Canterbury Linen Services revenues were hit by Covid shutdowns after the firm took out a big unlawful low-interest loan, says Health Minister Andrew Little
The Government is looking into a $9.3 million loan to a struggling publicly-owned laundry company whose revenues have been hit by border closures and lockdowns.
The company provides laundry services to hospitals and health clinics in Canterbury, but it also competes commercially, supplying and cleaning fine linen for spas, restaurants, and top hotels like The George.
That's been a struggle over the past couple of years or border closures and shutdowns, and the company's revenues have taken a hit.
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The troubled Canterbury District Health Board previously owned Canterbury Linen Services Ltd, and approved a related party loan that has sparked concern among ministers. They've asked directors of the new owner, health super-department Te Whatu Ora, "to pay close attention" to the company.
Te Whatu Ora finance and audit committee minutes, released to Newsroom under the Official Information Act, reveal ministers have asked the board to make Canterbury Linen "an area of focus".
In response to Newsroom questions, Health Minister Andrew Little says the loan would have required approval by the Canterbury District Health Board and the Ministers of Health and Finance under the previous government. "This did not happen and therefore is in breach of the Crown Entities Act.”
Asked if he is comfortable with taxpayers bankrolling a a publicly owned company to compete with the private sector to provide commercial laundry services, Little indicates some concern.
“It is not clear to me that these issues were properly considered," he says. "It was not clear that the board was able to assess the commercial risks of the loan and the purpose for it, which was to establish a commercial operation."
Mark Lawrence, Canterbury Linen's newly-appointed general manager, says he doesn't know why the ministers have asked for scrutiny of the finances, and referred queries to the company's chair.
Roger Jarrold was appointed chair by Te Whatu Ora, after it took ownership of the laundry company on the disestablishment of the health board this year. He, in turn, refers queries to Dr Peter Bramley, the interim regional director of Te Whatu Ora Te Waipounamu.
Bramley says a loan facility of $9.3m was approved in July 2017, for modern laundry equipment in a new environmentally-friendly laundry.
The approval came at a time of crisis for the health board; chair Murray Cleverley had just resigned after an investigation into potential conflicts of interest, including around a central city building that the Canterbury District Health Board leased. He had told the other health board members about the potential conflict, but they allowed him to decide how to handle it.
Deputy chair Tā Mark Solomon, the former kaiwhakahaere of Ngāi Tahu, stepped up in an acting capacity – but in August 2017, the then-health minister Jonathan Coleman appointed Canterbury University chancellor John Wood as the new chairman. it was in that short interregnum that the board approved the loan.
"The provision of laundry services to the private sector is being reviewed in terms of the transition from a subsidiary of the District Health Board to a subsidiary of Te Whatu Ora." – Dr Peter Bramley, Te Whatu Ora
The money was fully drawn down by 2020, as Canterbury Linen Services moved into new premises at Dakota Industrial Park, in Yaldhurst near the Christchurch airport.
That $9.3m principal remains outstanding, Bramley says, but monthly interest payments are now being made on the loan.
"Crown entities require ministerial approval to borrow," he says. "In this case, approval was sought retrospectively by a successor board chair to ensure compliance with the Act."
Asked if any disciplinary or other action was taken over the non-compliant loan, he says only: "Canterbury District Health Board noted that loan transactions within the Canterbury DHB Group required ministerial approval just the same as borrowing from outside the group."
Bramley offers reassurance that the company can pay its debts. "Post-Covid-19 cashflow is now steadily recovering and the company is servicing the loan," he adds. "Canterbury Linen Services can adequately service its loan with its current trading performance. Otherwise, the company’s challenges are no different to any other subsidiary who is striving to maintain health sector operations in a Covid-19 environment."
A wider question is around the added exposure the company faced through the pandemic, trying to compete in the troubled accommodation and hospitality sectors, and whether it's appropriate for a publicly-owned company to compete against private companies that don't have the backing of the taxpayer.
"We are not exposed financially in any way as Canterbury Linen owns the sheets, tablecloths, napkins and towels they supply us with and we pay Canterbury Linen after the items have been laundered." – Bruce Garrett, The George Hotel
Canterbury Linen's laundry was built in 1983 and the company has provided services to the private sector since 1996, Bramley says. The laundry was rebuilt after the 2011 earthquakes.
"The provision of laundry services to the private sector is being reviewed in terms of the transition from a subsidiary of the District Health Board to a subsidiary of Te Whatu Ora," he says. "This is part of the Te Whatu Ora Board’s review of its subsidiaries."
Several businesses have registered securities over Canterbury Linen property, including the former health board.
And some customers have come to Canterbury Linen's defence.
Bruce Garrett is managing director of Brook Serene Boutique Hotels, whose group includes The George, an award-winning five-star hotel on Christchurch's Park Terrace.
"We have used Canterbury Linen for many years with few issues," he says.
"We are not exposed financially in any way as Canterbury Linen owns the sheets, tablecloths, napkins and towels they supply us with and we pay Canterbury Linen after the items have been laundered.
"I see no reason for us to stop using them at this stage."
Like its restaurant and hotel customers, the laundry's revenues have plummeted over the past couple of years. According to the district health board's 2019/20 annual report, Canterbury Linen Services Ltd lost commercial linen revenue during the pandemic, due to a drop in demand for linen services from accommodation providers.
The same year, the business relocated to its new site. The DHB helped to fund the redevelopment through a loan facility, charging the same lower interest rates applied to Canterbury DHB by NZ Health Partnerships Ltd and the Treasury.
While the annual reports don't disclose how much it cost to finance the lease, they do reveal that the net carrying amount of assets held under finance leases doubled in 2020/21 to $50.7m, covering the new Canterbury Linen premises and equipment, as well as the Manawa building at 30 Oxford Tce.
"Usually the process would be for the decision to go through the Ministry of Health, to the Minister. I definitely would have expected so." – Tā Mark Solomon, former acting chair
The linen company's equipment comprised $3.1m of the borrowing.
Former District Health Doard chairs Tā Mark Solomon and Sir John Hansen have spoken with Newsroom about the loans.
Solomon says the limited liability company, owned by the health board, did most of the laundry for the South Island. "Usually the process would be for the decision to go through the Ministry of Health, to the Minister. I definitely would have expected so."
