PROMOTION OF COMPANIES

Press, Volume LXX, Issue 21255, 29 August 1934, Page 16

PROMOTION OF COMPANIES

THE SYDNEY ENQUIRY LARGE SUM SPENT ON BUILDING EXAMINATION OF HEWITT U'ilOU OL'li OViii COaBESI'OKBBET.) SYDNEY, August 21. For many months before the recent removal of the scaffolding Sydney people watched with interest the extensive alterations that were made to a great building in Castlereagh street, in the heart of the city—a building formerly occupied by the "Daily Telegraph." It was announced some time ago that a New Zealand investment company had purchased the building, but the price paid for it was not divulged at the time. For months the building remained idle, and then it was raided by an army of workers, who tore the great structure inside out, as it were, and when they had finished, the extensive stone work was steam-washed by a new process. When the Royal Commission, appointed by the New South Wales Government to enquire into the operation of 17 companies, many of them with their origin in New Zealand, resumed the hearing of evidence on Monday, some of the facts relating to the purchase of the building were revealed for the first time. An admission was made by one of the directors that the company which made the purchase did so for £IOO,OOO, and spent £120,000 in alterations, although the paid-up capital at the time was only £3OOO. The building was bought by the issue of debentures. A new witness on Monday was W. C. B. Hewitt, a director oi the British National Trust, Ltd., who admitted that the books of that concern did not disclose the financial state of affairs There had been no delay in completing the financial statement, and he was working on the books as far as he was able. He knew from time to time what was the financial position of the company. He did not nave access to the books of Sterling Investments, Ltd. At the time the enquiry opened he had various information from which it was possible to prepare a set of books. All the figures were explainable. Mr Monahan (who is assisting the commission): I put it to you that you are trying to alter the complexion of some transactions. Hewitt: Certainly not, and I resent your suggestion. Hewitt said that ne had been put to a great deal of nconvenience to get all the necessary nformation. He had been one of the lardest worked men in Sydney, and had been so busy that he had been unable to complete the posting of the books. Mr Monahan: Where did the money come from which you paid Stewart LJros., the contractors? Hewitt: I said before that the sum was £140,000, but that is not correct. The figure was £IIO,OOO. Mr Monahan: Ultimately the money Tor Stewart Bros, came from the public through the Southern British Company?— Some of it did. No Bank Account As a matter of ordinary business ihe contract was between Stewart Bros, and the British National Investment Trust?— Yes. Are you the agent and representative, under the Companies Act, of lhat company in New South Wales?— Yes. Did that company have a banking .ccount?—Not over here. Did you actually enter into a contract for more than £IOO,OOO, ;.nd did. not have a banning account'.— Yes. ihe account was not here. Hewitt added that when he referred to the £116,000 to Stewart Bros, that did not include £9OOO payable this month. Mr Monahr.n: Have you any money to pay it in your company's accounts? —No. Questioned about further company .ransactions, Hewitt said that £227,000 debenture capital had been issued in March, 1933, and of this £20,000 went to Alcorn, for which he paid by cheque. Mr Monahan: Did British National Trus. get £2o,ooo?—Yes. Of £227,000, entered as debenture cpital of British National Trust, he cl. i'"-t> .CCOOO actually was paid '■•■ i v ■-■•■ bout -T.900 odd w;s -•.•'.. :.i ■■, h r £220,030 i_ *o ui;.y ..naiYs in other com- . n.c:.. Wim-.-ss said thn one investment was the purchase, for £1 each, of shares that had been paid to 2 2-sd. The values were substantiated in the books. Mr Monahan: Isn't this the position? A Mr McArthur is running the whole of these companies, and you others are doing his bidding? Dr. Louat (counsel for British National Trust, Ltd.) objected to the question. Witness was being examined as if he were one of the investment companies, he said, whereas he was no.. The commissioner: Me is asked, is McArthur the main figure in the company. Is he?—We have every confidence in Mr McArthur's business | capacity and integrity. Mr Monahan: Right from the start you luve done McArthur's bidding without question in all these transactions?—l was in a position of having to get money in, and as such had more or less to bow to the dictation of the members. Do you suggest thai, u s sole director of your company, you have exercised independent judgment?—ln some ways. I am the sole director of National Trust. And up to the time of a transaction in which McArthur apparently made a orofit of £200,000, he had been managing director?—He was, for a time, manrging director. And after he made that profit he got out? —That is correct. Purchase of Shares Hewitt said that the first company started was Farms an.i Farmlets, Ltd., which had a capital of £IOOO, held by himself and his wife. It was formed for the purpose of acquiring a small farm outside Auckland. For four years after formation in August, 1928, it did little or nothing. At that time, he was solicitor for McArthur. In March, 1933, the assets of the company were worth about £9OO. Mr Monahan: And then this company, with a capital of £IOOO, suddenly decided to purchase from McArthur 51,000 fully paid up shares of £1 each in the British National Trust?— Yes, but we did not propose to pay cash for them. How did your company suddenly get into a position to enable it to entertain a transaction of £s2,ooo?—We proposed to take out a debenture issue to cover it, and to issue them to McArthur. No money was to pass. Whose idea was it that the little Farmlets could launch out on assets of £9OO to buy £52,000 in shares?—l suppose Mr McArthur and I discussed the matter. The commissioner: Where did the idea germinate? In your mind?—l cannot tell you. I cannot recollect. It was an entirely illusory transaction?— No. If you had no assets and bought shares on the issue of debentures, then it is a paper transaction?— Yes, but the man selling the shares was getting the paper and was satisfied that the paper was worth the same value as the shares. Mr Monahan: What did you do to satisfy yourself while living in New Zealand that the shares of a company registered in Canberra were sound? —I knew a bit about it. I had been over here and had seen the building held

iby the company and was quite taken iwith the possibility. Then the scheme that ultimately worked out had been prepared as far back as March, 1933? Yes. Mr Monahan: The position at that stage was that some company that apparently never had any real capital had entered into a contract to buy this building. The British National Trust never had any real capital at all; at 'lea<=t no real subscribed capital?—lt you get down to them, then there is .nothing worth anything at all, if you talk in that strain. i The commissioner: For whose bene--1 fit did your little company purchase £52 000 shares?—l do not know that it was to anybody's actual benefit. I Interest In Building Then what was the object?— Companies as a rule do not do these things for nothing?— Well, it gave me an interest in the building. Were you getting something for nothing then?—No; I worked for all I GVGIT jjfot* Did you get an interest in the building'—l got an interest in £52,000 shares in the Trust Company. How much did it cost you to acquire this interest?— Nothing at all. Then if you actually acquired an interest, somebody was making you a present of an interest in that building?— Not at all. Then the interest must have been intended to be to the advantage of somebody. Now what was it for?— l was hoping to get an interest in the building company. Further questioned about Farms and Farmlets, Hewitt said that the interests of Alcorn and McArthur were interlocked. The commissioner: What was the sugfiested advantage to McArthur or the British National Trust?— There was no suggested advantage. The commissioner: Well, what was the object of the transfer?-! do not suppose that McArthur wanted to hold shares in British National Trust. Mr Monahan: You know he only got them that day?— Somewhere about that time. Asked if stamp duties should be paid in New Zealand on the 52,000 shares, Hewitt said he did not think stamp duty was payable in New Zealand on an Australian company. A transfer was executed, but no contract signed. _ Questioned about the posting of separate sheets in the minute book. Hewitt said that the New Zealand act allowed this to be done, so long as they were signed with the intention of being posted in the minute book. Mr Monahan: Did the act contemplate sheets being posted in a year after?—l do not know what the act contemplated. When the £52,000 shares were transferred to Farms and Farmlets, Hewitt said, no script was issued. Shares were allotted. Farms and Farmlets decided later to increase capital by £25,000, but the capital was never subscribed. The commissioner: The sole effect of the whole and this particular transaction .seems to be a substitution of the name of Farms and Farmlets as holders of the British National Trust, instead of the original holders. Mr Monahan (to Hewitt): Sterling Investment Company are actually in a position of controlling the activities of Farms and Farmlets?—Not in the way you are getting i ; - it. Understanding Given Witness said later that the position a■■» far as he was concerned had not been defined in specific terms, but just before he left Auckland for Australia he believed that some undersign ,ing was given regarding Sterling investments. The commissioner: Business people do not usually leave people to an "understanding." Actually, of course, tiie only persons with shares in Farms and Farmlets are Mr an_i Mrs Hewitt. Mr Monahan: Completely under the control of Alcorn and McArthur. Hewitt: Sterling Investments are controlled by British National Trust. Mr Monahan: Oh, that is only going r. uijd again. Why, that is you! You are the owner and sole director of British National investments Trust. Alcorn and McArthur have the strings m their own hantfs, and you have to do what they say. "I would not say that," replied Hewitt indignantly. "And I ask if that is a fair question!" The commissioner: Is it proper to draw the inference that Farm an i * armlets was being used as a dummy" company in certain share transactions?-! do not know that that quite states the position. The commissioner: Well, if vou can ccme back in a day or two* with a reason you shail have every oppor">mty of stating it. Your position at prpeiu ,o be a little obscure. iicvviu ou.u thai he was a salaried o.i.cvr i,. iho iji-KLh xiiv.s.mem Truot. ivir wruu were you get--m b , seeing mat you left a legal practice in i\ew Zealand to come over Here.'—*rom the Southern British National Trust I was getting £IOOO a >car up to last month. 1 was also supposed to get something from the iiriush National Trust.

j Suggestion Repudiated I Air Monahan: In consideration of i your salaries you lent yourself to | carry out the will of McArthur and Alcorn'' Hewitt (indignantly again): I have earned my money I got, and I repudiate any suggestion that I did this for the sake of a job! The British National Trust, said Hewitt, came into existence in January last year. Mr Monahan: And at that early stage it proposed to raise £1,000,000 by the issue of 1000 debentures. Were you going to trade in debentures with the public?—We did not intend to carry on the trust business then but to trade in shares. The commissioner: Well, the name "trust" was scarcely apt! Mr Monahan: Apparently the British National Investment Trust Company dealt in business of hundreds of thousands of pounds for it purchased a building for £IOO,OOO and spent £120,000 in alterations and had no real subscribed capital at all? Apart from debentures it could never have had very much share capital. The building was paid for by the issue of debentures. Subscribed capital was £3OOO. Hewitt said he did not think McArthur or Alcorn hoped personally to make anything out of the various companies. The whole idea was to build up the equity in the property. He thought there were advantages in having interlocking companies instead of having one big company. Asked about a debit of £287,900 appearing alongside his name in the British National Trust journal, Hewitt said, "Because I received the money in my account." Mr Monahan: You also credit yourself with £287,000. Where had the £9OO gone?— That was still in my trust account. Nothing; Dishonourable "Nothing would be said about this business if it were a mining transaction conducted by a stock exchange member," said Hewitt. Mr Monahan: Your view is that there is nothing dishonourable in all this? No, I really think that Alcorn and McArthur desired solely to build up and consolidate the companies. Witness said that to-day there were assets to cover every penny of the debentures issued. Alcorn held 76,000 and McArthur 238,000 shares of 5s each in Southern British National Trust, he said. The commissioner: I should like to be told where can be found the total number of shares and debentures in 'he various companies that have been issued to McArthur and Alcorn during the last 18 months. Hewitt: I don't think any debentures or shares have been issued to these gentlemen in any of the com- j panies since the March transactions.