Sharebrokers resort to High Court actions

Press, 22 January 1988, Page 22

Sharebrokers resort to High Court actions

By

ADRIAN BROKKING

Sharebrokers are concerned about the high level of bad client debts in the industry, and are getting tough with nonpaying clients. Some brokers have launched High Court actions to recover debts for alleged non-payment for shares.

Mr Tom Anderson, chairman of the Christchurch Invercargill Stock Exchange, confirmed that many brokers had a problem, as the security of shares had been lost because of the sharemarket collapse. In the past when clients failed to pay for their share purchases the shares could be sold again to recover the cost. But with many prices down as much as 50 per cent (the popular Brierley shares are less than one third of their value of just before the crash) brokers are carrying large losses that they have to recover.

Mr Anderson said that legal action was always open as a last resort. Where, because of the merger of sharebroking firms, the accounts had to

be cleared up, there would be no choice. His firm, Anderson Reid and Company (now merged into the broking house Chamberlain Anderson Sturge) has had one court action “in the pipeline” for more than a year, he said. Mr John Wignail (Egden Wignail and Company) agreed that brokers would try to avoid court action, because of the delay and the expese. In any case, his firm’s bad debts were relatively small — of the order of $25,000. Mr Wignail said that it was not so much the crash that had caused the trouble, but that many people got their fingers burnt about a week after the crash when they started buying shares — without being able to pay — in the confidence (misplaced as it turned out) that the market would bounce back sharply. Mr Michael Sidey, in charge of the Christchurch office of Forsyth Barr, Ltd, said that his firm had not taken any legal action but would in certain cases employ a debt collection agency. All Christchurch

brokers agree that the problem is likely to be much worse in Auckland, because trading there was done along lines that were less strict — such as deferred payment deals and margin trading. Two Auckland sharebroking firms have launched High Court actions against five of their clients to recover $171,739 for alleged non-payments for shares. The legal actions signalled a crackdown on customers who had not paid for shares which had halved in value since the stockmarket crashed on October 20. Frater Williams and Company was suing one client alone for $112,272. A separate High Court action against another customer for $64,782 was being settled out of court after legal proceedings were begun. A senior partner in Frater Williams, Mr Garth Williams, said the firm was also considering pressing with legal actions against another four clients for smaller amounts.

Another Auckland firm, Greville and Company

was suing clients for alleged non-payment for shares involving three separate High Court actions for $30,233, $21,929 and $7306. Even some long-stand-ing brokers’ clients are turning their backs on share purchases which they were legally committed to pay for. Spokesmen for New Zealand’s two largest sharebroking firms Buttle Wilson, and Jarden and Company, confirmed that their level of bad client debts had also leapt since the crash. But their offices reported they were not taking legal action yet. The chairman of the Auckland Stock Exchange, Mr Rick Flower, said the high level of bad client debts was a serious problem for the industry. Mr Flower said it had been a major factor in the suspension from trading of some firms like Napierbased Wall and Associates, and Paine Belcher, which has been reinstated recently. Paine Belcher, which resumed trading last week after being suspended by the Stock Exchange for

defaulting, has also set aside a “very substantial” sum for bad debts, and was being very selective about its clients. "We are taking on no new clients unless it’s cash up front,” a Paine Belcher director, Mr David Belcher, said. The firm was attacking its debtors’ list and using a debt collection agency where necessary to collect unpaid accounts, he added. Given the level of bad debts, most brokers would be taking similar action, including filing suits against clients as a last resort. “It is a matter of survival,” he said. The managing director of the Hamilton sharebroking firm Brooker Mirams Holdcorp, Mr Malcolm Brooker, said his company had also tightened up its credit control and was taking “whatever steps are necessary” to recover debts. The sharemarket boom and bust "excesses” of last year had caused a rethink, and previously accepted credit practices had been tightened up, he said.