SAFEGUARDING INVESTMENTS

Evening Post, Volume CXVI, Issue 113, 9 November 1933, Page 10

SAFEGUARDING INVESTMENTS

In the debatte on the Companies Bill reference was made to the great amount of rftoney invested in the company form of business enterprise. There are 7823 companies registered in New Zealand with a nominal capital of £145,654,752. Of course the paid-up capital is smaller, but yet considerable for a small "country. Much of it represents the savings and investments of persons with small means and, as the Minister of Finance stated, "they are entitled to every reasonable protection that the law can afford them." Added protection is given in the new Companies Bill with its insistence upon honest djsclosure of facts in anything: which takes the form of a prospectus and invites members of the public to subscribe for shares. Capable auditing of accounts is a further safeguard; but we are not prepared to say whether the qualifications for company audit - work should be exactly as laid down in the-Bill. ■ Some members of the House of Representatives suggested that, Parliament should go even further in protecting.shareholders by establish-, ing an investment board which would put a hallmark upon companies. That might be feasible if standards for company prospects could be determined as exactly as the fine standards for precious metals. But they cannot be. With the most careful examination, it is impossible to speak with certainty of the prospects of many companies. There are so many uncertain factors—public demand for a product, cost of raw materials, taxation charges, and competition risks. An investment board would^ be able to give only a judgment with many "ifs," and even to do tnis it would have to engage experts familiar with many branches of finance and industry. In the enterprise which offers the widest field for speculation—gold mining—there have often been suggestions that a Government department should be asked to pass judgment on a prospectus.' But the official view has been that the Government could not commit itself by endorsing even the schemes which appeared to be sound. The furthest it could go would be to insist upon frank disclosure of known facts. This appears to us to be as far as the Government can go in general company supervision. The investor has his remedy at common law where wilful misrepresentation can be proved, and there are additional safeguards in the Companies Bill against the border-line misrepresentation which may take the form of half-truths and incomplete statements.