REDWOOD FORESTS

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

REDWOOD FORESTS

ISSUING OF BONDS

NEED FOR INQUIRY

Tho second interim report' of the Companies Promotion Commission referred in detail to the operations of New Zealand Bedwood .Forests, Ltd., into whose-affairs an immediate inquiry was suggested. Tho members of *tho Commission stilted that they were writing and submitting the second interim report because, they aro of opinion that ",nn investigation should bb made forthwith of tho affairs1 of tho Now Zealand Redwood Forests, Ltd., and certain other Companies, the'ao being companies associated through common directors and shareholders or through reciprocal transactions with either New Zealand Redwood Forests, Ltd., or certain companies named in tho schedule of tho main Act.' "New Zealand Redwood Forests, Ltd., is one of a number of companies which will bo 'referred to in our final report under the generic description' of 'Land Utilisation companies,' " states the report. "It is one of tho class which raises the bulk of its capital by the issue of so-called 'bonds' or debentures. "This company, on September 1, 1925, issued a prospec.tus of a debenture issuo of 6000 profit-participating forest debentures of £35 each. In the prospectus the purposes of the issuo arc stated thus: — The proceeds of this issue will be allocated as follows: — (a) £21 per debenture fully paid up to be set aside to provide an investment fund and realisation reserve in accordance with the terms of a trust deed dated tho first day of 1 September, 1925,' with the New Zealand Insurance Co., Ltd., as trustees for the debenture holders. ,(b) £4' 10s per acre to reimburse the company; for the actual cost of 6014 acres (approximately) of freehold land. (c) The balance of the proceeds will'be applied to the cost of seed, 'establishment of nursery, clearing, preparing, and planting" the land,' in ■ trees, ... (and all . incidental processes and works). '. "The company covenanted to plant in forest trees at least, one acre' for each debenture fully paid up. RAISING- £210,000. ''The company therefore sought to raise,the sum of £210,000 from the public. According to the' above statement, this would ■be utilised as follows, and in the order given:— ' '■;'.■■ " .■ '■ ■'■■' : & (1) To carry out through all ■. its processes the affores- : ■.: Ration scheme which the •'' i ''■'; company • undertook to carry out, £9 10s ■ per :- . acre (or per debenture) 57,000 ' (2) To recoup, the company 1"' .tlie costvof purchase of : "';■. fi.QOO acres of land at £4 ,10s per • aero (or per debenture) ........... 27,000 (3),lnvestment fund and realisation reserve, £21 per < acre .(or per debenture) 126,000 :.; ■" .. / • £210,000 "The debentures contain a'covenant by the company to repay the sum .of £35 in respect of each debenture, provided that if the company 'duly carries out- it's obligations to plant, and maintain the forest and facilitate the realisation of the forest, at the end-of the stipulated poriodyritho debenture holders must* look ;toithe proceeds-of the fores.t for the, ■ return of this money. 'For better securing.the payment.,^.:!:,'Vail'.moneys .'owing on the security'of ; 'the; debentures, and ■ the observance and performance of all covenants arid, conditions of the debentures, the debentures gave a floating charge over all the property and assets of the company both present and future. "The prospectus announced that the New Zealand Insurance. Co., Ltd., was the trustee-for the debenture holders. The .company undertook -(in the- prospectus) to transfer to ;and vest in the trustee for the debenture .holders, all its estate and interest in the lands (later described in the' prospectus), on: which the forests were to be grown; and, further, that the above-mentioned sum of £21 per debenture (£126,000 in all) would bo invested by New Zealand Redwood Forests, Ltd., in trustee securities. These were to forni an Investment' Fund and Realisation Eeserye in the name of the New Zealand Insurance Co., Ltd. The debenture holders were given the right to elect one director of the company, and George William Hutchison, a public accountant of Auckland, was announced in the prospectus as "the first director representing the debenture holders. • "According to the prospectus a Realisation Board is to be set up at any time between December 31, 1940, and December 31, 1950. This board is to assume- control of the said lands and forests arid proceed with their realisation and disposition in accordance with directions given .by tlie - debenture holders. . , ■ ■. . THREE PROPERTIES. "The prospectus contains the statement that the New Zealand Redwood Co. had, at the date of the prospectus, purchased three valuable properties, ahd; a locality plan showed the site as being close to Putaruru on the Aucklana-Rotorua railway and having a total of approximately six miles of railway frontage. . ' "On ,the same .page- the prospectus states that J. -W; S. McArthur, one of the venders, had applied for and had been allotted 16,150 shares in the company, and that the Selwyn Timber Co., Ltd., one,of the-'venders, had applied for and had been allotted 12,500 shares in tho company. Lower down on the same page the statement is made that tho directors had allotted 30,600 shares paid up to 10s per share. . "The company ■ had an authorised capital of £40,000 in 40,000 shares of £1 each, and tho prospectus states .that; the preliminary expenses of and incidental to the formation and establishment of the company and until the company should ■ commence business were estimated to amount to 2| per cent, of tho nominal capital of tho company. A calculation shows that tins estimate of preliminary expenses is £1000. -. . " ' . BROKERAGE ON DEBENTURES. "In the prospectus, under the heading. 'Brokerage and Flotation Costs,' there appears the statement: — ; ;The company has subscribed sufficient capital to pay the costs of the formation and establishment of the company and to pay the'expenses of this debenture issue, including brokerage and commission. i"ln this connection it should be noted that there is no authority anywhere for the deduction of 'brokerage' or 'commission' from the debenturemoneys. The foregoing allocation of the debenture-money accounts for the full £35 per debenture, without any^ reference to brokerage or commission. It is true that by clause 'firstly' of the trust deed the company may apply any money not required for the stipulated purposes of the first £9 10s to such purposes as the directors may determine. It is certain; however, from the history and accounts of the company that.that position has never arisen. ' "In the prospectus there is also-a disclosure of the interest of directors. This purports to be in- compliance with

Iho Conijxuiloa Acl, llifiS, and is In iho following wiirtlni— ,1. W. H. Mi-Ai'lliiii' (nni. ~f i|, r dirnoturs of tin.' i!iiiii|iuny) in (ti<> projuolei' nl! Ilii! I'liinjinn.v, iiml wnn Inti'i'* I'slcil lv Hie promotion nl' llu' nmuniiuy mill, in Ilii' properly pllivlnimul by I In.1 I'tiinpnny In tin* cxloiit ul' lilh liilimvnl us NJwn'liohJi'i1 In liiilli Iliu NHw.vii Timber Co., 1,1 d., and Ilii' llciilnli Liiml Co,, did,, Mini ntt Iho vnnili't- of the binds dcwi'iln'il im .Uloek 111, "Wo linvi! |i(iinl('d iinl (.Jimt- llm dcbi'iilure pnispoclus whitiuils Ilinl; [\\i>. fiedwnod t/'o. has Httlmcrilinl MilJlcleiil. I'linitiil lo pny (inter alia) Mln.i expenses oT tliiH debenture, issue, including broke Hi ||o mid uoMiuiixHJun,' mnl that under tho linuling 'J'nvpoMen nf lhi« Issue' it sets (iiiU.tho allocution «f (Ik; £35 of ouch di'bonliiiT, with no rol'erenco to 'brokerage' "Nevei'thclOKs, tho company has made substantial payments by way o'C expenses of debenture issue, hrotcuntgo, and commission, and has paid these out of tho debentuH'-inonoy, treating t-heso payments as a first charge- upon tho debenture-moneys as received. Those payments amount,, in* Iho abrogate, to ninny thousands of pounds, being, according to the evidence submitted to uk, over I~> per cent, of the debonturc-money received. This wrong use of tho 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 out its existing obligations to its debenture holders without the assistance of funds procured "by the sale of further debentures. .