphix to produce the union magazine. Communigraphix also provided credit cards to Williamson and former HSU national secretary-turned independent MP Craig Thomson. Williamson, a former ALP national president, infamously employed four members of his immediate family in well-paid HSU jobs.