Auckland University's student union was justified in sacking its general manager for financial mismanagement involving a loan to cover $1.4 million in debt, the Employment Court has ruled.

Tom O'Connor brought a case against the Auckland University Students' Association (AUSA) after he was dismissed for serious misconduct in November 2012.

The dispute centres on whether Mr O'Connor had properly managed AUSA's finances while trying to save its heavily indebted business arm, Bacchid, which ran a number of cafes and the student bar Shadows.

The Employment Court heard Bacchid was revealed to be $1.4 million in debt in late 2011.


The business' solvency was a key issue for AUSA because its occupancy of the student union building depended on it.

A long-running dispute with the university had been resolved in 2010 when the parties agreed the university owned the building, but Bacchid could continue to occupy it -- so long as it remained solvent.

In an effort to sort out Bacchid's financial issues, Mr O'Connor was appointed as its executive director in November 2011. He also remained general manager of AUSA.

Mr O'Connor immediately took steps to reduce Bacchid's debt.

In January 2012, he tried to arrange a guarantee from AUSA's property trust to cover a $400,000 bank overdraft. The trust declined, but advised it could provide Bacchid with $220,000 in cash.

Mr O'Connor asked AUSA's elected student executive to authorise the trust's payment to Bacchid. The executive agreed, with certain financial reporting conditions attached.

In May 2012, amid growing concern over AUSA's financial situation, the executive instructed accounting firm Grant Thornton to conduct an independent review of its books.

The review found the $220,000 payment had been made without proper due diligence, and had risked the long-term financial viability of AUSA's property trust.

It also identified a range of issues at Bacchid, including poor financial controls, ineffective governance, and gaps in the business recovery plan.

As a result of the review, AUSA president Arena Williams took employment advice and launched a disciplinary process.

Among the allegations was that Mr O'Connor had provided reckless or negligent advice by encouraging the executive to make the Bacchid loan.

It was also alleged Mr O'Connor had breached the requirements of his role due to the poor financial controls highlighted in the review.

Ms Williams also alleged there was a conflict of interest in Mr O'Connor's roles with AUSA and Bacchid.

At two disciplinary meetings, Mr O'Connor denied the allegations and contested the review's finding that Bacchid was insolvent.

He agreed he had encouraged the loan because it was needed to continue trading, pay wages and salaries, and help reorganise the business.

In court, he accepted there was an inherent conflict of interest in his two roles, but submitted that Bacchid and AUSA had the same interests.

He argued he was unjustifiably dismissed and his sacking was predetermined.

Judge Bruce Corkill found Mr O'Connor had not undertaken proper due diligence over the Bacchid loan, which was his responsibility as general manager.

There were also substantial failures in the area of financial controls.

Judge Corkill noted Mr O'Connor had become very committed to resolving Bacchid's difficulties.

However, his commitment to that plan clashed with his responsibilities as AUSA's general manager, and he proceeded without giving proper advice and information to the executive.

Judge Corkill found a fair and reasonable employer could conclude Mr O'Connor's actions were serious misconduct. There were no significant procedural errors, and his dismissal was justified.

Costs were reserved.

The case was brought before the court after the Employment Relations Authority also found in favour of AUSA.

Mr O'Connor's lawyer Garry Pollak said he was surprised and disappointed with the outcome.

"All he had was AUSA's best interests at heart -- that's all he was trying to do."

Bacchid and AUSA had mutual interests, and the conflict in Mr O'Connor's role had been held against him.

Mr Pollak said Mr O'Connor had not been replaced and AUSA had since "shrunk to a fraction of the size they used to be".

"They did exactly what Tom O'Connor was trying to stop them doing -- they sold off their assets, and now the university basically is completely in control of all their premises. So the big winner in all of this is Auckland University."

Mr O'Connor now had another job, but had lost his house.

"It took a huge toll on him."

He would not seek to appeal against the ruling in the Court of Appeal.

AUSA president Cate Bell disagreed with Mr Pollak's comments, and said they had not surrendered the space to the university. She said she believed student leaders at the time dealt with the situation decisively.

Because Bacchid was insolvent, the University could have taken control of the space immediately but instead worked with AUSA to ensure an outcome that would benefit students, said Ms Bell.

"Really at any time the university could have come in and taken the space off us.

"The student leader in that year, Arena Williams, negotiated a deal with the university where we surrendered the space but we got full commercial rent for it. So it was win/win situation for us compared to what it could have been.

"We thought it was the best option for students knowing the bar was already insolvent, and the University worked with us on that.

"Now it is behind us we are totally transparent, and we have got our financial
management policies up to scratch and we are moving on."

Despite Mr Pollak's comments that AUSA had shrunk in size, Ms Bell said they remained at exactly the same size.