RECONSTRUCTION?

Auckland Star, Volume LXV, Issue 240, 10 October 1934, Page 14

RECONSTRUCTION?

COMPANY COMMISSION

MR. McARTHUR'S PROPOSALS.

STATE OF COMPANY LAW.

Details of the scheme submitted to the Royal Commission in Sydney by Mr. J. W. S. McArthur in respect to the reconstruction of 31 companies which are the subject of the inquiry, were received by the mail to-day. Mr. McArthur proposed: (1) The elimination of certain coinpanics; (2) the reorganisation of con trol of the Investment Executive Trust of New Zealand, Limited, and the Southern British National Trust, Limited; and (3) a new scheme of control for the British National Trust, Limited. The following- companies Mr. McArthur suggested should be closed down: Sterling Investments Company (N.Z.), Limited, the assets to be transferred to the British National Trust, Limited, the company to cease to carry on business and to be struck off the register; Paoilic Exploration Company, Limited, assets to bo transferred to British National Trust, Limited, the company to cease to carry on business and to bo struck off the register. >, "'lt is suggested," added Mr. McArthur, "that it may possibly be thought better, as an alternative, to leave this company in existence, its only asset being the 27,000 acres of land. If this course were taken, the control of Pacific Exploration Company, Limited, would, o~ course, be transferred with the rest of tho Sterling Investments Company, Limited, assets to the British National Trust, Limited. Transfer of Shares. "Tho main assets of Farms and Farmle.ts, Limited, arc in shares in the British National Trust, Limited. These shares would be transferred to the Southern British National Trust, Limited, by joint direction of Messrs. McArthur and Alcorn, to be held by the Southern British National Trust, Limited, in trust for debenture-holders ponding completion of the proposed amalgamation of B debenture issues of the Investment Executive Trust and the Southern Brit-' ish National Trust, when such shares would be transferred to such amalgamated debenture issue free of cost to debenture holders. Farms and Farmlets, Limited, debentures would be cancelled and satisfaction of debenture issue filed with the Registrar of Companies. Other assets of the company would be sokl, and tho company would cease to -arry on business and be struck off the register.

"British National Investment Trust, Limited: The Trust Building to be conveyed to the British National Trust, the company to cease to carry on busi ness and to be struck off the register. Tho steps proposed to be taken with regard to the British National Investment Trust preference shares can lie dealt with more appropriately among toeproposals with regard to the British National Trust. "Wynyard Investments, Limited, and Investment Securities Association, Limited, are not at present connected with the trust companies in any way, although they have had some indirect association with the Investment Executive Trust. These companies also will be eliminated and struck off the register. "New Zealand Shareholders' Trust, Limited: Every offort to be made to complete as soon as possible the conversion of first A and first B debentures to second B. On completion of this, assets of first A and first B to be transferred to second B and first A and first B debentures cancelled, thercup6n the company to cease to carry on business aud to be struck off the register. Financial Publications, Ltd. "As early as possible, consistently with getting value for them, the assets of Financial Publications to be sold and the debt owing to Sterling Investments to be paid to the British National Trust, whereupon the continued existence ot Financial Publications, Limited, will be unnecessary. "With certain exceptions the remainder of the companies which have been mentioned before this commission are not in any way linked with the investment trust companies. The exceptions are: — (1) The brokerage companies, which are connected with the trust companies by the relationship of agency only. These companies are separately represented and are independent of this scheme; the Transport Mutual and General Insurance Company, Limited."

Mr. McArtliur did not' propose to eliminate this company, as tlio right owned by it to carry on insurance busi ness was not transferable and was of great value, lie said. Through its ownership of the shares in the company tho Investment Executive Trust had the benefit of this asset. "The rest of the companies on the Commission's list," witness added, "are either already out of oxistence, such as the Sclwyn Timber Company, the Beuiah Land Company, and several others, or else are entirely separate from the main group, such as New Zealand Redwood Forests, Limited." New Control. Dealing with the reorganisation of control of tho Investment Executive Trust of New Zealand, Limited, and the Southern British National Trust, Limited, Mr. McArtliur said that the articles of association of each of tnese companies should be altered to provide as follows:— (a) Tho number of directors to be six, of whom three are to be ciected by shareholders and three by deuenture-liolders; (b) debenture-holders' directors to be elected by postal vote under proper safeguards and to hold office for- one year. Directors to have power to fill casual vacancies, (c) Chairman ot directors to be appointed by the whole of the directors from among directo-s appointed by shareholders, (d) Quorum for directors' | meeting to be three, which number shall include one debenture-holders' director, (e) Managing director to be appointed by the directors, tf) . Any debentureholder to be eligible for election as debenture-holders' director, (g) Qualifications for share-holders' directors to be the holding of shares of nominal value of £100. (h) Debenture-holders' directors to have the following'special rights: (1) To appoint an auditor. (2) By majority decision to veto any investments of the funds of the debenture-holders. (3) By majority decision to publish a list of all or any of the investments of the. funds of debenture-holders In such form or

classification as they may think fit. (i) In all cases other than those last-men-tioned, the chairman of directors to have a casting vote. Present agreements with and appointment of managing director to be cancelled. Concerning his scheme for the control of tho British National Tiust, Limited, witness suggested: (1) Articles of association of tile British Na'icnal Trust to be altered to provide .ts follows: (a) Number of directors to be four, of whom two arc to be appointed t>y the shareholders and one each by the debentureholders' directors of the Southern British National Trust and tiie Investment Executive Trust, respectively, (b) Chairman of directors to be apj ointed by the whole of tiie directors 'rom the shareholders' directors. (c) Quorum for directors' meeting to be two, of whom one must be a debenture-holders' director, (d) No share qualification required for a director appointed by the debentureholders' directors of the Southern British National Trust and tiie Investment Executive Trust, (e) Managing director to be appointed by the majority of the directors, (f) Tho debenture-holders' directors together to have the right to veto the issue of debentures of the company.

(2) The general financial position with regard to the Trust Building will be strengthened in the following way: —(a) Before the elimination of the British National Investment Trust the 55,000 preference shares held in that company by the Southern British National Trust will be acquired by the Biitish National Trust in exchange for second "B" Investment Executive Trust debentures which will have come into the hands of the British National Trust through its acquisition of Sterling Investments' assets, (b) The British National Trust will then take a conveyance of the Trust Building and at the same time the preference shares will be cancelled, (c) A new mortgage will be raised on the building to replace the present mortgage at a substantially lower late of interest.' General Matters. "Two matters arc left to be mentioned under the general heading/' said witness. "They arc: (1) Twelve British National Trust debentures held by Southern British National Trust on behalf of McArthnr and Alcorn. It is proposed to reduce the legal position with regard to these debentures to a precise form, defining them as a trust iiclding to meet accruing costs in connection with the debenture issues of the investment trust companies. (2) Among other alterations intended to be made in the method of offering debentures for tale, it is proposed to make definite provision for the allowing of a period of a fortnight for reconsideration of any contract to purchase ' debentures before the same becomes binding on the applicant. Generally, new measures will be taken to rcduce the risk of misrcpiesentation to a minimum. Accountants' Proposals. Mr. Monahan, K.C., assisting the- Commission, submitted the suggestions of tho Institute of Chartered Accountants in Australia of amendments desired "to the Companies Act. Concerning the prospectus of companies, the institute suggested that experience had shown the need for more care and candour on the part of promoters of companies. The provisions in the English Act should be incorporated in the New South Wales Act. 'In addition, if any estimate of future profits was included in the prospectus, the estimate should be signed by the person making it. Another section of the English Act favoured was that preventing promoters evading responsibility by allotting all of the shares or debentures to any other company or person as underwriters.

"It is desirable to prevent the hawking of share*, debentures, or bonds by house to house canvass,' 1 the statement added. "A clause following Section 3511 in the English Act would protect the public in thin respect, though wc suggest the inclusion of the term 'bonds' as being an expression of somewhat local use. Such have been largely dealt with in Australia, and we understand there is a doubt whether such are comprehended by the term debenture.'" The institute, further suggested that provision should be made in a new Act for private companies, and that their definition should be the same as in the English Act. The Xcw South Wales Act made 110 provision for an audit, and there was 110 obligation on a company to appoint auditors. The institute further recommended that the following clause should ho inserted in the Act:—"No person shall be qualified for appointment of auditor of a company, other than a. private company, unless* he is resident within the State, and is (a) a member of the Institute of Chartered Accountants in Australia, or (b) a member, fellow, or associate of any other association of public accountants constituted in some part of the dominions, and approved for the purpose of the audit of campany accountants by the Minister of Justice by notice, published in the Gazette." It was contended that this section should not be retrospective in its operation. Balance-sheets. It was also considered important that companies other than private companies should 'be required to file with their annual list and summary a certified copy of the last audited baljnco-sheet. "Although in Australia holding companies have not reached the magnitude* in number or immensity of organisation as in Great Britain or America," the statement went 011, "their popularity is growing, and special legislation is needed to protect the shareholders of both the holding companies and subsidiaries controlled by, though not entirely owned by, the parent company." It was submitted that the provisions of the English Act should be adopted in this respect.

Another suggestion was that the Act should require every company to keep proper books of accounts and to impose penalties for non-compliance. Thero should also be concrete provisions regarding balance-sheets and profit and loss accounts. So far as possible, the form of balance-sheet should be prescribed so as to have certain assets and liabilities separately stated. It was also proposed that balance-sheets should be signed by one or more directors. It should not be possible for directors to plead ignorance of the contents of a balance-sheet. A .statutory meeting should be held not less than a month, or more than four months, from the date the company commenced business. Where companies were formed for the purpose of underwriting shares or for the sale of bonds, the institute believed that such companies should be restricted from carrying on business until a cartain percentage of the authorised capital was paid up in cash. Cases had occurred where companies of this nature had been formed with imposing nominal capital, but the cash resources had been quite inadequate to carry out the obligations undertaken. A cash deposit \vith the Treasury in certain cases might be desirable.

The estimated thickness of the carth?s crust is less than 100 miles. ,