OG Subgroups - call function _og_subgroups_get_inherited_users
I was able to solve this by creating a custom og_subgroups.rules.inc file. For details of this see my answer in: Email all Organic Group members when a subgroup is created 

The line in question above needed to be:

$inherited_users = _og_subgroups_get_inherited_users("node", $nid);