“TRUE AND FAIR VIEW”

Press, Volume CVI, Issue 31090, 20 June 1966, Page 17

“TRUE AND FAIR VIEW”

(By Our Commercial Staff) The Australian Commonwealth Insurance Commissioner has completed his investigation—begun in May last year—into the investment procedures of the M.L.C. Assurance Company, but the results will not be disclosed publicly.

The M.L.C. group lost almost 18m Australian dollars on its unsecured investment in H. G. Palmer: 8.3 m dollars by shareholders and 9.5 m by policyholders. The percentage of surplus available to shareholders will

be reduced from 3 per cent in the past to 2J per cent. M.L.C.’s meeting in Sydney little more than a week ago drew a good attendance. Statutory resolutions on appointment of directors and auditors were passed. The accounts were also approved. The meeting lasted less than two hours and there were surprisingly few dissentient voices.

The two M.L.C. directors who face criminal charges relating to the alleged issue of a false prospectus in H. G. Palmer were reappointed. A tax and insurance counsellor raised the most pertinent questions at the meeting. However, his questions and subsequent answers were lost in the meeting’s annoyance at their technical nature. The questions revolved around the “weakening” of the life office’s valuation rate for its policies in 1962, having the effect of creating a special reserve, part of which had been used to write off H. G. Palmer losses.

The shareholders’ part of the losses was written off to one dollar by writing up the book value of the holding company’s shares in M.L.C. Assurance Company to off-set the drop in value. This neat solution has given rise to considerable soul-searching among investors, accountants, lawyers and management as to the meaning of the phrase in the Companies Act, 1955, that accounts of a company should show “a true and fair view.” Directors of M.L.C. said no reimbursement to policy holders for money the life office lost in H. G. Palmer was planned.

The last remaining trustee for the policy holders resigned and policy holders were not represented at the meeting. Policy holders in most of Australia’s non-mutual life offices have no voting rights, no say in the management of their funds, and are not allowed at shareholders* meetings. They cannot voice any

opinion on the investment of their funds nor do they get a copy of the company’s annual report. The Australian shareholders’ Association is considering forming a sub-committee concerned solely with the interests of M.L.C. shareholders and policy-holders. It is possible that an Australian Policy-holders’ Association may be formed. Accepting that the M.L.C. Assurance Company shares written up by the M.L.C. are worth the higher book value a delicate question is posed. What is a “true and fair view” if the shares are in the books at 6m dollars one year and at 14.5 m dollars a year later; with both figures approved by the auditor? It should be pointed out that two independent experts have valued the shares at 19.25 m dollars.

Obviously the answer to the question is important for a realistic outside assessment of a company’s investment worth.

M.L.C. directors said the decision to acquire H. G. Palmer was unanimous “after an independent investigation and on the basis of audited figures and information which are now known to be substantially wrong.”