The Wall Street Journal provides an in-depth review of the dispute between Bonita Bay Group and the members of the golf clubs in its various communities. The net-net of this battle is that Bonita Bay pitched that any member could have their deposit returned without conditions if they no longer wanted to be a member of the club. When the economy worsened last year, too many members wanted out, forcing Bonita to change the refund policy to stay afloat.
As this fight has progressed over the past several months, I have often wondered how Bonita Bay’s auditors allowed the company to treat these funds as if they were obligation free. Bonita used these proceeds to meet operating costs, without any regard for the potential liability if a member wanted out. In the era of Sarbanes-Oxley, it is truly hard to understand how reserves were not established to guard against a run on these deposits.
I suspect the only way out of this mess is a bankruptcy filing to flush away this obligation before a new buyer will step forward and purchase the clubs.