TRUST INQUIRY

Dominion, Volume 28, Issue 34, 3 November 1934, Page 8

TRUST INQUIRY

Public Trustee to Act as Receiver COMPANIES’ AFFAIRS Bill Passed to Protect Debenture-holders The appointment of the Public Trustee as receiver and manager of the Investment Executive Trust group of companies, pending the completion of the investigation of their affairs under the Companies (Special Investigations) Act, is provided for in the Companies (Temporary Receivership) Bill brought down by Governor-General’s Message in the House of Representatives yesterday and passed through all its stages. The object of the Bill is to protect the debenture-holders of the companies concerned, while the inspectors 'are engaged in their work of investigation. It is stated in the preamble that it is desirable in the interests of the deben-ture-holders and other creditors and in the public interest that the property of these companies should be maintained intact, and that for this purpose it is deemed advisable that the Public Trustee should be temporarily appointed as receiverand manager of the companies. Companies Affected. The companies to which the Bill applies are as follow:—-The Investment Executive Trust of New Zealand, Ltd., the Sterling Investments Company (New Zealand), Ltd., the Investment Securities Association,' Ltd., the British National Investment Trust, Ltd., the New Zealand Shareholders’ Trust, Ltd., Wynwood Investments, Ltd., the Pacific Exploration Company, Ltd., Earms and Farmlets, Ltd., the First Mortgage Freehold Security Company of New Zealand, Ltd., the Transport Mutual and General Insurance Company, Ltd., V. B. Mclnnes and Company, Ltd., Alcorn Trower and Co., Ltd. The Governor-General is empowered by" Order-in-Council to apply the provisions of the Bill to any other company or companies to which the Companies (Special Investigations) Act is applicable. While the Public Trustee remains in office as receiver and manager of these companies, it shall not be lawful for any director, manager or other person to be engaged in the management or conduct of the companies’ business or to act as their agent or servant without the explicit permission of the trustee. No such person shall have any claim against any of the companies or receiver for fees, salary or wages for any period during which the receiver remains in office except by agreement with the receiver. Duties of Receiver. It shall be the fluty of the receiver, as far as practicable, to conserve and keep intact (,’ie assets of the companies. He shall have power to take and retain possession of all property belonging to the companies, and in particular to demand and hold all scrip, share certificates, or other instruments ot title to property, to demand and receive all moneys payable to the companies, to sue for and recover all due debts, to sell any property, other than freehold or leasehold, on terms and conditions he thinks fit, and in general to take complete charge of the conduct of the companies’ business. A section of the Bill also empowers the receiver to appoint a fit person as registered agent or public officer of any of the companies in Australia, and to grant powers of attorney to any person in or out of New Zealand to do anything he himself could do by virtue of’the Bill. Before exercising any of the powers conferred on Idm the receiver may, at. his discretion, apply.to the Supreme Court, ex parte, for directions. The Supreme Court may also invest him with additional powers. Companies to Bear Expenses. Persons in possession of any property belonging to a company to which the Bill applies must deliver this property to the receiver or to his authorised agent. Anyone failing to comply with this provision shall be liable to a fine of £lOO and to a further fine of £lO for every day over 14 days during which the offence continues. For the purposes of the Bill the receiver shall be deemed to be an officer of the Supreme Court and shall enjoy the protection of su.h office. He shall not be liable for any acts done in \ good faith in the exercise of his powers. The Bill stipulates that no action or proceeding shall be taken against, any of the companies or against the receiver except by leave of the Supreme Court. The expenses of administration of the Bill ate to be payable out of the assets of the companies concerned in priority to all other claims. Procedure for Winding Up. ' The determination of the receivership of the Public Trustee under the Bill is the subject of special clauses. This determination lies with the Supreme Court which may make an order on the application of (a) the Attorney-General, (b) any director or directors of the company concerned, or (c) any debenture-holder or deben-ture-holders. No application under this provision shall be received by the court in respect of any company before the inspectors appointed to investigate its affairs have reported to the Supreme Court under the terms of the Companies (Special Investigations) Act. In the event of an order being made by the court for the winding up of any company to which the Bill applies, whether on petition presented in accordance with the Special Investigations Act, or otherwise, the appointment of the Public Trustee of that company shall be determined thereby. Within one month of the determination of the trustee’s receivership in respect of any of the companies he is required to file in the Supreme Court office at Wellington a statement of accounts, audited by the Audit Office, showing in detail his receipts and payments. SIX POINTS Justification For the Bill MR COATES’S EXPLANATION An explanation of the purpose of the Companies (Temporary Receivership) Bill was given by the Minister of Finance, Rt. Hon. J. G. Coates, when moving the second reading of the measure in the House of Representatives yesterday afternoon. Mr. Coates said that the events and the information gained in the intervening period of 12 weeks had revealed six things which were justification, in his opinion,

for the present legislation. These he enumerated as follow:

First: The interim report of the New Zealand Commissioners, with its recommendation that there was a ca’se for inquiry, is fully vindicated.

Secondly: It has been proved that the books, securities, and other properties of New Zealand companies, almost wholly financed by the money of New Zealand debentureholders, have been removed to. New South Wales. Thirdly: It has been made clear that it is the intention of the directors and managers of these companies if they are left in control to administer the affairs of those companies permanently from Australia.

Fourthly: The position created by the conflicting rights and claims of these directors and managers on the one hand and of the New Zealand debenture-holders on the other hand is a difficult position that will probably require legislation in New Zealand and Australia to provide an equitable solution. Fifthly: There is a danger that after the determination of the control exercised by the New South Wales Royal Commission and before the filing of the reports of our inspectors in the Supreme Court of New Zealand, the affairs and properties of the companies in .question will as n matter of ordinary legal right pass back to the unfettered control of those persons whose transactions have been the subject of the inquiries referred to,.

Sixthly: That in view of the evidence tendered before the Royal Commission in Sydney, it is undesirable, in'the interests of our New Zealand debenture-holders, that the control of the companies in question should so pass back to the present directors and managers before our Supreme Court has had an opportunity to consider the reports of the inspectors appointed under the recent legislation and any application to the court that may be based on those reports.

“This Bill therefore places the possession and control of the property of these companies temporarily in the hands of our Public Trustee,” said Mr. Coates. “It provides that in the meantime we will hold them and do such things as are necessary to preserve the property and business of the companies as nearly as possible In their present form. Preserving the Status Quo. “The Bill provides for the determination of the Public- Trustee's receivership by the Supreme Court. The appointment, the control, and the removal of a receiver all fall within the ordinary equitable jurisdiction of the court, and our court will deal with this matter in the light of the information brought before it, and according to the provisions of this Bill, and established principles. “The Government has adopted the procedure of asking this House to make the appointment of the receiver by tiiis special Act, because it is fully convinced it is in the public interest to do so. The difficult position that has been revealed by the evidence in Sydney is such that no debentureholder or group of debenture-holders can be expected to bear the possibly heavy expense of seeking by private litigation to move for the common good. “The debenture-holders have supplied practically all the funds of these companies, but they have no control; the directors, on the other hand, have risked nothing, but have full control; aud through their counsel in Sydney have plainly indicated their anxiety and intention to retain their control. If they regain temporary control they may increase the difficulties of the position. “In these circumstances it seems to the Government it would fail in its duty to the community if it did not take steps to preserve the status quo until a clear and final statement of the facts of the case have been made by a disinterested and skilled body of men. When the facts are thus known the facts can be judicially considered by the proper authorities. It may be added that the amount of debenture capital subscribed to the Investment' Executive Trust of New Zealand, Ltd., by New Zealand debenture-holders is over £400,000.” Support For the Bill. The Leader of the Opposition, Mr. M. J. .Savage, said the House could not do anything less than pass the legis Ik t lon. The Minister's explanation seemed to be quite frank. He saw no indication of anything in the nature of a "nigger in the woodpile.” He took it that whatever happened there must be a direction of the Supreme Court in the finish. The Public Trustee "’as to act in the meantime in. the interests of the debenture-holders and the public generally. The original legislation made it quite definite that the Supreme Court had to give any direction in the way of winding-up any of the companies concerned. The Bill was simply what the Minister had stated it to lie —something to preserve the assets in tlie meantime so that nothing would be done that would not be in the interests of those vitally concerned. Mr. A. Harris (Govt., Waitemata) said it was rather unfortunate that legislation of this kind had to come down. He was not suggesting it was unnecessary, but it was causing a great deal of concern in the public mind. One could be excused for imagining that there had been sufficient time for the inspectors to have completed their investigations, ' and that some report should have been brought down before now. The Bill conferred very drastic powers, and, in his opinion, it would have been better if some indication as to how far the investigation had gone was made. Public Anxiety. Mr. Coates: What is the point the honourable gentleman is making? Mr. Harris: I thought I made myself clear. I say it is a great pity that legislation of this kind should be brought down. Mr. Coates: We all regret it, but wbaf would the honourable member have done in the circumstances? Mr. Harris: I think something definite should be placed before the country concerning the result of the investigations. All kinds of rumours are being circulated, and this tends not to allay those rumours but to aggravate them.

Mr. Coates: Supposing the inquiry hadn’t been completed, what then? Mr. Harris: I presume that is the position. lam not complaining about the legislation coming down. Mr. Coates: I don’t think the honourable gentleman intends to cast any reflection upon the work of the iuspectors?

Mr. Harris: Not in any way. Mr. Coates: We can hardly blame them. It is not an easy task. Mr. Harris: No, but I think the Government ought to have taken the public into its confidence to some extent. I can only express the hope that this legislation will not cause too much anxiety in the public mind, although I am afraid it will. “A Happy Hunting Ground.” “This country has been a happy hunting ground for sharks and financial wolves,” said Mr. F. Langstone (Lab., Waimarlno). No company should be able to put a prospectus on the market until it had gone before some organisation controlled by the Government and received its approval. The law should be tightened up so

there was no loophole for scoundrels and similar shady characters. He complimented the Minister and Government for the action it had taken. In replying, Mr. Coates said that complaint had been made that the Bill was a dangerous approach to the problem before the House at the moment. He agreed at once that it was a distinct case of interference with business, but the legislation would not have been brought down if it was not considered to be essential and in the interests of the debenture-holders. The Bill was read a second time, put through its remaining stages and passed. ALSO PASSED BY COUNCIL t The Legislative Council met. in the afternoon and put the Companies (Temporary Receivership) Bill through all stages without amendment. After the Leader, the Hon. R. Masters, had explained the provisions of the Bill, the Hon. Sir James Allen said that all regretted the necessity for the legislation; but the Government was to be congratulated on facing a difficult position. It was to be hoped, he added, that the Government would pass legislation preventing directors of trustee companies from securing sufficient shares to give them control for an ulterior motive.