INVESTMENT EXECUTIVE TRUST

Dominion, Volume 29, Issue 183, 1 May 1936, Page 8

INVESTMENT EXECUTIVE TRUST

Protest by DebentureHolders VALUABLE ASSETS Question of Disposal Considered mr. j. w. s. McArthur ATTENDS MEETING A further chapter in the involved affairs ‘of the Investment Executive Trust of N.Z., Ltd. (in liquidation) was written in Wellington yesterday at a meeting of debenture-holders called by the Public Trustee, and which was described by one of the first public meeting allowed to bo held in their interests. The Public Trustee (Mr. E. O. Hales) . presided over the meeting at which . there was a very free and full dis- . cussion lasting most of the day. Interest in the proceedings was added by the presence of Mr. J. W. S. Me Arthur and Dr. F. Louat, of Sydney, counsel for Mr. McArthur in legal proceedings there. In his opening address the Public Trustee said each debenture-holder had received a copy of his report to deben-ture-holders dated July 29, 1935, setting out the position of the inquidation at that time, and containing a balancesheet as at April 16, 1935 (the date of the Public Trustee's appointment as liquidator), and a statement of affairs as at June 30, 1933. His report had stated that no action had been taken to realise any of the assets of the company (excepting the furniture) pending the hearing of an application to the Supreme Court oy certain debenture-holders for consideration of a scheme for reconstruction of the company, The application was dismissed by the Supreme Court on December 4, 1935, and debenture-holders had already received- a reprint from “The Dominion” giving a report of the proceedings. Disposal of Certain Assets. As soon as the debenture-holders’ action had been disposed of, it became the Public Trustee’s duty, as liquidator, to give immediate consideration to the question of disposing of some of the assets of the company. Counsel for the debenture-holders requisitioning the present meeting asked that realisation of the assets be further postponed until after the meeeting. The Public Trustee was unable to accede to his request, and informed counsel that, in-the interests of the debenture-holders as a whole, no undertaking could be given to delay further the realisation, and complete liberty of action in regard to the liquidation must be reserved by the Public Trustee.

In considering the matter, the Public Trustee had necessarily to remember that the liquidation had already been

seriously delayed pending the hearing of the application for reconstruction, and, moreover, many debenture-holders were in need, and were pressing for a distribution. Consequently the Public Trustee decided that his duty to debenture-holders was to commence active liquidation in order to provide funds for distribution.

As already stated, the application for reconstruction was not disposed of until early in December, 1935, and in view of the approaching Christmas holidays it was considered undesirable to place any stocks and shares on the market for sale at that time. Consequently the matter was further postponed until February of this year, when fortunately, for a short period, the .stock market showed some considerable buoyancy. In considering the question of a sale, the Public Trustee had acted in close consultation with three experts [having an intimate knowledge of stock and shares and market conditions generally. Each holding had been separately considered, and sales had been decided upon only in those cases where where the market was favourable and the prices satisfactory.

* A reserve was placed on each holding offered for sale, and iu very few eases had these reserves been departed from, and then only when good reason existed. The opinions and advice offered by these experts, together with i the complete information already held I by the Public Trustee, had resulted in ' very satisfactory realisations being effected. Debenture-holders would thus be assured that the very greatest care had been taken in dealing with their assets, and that there had been no sacrifice or hasty realisation. The carrying out of the liquidator’s legal duties had in no way been to the disadvantage of de-benture-holders. nor had anything occurred to justify the prediction that liquidation would mean the sale of the assets at an enormous loss. The rea.lisations effected, together with the income in hand, had enabled payment of the recent dividend of 2/- in the £1 to debenture-holders. The amount required to provide this dividend was £50,727 1/7. The Sydney Building. Regarding the trust building in Sydney, it was pointed out in the Public Trustee’s report to debenture-holders that the Public Trustee of New South Wales was stalely responsible for the management of the trust building. It was not in any way under the control of the Public Trustee of New Zealand. Before proceeding to sell, it was the duty of the Public Trustee of New South Wales to apply to the court there for the necessary authority and to tix the reserve. This was done on July 29, 1935. A sale by auction was attempted on October 4, 1935, but none resulted. In response to a request by the Public Trustee, New Zealand, for information as to the present position, the Public Trustee, New South Wales, advised that the property had been available for sale by private treaty since the date of the auction, but as yet no definite offers had been received. He further advised that the reserve price as fixed by the court when the building was submitted' to auction had not been altered, and nothing had since transpired to warrant any further application to court. He pointed out, however, that as the reserve was fixed for auction purposes only, and

the building was not disposed of in that manner, any offer for private purchase considered sufficiently attractive would be submitted for the court’s directions.

Notwithstanding Iho protection afforded by the New South Wales legislation, it was considered that as the debenture-holders of the Investment Executive Trust held a two-thirds interest in the building, the Public Trustee of New Zealaud, as representing them, should be consulted regarding any further application to the court in connection witli the sale of the building.

After quoting correspondence on Hie matter which had proceeded with Hie rublie Trustee in Sydney, Mr. Hales said it would Ums be seen that Hie Public Trustee of New Zealand would be consulted before any further appli; cation was made to the Court of NewSouth Wales, and 'this would provide an opportunity to make such representations as were deemed desirable on behalf of the debenture-holders to the Investment Executive Trust. They would thus be assured that their interests would receive adequate protection.

Regarding Hie building itself, the Public Trustee of New South Wales had supplied statements of receipts and payments for the period, November 1, 1934, to January 31, 1936. At the foot of the account there appeared certain information regarding the letting space in the trust building. Nearly one-half of the vacant space was in respect of the sub-basement and ground floor. The Public Trustee of New South Wales advised in August last that he had not received any inquiries from prospective tenants for either the ground or the mezzanine floors, and as it had been suggested that a long lease of these floors might prejudice a sale, he had at that time considered it inadvisable to pursue Hie letting of the ground floor pending an attempt being made to sell the building. No official information was available, but it was understood that owing to the heavy structural alterations required, the ' conversion of the ground floor into shops would be very costly. Dr. Louat then moved: "That in view of the fact that the Investment Executive Trust debentures held by the Sterling investments Company are held internally for the benefit of debenture-holders by one of the companies being liquidated, such debentures be disregarded for the purposes of this meeting, and that it is the wish of this meeting that no vote be recorded in respect of them.” Mr. E. P. Hay, speaking as counsel for the Public Trustee, ruled the motion out of order, citing a. decision of Mr. Justice Blair. The Public Trustee said that, as liquidator for the .Sterling Investments Company, he could exercise his vote if he wished. Mr. E. E. Hammond and other debenture-holders suggested they should get down to something definite. The former said they hoped to be enlightened as to where their property was. Their wish was to try and get a solution that would be to the best advantage of the debenture-holders. (Hear, hear.) A Sale of Dunedin Shares. Mr. M. V. Bates, public accountant, Auckland, said that he would like the Public Trustee to inform them at what price, to whom and when the shares in the Trustee and Executors

Agency Company of Dunedin were sold.

The Public Trustee said they were sold at £3/15/6 per share, free of brokerage, to some of the directors of the Trustee and Executors Agency Company. They were sold about February 20 and in one lot.

After quoting telegrams ami letters that had passed between him ami the Public Trustee, Mr. Bates said the interests he represented were prepared to pay 50 per cent, more than had been accepted for the shares. The Public Trustee said if that were so it was strange that no inquiries were marie between .September and March.

Following further discussion, one debenture-holder said the only safe .place for their assets was with the Public'Trustee. (Cries of “No 1 No!”) Mr. .1. IV. S. McArthur said there were- certain facts about the matter which the meeting had a right to know, and he asked permission to give them.

Replying to a debenture-holder who wanted to know Mr. McArthur’s standing, the Public Trustee said he was present as a proxy-holder for the McArthur Trust of Queensland. This was quite in order. Mr. McArthur stated: At the time of liquidation, and until, I understand, some few weeks ago, the debentureholders had as one of their assets 4500 shares in the Trustees and Executors Agency Company of Dunedin, practically at half interest. The value of this asset to yourselves and all the ■other debenture-holders had no relation whatever to the market price. That price to-day is about £3/5/- a share, but because the Investment Executive Trust’s interest in the shares amounted practically to a controlling interest the shares we held had a very much higher value. The Dunedin company has assets of a total value of about four and a half million pounds. From a very early stage in its life the Investment Executive Trust held a certain number of shares in the Dunedin company, and in 1933, because of certain information which came to me, I had decided to increase the holding by every means possible. The information we received from a reliable source was that the New Zealand Insurance Company of Auckland had embarked on secret negotiations with this Dunedin Trustee Company with the object of purchasing the whole of the issued share capital of the company, making payment iu New Zealand Insurance Company shares. “During 1933 and the first half of 1934, the directors of the Investment Executive Trust pushed forward energetically a plan to acquire a controlling interest in the southern company for the benefit of debenture-holders. The shares were actually bought by the Transport Mutual and General Insurance Company, which was owned wholly by the Investment Executive Trust. By June, 1934, we had in this way acquired a total of shares representing over 45 per cent, of the total share capital of the Dunedin company.

“I understand that these shares have now been sold by the Public Trustee. I have not yet been able to find out, nor have I met anyone else who has, who are the fortunate purchasers of these shares, or what steps the Public Trustee took to see that he was realising on your behalf their enormous potential value.

’“I have said that they are worth a very great deal and much more than the market value as established in the liquidation. What they would have been worth if special legislation passed

by the Coates Government had not destroyed the Investment Executive Trust, you can imagine from the fact that £4,500,000 worth of investments arc controlled by Ihe Dunedin company. 1 had caused inquiry to be made about the methods of management ot the Dunedin company, and we were fully satisfied Unit those methods could have been improved iu efficiency and policy so as to produce nearly double the prolit at that time being earned by it There was no doubt that the Dunedin company’s business was capable of very considerable expansion. Its business at that time was, amt as far as I know still is, almost entirely confined to Otago. A policy of enterprise and vision applied to this managemen could rapidly have increased the spread of ils business over a large part ot the Dominion. In addition, you, as <e-beuture-holders, would have 11!l d Jh'addod strength and seeuuty which would have resulted from having youi controlling interest in this company supporting your debentures. “I have tiled to show what the prospects were in the plan to acquire these shares, and what their value was when they were sold a short time a»o. 1 y still have the value that I have described, and the persons, whoever they ■ire who have been fortunate enough to buy the block of practically half the shares in this Dunedin company, have now got rhe benefit of this special value instead of yourselves as deben-ture-holders.” i Replying to a woman who asked the reserve price of the “famous Sydney white elephant,” the Public iruste! said it wuis £273,000. Motions of Protest. The following motion was then moved by Mr. N. Levy and seconded by Mr. J. T. Paul, of Dunedin: “That as the existing’legislatiou for the liquidation of the assets of the company was passed without obtaining any expression of opinion from debenture-holders this meeting declares that the realisation and sale of the assets of the company is not in the best interests of th® debenture-holders, against which course this meeting emphatically protests?’ Speaking in support of the motion, Mr McArthur said it drew attention to the fact that the forcing of this company into liquidation was carried out without any expression ot opinion from the debenture-holders. The only complaint he had about this portion of it was that it understated the fact. Liquidation was actually forced upon them as debenture-holders in direct defiance of the representative body of opinion among debenture-holders whose views, were actually sought by the Government of New South Wales. At the end of 1934 a ballot was actually taken of all the debentureholders in the Southern British National Trust. This company was exactly similar in organisation to the Investment Executive Trust, with the difference that it was situated iu Aus-* tralla instead of New Zealand. The ballot was officially conducted by the Public Trustee of New South Wales, and offered the debenture-holders the alternatives of liquidation or reconstruction with themselves in control. The result of the ballot was a clear majority against liquidation. There could be no doubt in the world that this position represented not only the views of the Australian debenture-holders but the views of those in the Dominion as well.

Although no official ballot was conducted in New Zealand, the attitude of

the investors in the Investment Executive Trust was shown clearly enough by the voting at representative meetings of debenture-holders which were called for the purpose of enabling them to express their wishes as to the future of their company. There were those present at this meeting who knew that those’gatherings of debenture-holders expressed by an overwhelming majority a protest against any proposed liquidation, and ti demand that the business of the company should be allowed to be carried on. It was not surprising in view of what had already happened, that the Coates Government entirely ignored these expressions of opinion in the same way as it had throughout and at every turn disregarded the interests of debentureholders. Mr. J. T. Renton said he had been instructed "by a number of Canterbury debenture-holders to oppose the motion. Liquidation was the only safe wav in which to proceed.

The following motion was also proposed: “That this meeting views with apprehension the possibility of a sale of tliw trust building in Sydney at less than the reserve price fixed by the court, and requests the Public Trustee forthwith to communicate with the Public ’J'rustee in New' South Wales urging him on behalf of the Investment Executive Trust debenture-holders to withhold the trust building from sale at less than the reserve price fixed by the court.” ' Several debenture-holders urged that more could be gained by a reorganisation of the companies than by liquidation. It was stated that a Government accountant in Sydney had placed the probable value of the assets of the I.E.T. at from 16/4 to 19/5, depending oil tlie value of the trust building, which had been estimated to be worth not less than £300,000 and possibly £400,000. Before the vote was taken Dr. Louat asked what the chairman proposed to do with the votes he held in his official position. The Public Trustee said that he was not asking others how they were going to vote, and it was not for him to say how he was going to vote. A debenture-holder: Don’t you think this meeting is called to ascertain our wishes and that it is not for you to baulk our wishes by using your votes against the meeting? The Public Trustee said that as liquidator he was as much a debentureholder as a public officer, and, like the others, could exercise his vote. There was no question of baulking.

The first motion was carried by an overwhelming majority on a show of hands, only nine voting against it. A demand was made for a ballot, but it was decided to postpone the ballot till after the discussion on the second motion, the chairman ruling that the ballot w’ould be decided on the number and value of votes, proxy votes having to be taken into account. The second motion was carried on the voices, with hardly any discussion. The ballot on both motions was then taken, occupying over an hour. Preservation of Assets. The meeting then considered the following motion at some length:—“That in order to give effect to the foregoing resolutions, and as previous endeavours by the debenture-holders to have effect given to their wishes have been rendered fruitless through difficulties of finance, this meeting requests the Public Trustee to settle, in consulta-

tion with a committee of three de-benture-holders to be elected at this meeting, a scheme of arrangement whereby such object will be carried out by the preservation of Ihe assets for the benefit of debenture-holders.’’ The Public Trustee outlined his owu position, saying that he had no information as to the scheme for preserving the interest of debenture-hold-ers. it was not part of his functions as liquidator to carry out the work entailed if the motion were passed and he was not prepared to undertake the responsibility. It was not his duty to carry out such a scheme, but if the debenture-holders could bring down something concrete tb go before the court as a proposed system of reorganisation he would facilitate having that scheme put before the court.. Dr. Louat suggested that the committee should be of four, to be Mr. N. Levy (Wellington), Mr, J. T. Paul (Dunedin), Mr. M. Bates (Auckland) and Mr. S. Hardy (Wellington). The chairman ruled that the two latter nominations could not be accepted as the nominees were not de-benture-holders. Mr. J. D. Renton (Christchurch) wits proposed and Dr. Louat nominated Mr. J. W. S. McArthur and Mr. O. A. Bridgewater (Christchurch), to make the number five. Several speakers urged that there should be adequate representation of all sections of the debenture-holders. Mr. W. Donovan opposed the amendment,' saying that the whole aim of those he had met was to take control out of the hands of Mr. McArthur. The Public Trusteq suggested that the amendment be moved in the form of substituting five for three in the motion, and the personnel of the committee could be determined later. Mr. J. Meltzer suggested that the words “three debenture-holders” be omitted and the word “five” be substituted. The Public Trustee said he was not prepared to accept an amendment eliminating debenture-holders. The matter was one for the debenture-holders and others could not be included on the committee. Several speakers urged that deben-ture-holders could delegate their authority to others, but the chairman adhered to his ruling that members of the committee must be debenture-holders. Mr. Meltzer: Would you accept an amendment that “five persons, from this meeting” be the committee? The Public Trustee: No; they must be debenture-holders. , An amendment that the committee be of five debenture-holders instead of three was carried. When put as the motion it was carried on a show of hands, only seven voting against It.

A ballot was demanded, amid protests against the time this would take. One debenture-holder proposed that tea and beds should be provided while the ballot was being taken. Dr. Louat then proposed his committee again, and Mr. Donovan again opposed the inclusion of Mr. McAnhur. It was very surprising to him in listening to discussion to hear that the Public Trustee, who was simply carrying out his instructions from the Government, was being criticised and Mr McArthur was being applauded. Dr. Louat objected to this, saying it was untrue and a statement that the speaker should not hare made. Mr. Donovan again objected' to the inclusion of Mr. McArthur. Voices: You can vote against him. About a dozen nominations were ultimately made for the committee, and

Mr. Levy said he could not serve on a committee unless the members’were in favour of reconstruction. As an advocate of reconstruction he could not work with those opposlng Breconstruetion. Mr. Meltzer said that if nominees were opposed to reconstruction they should not accept nomination, nor should the chairman accept the nominations. Mr. Hay said that those who accepted nomination, even if opposed to reconstruction, could quite honestly assist in reconstruction if the majority of the debenture-holders decided on reconstruction. By withdrawals the nominations were reduced to seven, and a ballot was taken on the following candidates: Messrs. McArthur, Paul, Kenton. Levy. Bridgewater, L. 11. Herd and W. T. Richards. The following motion was carried on the voices and then voted on by ballot“ That the costs of this meeting and any further costs involved in carrying out these resolutions be borne by the Investment Executive Trust Company.” The chairman then announced that the counting of the votes on the ballots, taking into account the proxies, would take several hours. He adjourned the meeting till this morning, saying the result of the voting would probably be known whetl the debenture-holders reassembled.