"DISQUIETING"

Evening Post, Volume CXVIII, Issue 34, 9 August 1934, Page 9

"DISQUIETING"

MINISTERS VIEW

SECOND READING SPEECH

NEED FOR INQUIRY

. A full explanation of the reasons which prompted the Government to take immediate action to give eff9ct to the recommendations of the Commission was made by the Minister of Finance' when moving the second reading of the Bill. ■ . .

.The Minister said that the Bill arose out: of the report made by the Commission. After, making investigations into the affairs of one group of timber companies.and one group of financial and investment trust companies which were, practically under the control of a few. men, the Commission found a very disquieting state of affairs and decided to adopt the unusual course of making an interim report on those matters and facts. Thirteen of the fifteen companies mentioned in the Bill were incorporated in New Zealand, and two in Australia. The companies wore associated together as parent and subsidiary companies or as affiliated companies. They freely sold shares in other companies of tlie'group and their principal shareholders and their directors formed a comparatively small group of men. It was difficult to see that any legitimate purpose could be served by forming so many companies in so compact a group of investors or controllers. In addition, the device of parwit and subsidiary companies was often used for questio'nablo practices and had been so frequently associated with financial scandals .that proof of the existence of the group.made at least a prinia facie case for further inquiry. SEVEN "DUMMIES." "This case for inquiry begins to bo strengthened," ■ said the Minister, "when it is discovered from the records-and from the evidence of witnesses on .oath that a so-called insurance company forming an apparently important unit in this group of companies (the Transport Mutual and General Insurance Co., Ltd.) registered a memorandum of association signed by.seven dummies and that three of these dummies are appointed directors. Two of them wore girl clerks; one of the two was a minor. _ "The evidence is that over £30,000 of tho funds of the principal company of the group, the Investment Executive Trust of New Zealand, Ltd., had been handed over in cash to these so-called directors," said tho Minister, "and that a list of investments was put before the directors by officers of tho parent companies, who instructed them to certify the list as -correct. The funds of tho Investment Executive Trust, New Zealand, Ltd., so paid over will be represented in its investment portfolio by shares in this dummy insurance company and the value of these shares will depend on the value of the investment made by the so-called directors under tho conditions which I have described. Only one of these three directors is a man, and ho in his evidence disclaimed all responsibility for the investment of this £30,000, and said that he had no voice in the matter and that he was not in any sense in charge, nor Was he, at any time, asked his opinion on any point. It is surely reasonable to suggest that this transaction was one which fairly called for inquiry into the inter-company operations .of this group.'' A PEIMA FACIE CASE. The Minister said that he was of opinion that a prima facie case had been made out, and that there was a strong reason to believe that the funds of the debenture holders in the Investment Executive Trust of New Zealand, Ltd., were being used for speculative purposes. Thoro was evidence that the managing director of that company purchased ii building in Sydney for a large sum of money and that that

building was registered in tho name of one of tho subsidiary companies, tho British National Investment . Trust, Ltd., of Auckland. A large sum of money, had been raised to carry out alterations and renovations in this building, and another company was formed, the British National Trust, Ltd., and registered in Canberra. The Auckland company was tho owner of the building, but tho second company, registered at Canberra, managed it and had apparently raised the finance to miako the alterations. The Investment Executive Trust ot New Zealand had made a direct investment of a fairly large sum of its funds in tho company registered at Canberra, said Mr. Coates, this investment being both in debentures and shares. In addition, another Auckland company, Farms and Farmlets, Ltd., had invested over £50,000 in tho shares of tho Canberra company. Farms and Farmlets, Ltd., however, was a 1 small private company with an original company of £1000 held in equal shares by a solicitor named Hewitt and his wife. Hewitt was the solicitor for many of the companies in the group the House was dealing with. TWO QUESTIONS. When information was sought about Farms and Farmlots, Ltd., continued the Minister, it could not be obtained from the company's office, the reason being that Hewitt was in Sydney. This private company had registered with the Registrar of Companies, as a charge against its assets, £100,000 in 500 bearer debentures of £200 each. Would it bo denied,, asked the Minister, that a case was made out for inquiry to answer the questions: Whence did this Wall private company obtain over £50,000 to invest in the shares of tho Canberra company? If it is by..tho issue of these bearer debentures, who has taken up the debentures'? "There is registered in Sydney an investment trust company called the Southern British National Trust, and it may be briefly and correctly described as the Sydney counterpart of tho Investment, Executive Trust or New Zealand," said the Minister. "This company, on the information contained in the report, invested £95,000 in tho British National Trust at Canberra. Will it be denied that a strong inference is raised by theso facts that, directly and indirectly, the funds ot the investment Executive Trust of New Zealand and of the Southern National British Trust of Sydney have been invested -directly, and indirectly in this Sydney building and aro dependent on its fortunes." "REMARKABLE SHARE DEAL." In referring to a share deal which he described as remarkable, the Minister said that the British National Investment Trust was a New Zealand company with a capital of .250,000 ordinary shares of 2s each and 150,000 preference shares of 10s each. Tho issue of preference shares was negligible for present purposes. ' The 250,000 shares wore held by the Canberra company, and were allotted with a comparatively trifling exception to J. W. S. McArthur and C. G. Alcorn as paid-up at 2 2-od per share in March, 1933. Within a few weeks, they were sold for cash to the Canberra company for about 23s per share. In other words, they were bought by McArthur and Alcorn for approximately £3000. and sold some days later for £288,000 to a company controlled by, McArthur, and Alcorn This was strong evidence of the use ot the funds of tho investment company for speculative purposes and provided strong ground for ordering a further inquiry. „ "There has been an exodus iroui Auckland to Sydney of tho principals of this group," said tho Minister. In the same connection there is the fact that, by reason of large transfers ot shares, the proprietary control of Investment Executive Trust in New Zealand, Ltd., and'tho •British National Investment Trust has passed into the hands of tho Sydney company." AbTJON IN AUSTRALIA. "For theso reasons I; say that in the opinion of tho Government there is made out a substantial case for an effective inquiry," said the Minister. "That is what the1 Commission recommends, and that is what the Bill now before the House is designed to effect. The ■ Government has taken quite a serious view of this state of things; so serious that it sent two of its officers aa a delegation to Australia to secure, if possible, contemporaneous and complementary legislation in Australia. This mission was successful and tonight similar measures are before the Legislatures in Sydney and Adelaide, while Canberra has today enacted an ordinance: all to the same effect .substantially as our Bill. The Victorian legislation has undertaken to do the same. "This inter-State action is necessary because of the transfer of control and administration to Sydney, and because of the inter-State nature of some of the transactions. No effective inspection or audit of the affairs of these companies could be made unless it was made : simultaneously in New Zealand and' Australia.".