INQUIRY STARTED

Evening Post, Volume CXVIII, Issue 58, 6 September 1934, Page 6

INQUIRY STARTED

MINISTER'S STATEMENT

INSPECTORS APPOINTED

THE EEPOET EEYIEWED

In presenting the,report to the House the Minister of Finance made a statement dealing "'with, the main features of the Commission's observations.

"Members will remember,", said Mr. Coates, "that under the Companies. (Special Investigations) Act passed on, August 8 power was "given, to the Gov-ernor-General in Council to appoint inspectors to" investigate the affairs of the Investment. Executive.. Trust of New Zealand Limited. and "fourteen 'other companies' affiliated to thc^ Investment Executive Trust through common directors and, reciprocal transactions. The names of these fifteen companies iwere specified in the schedule to tho Act. The Act provided that its provisions should apply to those fifteen companies specifically named in the schedule, and in addition provided that the Gover-nor-General by Order in Council might add to the schedule in certain; cases the names of .other .companies, arid that on the making of-, such Order in Council the Act should apply to the companies so added as. if the names of such companies had been specified in the. schedule on the passing of the Act. One of these: cases..was if, the Companies Commission, of which Mr. Barton is'chairman, in ahy futuTe report niade to the Governor-General, recommended that aii investigation be made of the affairs of any7 company. Tho Teport which is now being tabled makes a recommendation that certain other companies (twelve in number) be added to the scheduloto the Act. I .may add thai :'tho necessary Order in • Council was;, made today, and inspectors _ appointed for the purpose of investigating "the - affairs -of these twelve companies referred to in the present report, and these inspectors will commence their duties tomorrow morning. Th<?se inspectors are clothed with the ■vi-idfi-'powers given by the Act, and as in the case o£ the Investment Executiyij. Tfu's± and other Companies_specified:'.ii...the schedule to, the Act, it will. be a criminal offence for any director, officer, .servant,; or agent of any of-the twelve companies now being . added, with intent to defeat the purposes of the'Act,or to delay or obstruct the carryingV.out:of the investigation, to destroy and alter any records of any such company or to send any funds or pther property bfMsuch company out of New Zealand,--ADDITION OF COMPANIES. Tho oompanies in the present report, which the Commission recommends be added to the-schedule, .of the companies (Special' Investigations) Act are twelve in number. Of these, four, namely ' .1. ..Liberty Motors" Corporation Limited;: 2. Auckland Provincial Town Pro- • •pertles Limited; 3. New Zealand' Freeholds and Buildings Limited, and' 4. Freeholds Limited; are included in tho Commission's recommendation at the request of tho inspectors appointed '.under the Act to investigate the 'affairs of the Investment Executive Trust and its affiliates. These inspectors consider that these- four companies should be added to the list in order to render their examination of the affairs of certain of the other companies complete, and effective. . .. ' The remaining companies in respect of which a recommendation is made by the Commission are eight in number. The chief of these is the Now Zealand Bedwood Forests Limited, and tho other seven a,re:—- ' '; . , The Selwyn, Timber Company -Limited;. ■'■" = The Wynsel Timber Company • Limited; .-■ .'■■•■■■, The Be'ulah Land Company Limited; ; The Edgecom.be Forests Limited; ■ Kotahr Lands Limited,- '"■ . Overana Land Company Limited; Modern.Homes Limited; these/ being; companies associated through conjmon directors and shareholders or through reciprocal transactions with New Zealand Redwood Forests. . '~'■' ' REDWOOD TORESTS. "Members in reading the .report will find that the Commission has given s, detailed account of the organisation of Eedwood Forests Limited. This company was' formed in 1925 with a share capftal of £40,000, the managing director being Mr. J. W. S. McArthur, who

either as a direct shareholder or by vir-. tue of his, shareholding in the Sehvyn Company practically controlled Eedwood Forests Limited. Eedwood forests issued a prospectus in 1925 for tho issue of. 6000 profit > participating forest debentures of £35 each. These debentures are not debentures in the usual acceptation of that term. They, in'f&ct, constitute a contract between 'tho holder and the Eedwood Company.

"It would appear from the. report that although the. prospectus sets out oceifically that the £35 representing the purchase price of each debenture was to be allocated in a certain way, namely, £21 to form, an 'investment fund' and realisation reserve, £4 10s to recoup the company the cost of the purchase of the land, and the balance, £9 10s, as costs of establishment of nursery, clearing and planting land, supervision, etc., of timber lands; yet, in fact, the company has paid out of tho debenture money subscribed by the public thousands of pounds by.-'" way of brokerage charges in connection with the sale of the debentures. The report states 'this wrong use of .the debenture funds is perhaps the most potent single factor in bringing the company to its present position. That position is that the company cannot carry put its existing obligations to its debenture holders without the assistance of funds procured by the sale-of further debentures.' "The forest lands acquired by the Redwood Company were purchased partly from the Selwyn Timber Company, partly from the Beulah Land Company, and partly from Mr. McArthur. Mr. McArthur—the promoter, director, and principal shareholder of the Eedwood Company—also held a controlling interest as shareholder and "managing director of the Selwyn Company, and the Selwyn Company held 97 per cent, of the shares in the Beulah Land Company. The Wynsel Timber Company;<referrcd to in the report, is tho succes: sor of the Selwyn Company. Edgeeuinbo Forests Limited and Kotahi Lands Limited, two other companies referred to, were connected with Eedwood Forests by important transactions during 1930. Modern Homes Limited is also connected with the group, and wasused in 1930 by Mr. McArthur to facilitate an important share* transaction affecting Eedwood Forests Limited, SAwyn Timber Company Limited, and Edgecumbe Forests Limited. The Overana Land Qompany Limited is another company of the group. '' Members -will read from "the report that evidence "was given to '.the Commission of payments out of debenture holders' moneys of large sums to Mr. ■McArthur as. preliminary expenses, expenses of visits to.lndia to conduct a bond-selling campaign there, 'and how Mr. McArthur used his position as director to induce the company to,pay the .sum of £5000, being the costs of a libel action instituted by him personally in India, despite the fact that the other directors had previously cabled him that he was to take the case at his own expense^ and that "they declined to allow him to use the company's name in the law suit. There is also evidence that when McArthur was unable to pay calls on his shares he induced the company to put him in funds for the purpose by paying him as vender of lands purchased by the eompauy the balance of the purchase

price. ■ • "Tlie report also gives other examples of extravagance and mismanagement, and goes on to show how, when the financial position of the Redwood Company was becoming desperate, and it was being pressed for payment of the balance of purchase money of lands purchased, and by its mortgagees, a reorganisation was effected whereby the pompany was to purchase additional lan,ds and each debenture holder was to becomo entitled to two acres for his debenture in^placo of one acre under the original scheme. This reconstruction was approved by the debenture holders, but the methods by which such approval was obtained is shown to be open to strong criticism. The report also shows that the additional lands to be purchased with bondholders' money were in tho name of Kotahi Lands Limited, and- that the Option to purchase was granted by Edgecumbe Limited, and that Mr. McArthur and his associates were financially interested in such companies. '. "This scheme1 temporarily lifted Bedwood ; Forests out of its i;Jsnaricial • difficulties, for as part, thereof the original scheme, whereby. £21 out of each debenture was allocated as an investment fund and realisation reserye, was altered, and only £7 out of each debenture was appropriated for such investments and realisation fund, and the-other £14W handed over to Eedwood Forests Limited.

"I will not go into further details as to the contents of the report and tho various • transactions commented on therein, but will content myself with saying that it discloses a state of affairs which in my opinion; clearly demonstrates the need for further investigation." '■'■'.'