Hector's World alleged insolvency in dispute

InternetNZ writes off $200,000 loan to cybersafety company

InternetNZ has written off a $200,000 loan to cybersafety initiative Hector's World, with a note in the charity's accounts saying it is insolvent - but the company's sole director Rick Shera disputes this claim.

According to InternetNZ accounts Hector's World's financial position “indicates that the company is insolvent,” and hence the loan should be reckoned “fully impaired”

“If future evidence becomes available that the financial position has improved, an adjustment to impairment will be made to reverse this loss in a subsequent reporting period,” the note says.

But according to Shera, Hector’s World “is still solvent as far as I’m concerned."

Shera says the $200,000 interest-free loan by InternetNZ to Hector’s World, which produces protective software and web-based advice for children using computers, could just as well have been a donation but InternetNZ structured it as a loan only so it would have control over the way it was applied.

InternetNZ loaned the money in 2008/9 and it was due for repayment in 2013, but it has been written off in InternetNZ’s latest set of accounts, effectively converting it into a donation.

This has already occasioned some comment in InternetNZ circles about the propriety of the initial decision to invest in Hector’s World

InternetNZ president Frank March says the mention of insolvency is “probably in a technical accounting sense. What our auditors are telling us is that we can no longer count the loan as an asset,” he says.

“Had we been approached for a grant, we would have considered that,” he says. It was made a loan “so that if Hector’s World took off, we’d get the money back.”

InternetNZ had never tried to exert any control over the way Hector’s World ran, March says.

Long-term InternetNZ member (now a Fellow of the society) Simon Riley raised the question of the loan write-off at InternetNZ’s annual general meeting last night. March answered in much the same vein as he had in speaking earlier with Computerworld. Shera was not present and no comment online from him was relayed to the meeting.

Speaking earlier this week, Shera acknowledged the company has done far from as well as was originally projected for it in commercial terms. The idea was to develop a “social entrepreneurship” business model that would bring in income from overseas government agencies licensing the product.

Unfortunately, Shera says, the expansion effort coincided with an international recession and there was very little success with selling the software in this way.

There has been some licensing fee income, he says, but for the present, the commercialisation effort has wound back and ownership of Hector’s World has been assumed entirely by internet safety organisation NetSafe, out of which it sprang in the first place.

Hector’s World began as the brainchild of Liz Butterfield, then heading NetSafe. Butterfield was an InternetNZ councillor at the time of the loan. She resigned her directorship of Hector’s World on September 30 last year, leaving Shera – himself a former InternetNZ councillor and vice-president - as sole director.

Another note to the InternetNZ accounts points out that since Butterfield is no longer either a councillor or the managing director of Hector’s World, she is no longer a “related party”. Transactions between subsidiaries and between entities with “key management personnel” in common are required to be disclosed in the accounts.

Discussions between InternetNZ and Hector’s World will continue, says March. “We consider we have a moral right to ensure the public interest in the project is carried through.”

Hector’s World continues to attract a lot of positive attention, Shera and March both point out; Shera, in Twitter, recently pointed to an unsolicited review – “the best kind” – from US-based newsletter and forum Cyberbullying News. Hector’s World, says the reviewer, helps inculcate in children from an early age “a culture of respect and dignity both online and off.”

“The key to the success of Hector’s World is the very engaging characters, and character-driven storylines,” involving characters in an undersea world, learning about responsible behaviour, which nowadays goes far beyond the original “cybersafety” perspective, the review says. “Young children engage with the material emotionally as well as intellectually,” says Cyberbullying News. They can “use the characters as role models until they are old enough to develop their own critical thinking and online skills.”

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