M‘ARTHUR GROUP

Evening Star, Issue 21991, 29 March 1935, Page 3

M‘ARTHUR GROUP

Ten To Be Wound Up I Further Legislation Announced Statement By Mr Coates New Zealand Capital Transferred To Sydney Further legislation providing for the winding up of ten of the fifteen companies connected with the M‘ Arthur Group was announced'by the Minister of Finance, who, in a statement unexpectedly made to the House last night, accompanied by 200 pages of reports from the "inspectors who investigated the New Zealand companies’ affairs, referred to the manner in which New Zealand investors’ capital had been transferred to New South Wales without their concurrence. I'he advisers of the two Governments were unanimous V that the course of putting all companies into liquidation would lead to needless and highly.expensive litigation. The better course was to submit special legislation to deal with this unique position in both Parliaments. ; Meanwhile the existing legislation protected the assets. The guiding principle would be that the interests of the debenture holders of the trust companies in both countries must be paramount, and they should receive the net proceeds from the ‘ Daily Telegraph ’ building before any other claim- . ant was recognised. They unanimously advised against M‘Arthur’s reconstruction scheme, as it provided no safeguard against him regaining control. Mr Coates declared himself satisfied that the New Zea- = landers who had organised the debenture holders were genuinely, working in what they believed to be the interests of the debenture holders, and both Governments took the view ; that the only fair basis was to put all the debenture holders on an equal footing.

EQUAL FOOTING

PROTECTION Of DEBENTURE HOLDERS GOVSIWMtHTS AGGEE GH LEGISLATION [Pxm . Vkitkp Fun Agochhatiox. 1 WELLINGTON. March 28. Mr C loates summarised the effect of the previous pointing out that up to the present the Govrnments of New South Wales and New Zealand had protected the assets of all the companies by placing them in the hands of receivers and conducting investigations by inspectors.* As to the future, two possible courses would seem to be open. One was to use the processes of the existing law to put the companies into liquidation, and the i other was to devise special legislation to deal with the matter on the ground that the position was an unprecedented one—that the existing law would: ho -ineffective. The same problem was faced by the Government in New South Wales and by the Commonwealth Government. The question thus raised had been very seriously considered by the Governments with the aid of the best legal and accountancy advice available. The result was 'that the Governments in question hid all decided, with the unanimous approval of their advisers, to adopt a course of meeting this , unique position by special legislation, i. Referring to the large volume containing '-tie .inspectors’ reports which he had'tabled. Mr Coates stated that there were many involved and questionable transactions, adding that it was most important for the debenture holders in the Investment Executive Trust to note that the result of the series of transactions was to fix their relative rights according tc mere accidental effects and results of these transactions. . All the Governments’ advisers in New Zealand and New South Wales, both legal and accountancy; were unanimous in-believing, that these considerations would inevitably tend to defeat and break down any attempt to reconstruct and carry on the affairs of the companies. (t was their unanimous belief that an attempt to straighten out these transactions by the application of the existing laws of the two States would result in an expensive and wasteful litigation which might easily dissipate the funds of the debenture holders. Furthermore, the debenture holders

of the Investment Executive Trust should note carefully that although they were persuaded to subscribe to a purely New Zealand concern with a New Zealand board of directors, their books and records and their securities were, without their consent, transferred to the State of New South Wales, from which State the directors of the Investment Executive Trust attempted to administer the affairs of the company. Neither the inquiries In New South Wales or New Zealand could get a complete history of Iht transaction* involved without taking into account the materials obtainable In the other State. This state of things would seem to have been designedly brought about by the directors, whose transactions had been so roundly condemned, but whilst it hampered it did not preclude a full inquiry. If. however. a new phase of the inquiry should involve reference to the courts under the existing laws, there vvss presented a aood opportunity to use the difficulties inherent in these facts to support technical leoal objections and submissions. It might be promised,

for a start, for instance, that any appeal to the existing law on either side of the Tasman would be strenuousy fought by the directors, “ Nothing is more certain,” said Mr Cpates, “than that, i_f any appeal is made under the existing law to the Supreme Court of New Zealand or to the Supreme Court of New South Wales, the fullest possible advantage will be taken of the difficulties created bv the interstate nature of the problem produced by these directors. If the court in New Zealand, for instance, is asked to deal _ with a transaction which originated in Auckland, but which was carried to fruition in New South Wales, it may be expected that objection would he raised immediately to the admissibility even of the sworn testimony of M'Arthur himself-in relation to tho whole of this transaction , as tendered before the Roval Commission in Sydney, and it i? probable that our court would have to uphold the objection. If so, the matter could not be proceeded with further without the expensive procedure of endeavouring to take this evidence over again in N6w South Wales under a commission appointed by the Supreme Court of New Zealand. Conversely, if it should be sought to act in ‘New South Wales before the Supreme Court Of that State, objection might be raised as to the admissibility of any evidence taken in New Zealand, however logically relevant it might be, or however well it might be authenticated. “The next act in the jugglery and probably a successful act, would bo to compel the courts to keep within the letter of the rules of evidence and of the existing law to protect the original jugglery. M'ARTHUR CONSOLIDATING. “Since the closing of the Royal Commission in Sydney there is evidence that M'Arthur has been busily engaged trying to consolidate the position created by these transactions with his own assets,” added the Minister. “ Certain operations arc being conducted in Brisbane, and a trust company is. being formed there. Two of the assets so taken over from Sterling —namely, a yacht and M‘Arthur’s property at Hillsboro—have been first mortgaged and later transferred to a Brisbane mortgagee and purchaser. Caveats against certain other properties have within the last two months been filed in public officcsTu Auckland in favour of the Brisbane trust company. ' “ It is quite clear that unless the New Zealand and New South Wales Governments act in concert to put all the companies into liquidation there is every prospect of one of two things happening. The first is that the position arising out of the transactions described above will be consolidated and made impregnable, and the debenture holders of the Investment Executive Trust will receive nothing in respect of . the sum of from £60,000 to £90,000 of their money so diverted. Th« other alternative is that they will be involved in expensive litigation in endeavouring to follow their property through these devious transactions. Unless the Governments of New Zealand and New South Wales and Canberra can agree on a legislative .scheme that will give to the honest debenture holders of the Investment Executive Trust and the Southern British National Trust a first call on the proceeds of the building those debenture holders will find themselves thrown into competition to a greater dr lesser extent with the other holders of British National Trust debentures issued as part of the profits of M'Arthur and Alcorn on the sale of their British National Investment Trust shares. The Governments of New Zealand, New South Wales, and Canberra have agreed on a scheme which has been approved unanimously by their legal and accountancy advisers, and by the inspectors appointed to inquire into the New Zealand companies. Tho guiding principle accepted unanimously by those Governments is that the interests of those members of the public of both countries who are debenture holders of the trust companies must be paramount, and that they should receive the net proceeds of the building before any other claimant is recognised. The Minister, referring to M‘Ar-

thur’s scheme of reconstruction, said that the advisers of both Governments represented strongly that they had no faith in the possibility of any adequate safeguard being devised that could guard against M'Arthur regaining control of the companies. “ I am satisfied,” said Mr Coates, “ as to the bona fides of certain men in New Zealand who have interested themselves in seeking to organise the New Zealand debenture holders to move for their own protection. 1 am satisfied that they are genuinely working in what they believe to‘be the interests of New Zealand debenture holders. In settling the details of the proposed legislation the Government will give _ full consideration to any representation that may be made by ‘these gentlemen or by any other debenture holders or their representatives. The New South Wales Government took the view that seeing that it is practically certain that nearly all, if not all, the contracts to take debentures were induced by misrepresentation. the only fair basis is to put all the debenture holders on an equal footing This also will act as a measure of protection to the debenture holders of the Investment Executive Trust, most of whom, it is believed, could with equal reason claim that their debentures were taken up under misrepresentation.” tracing dealings detailed finding [Fkom Oor Parlumkntarv RErORTKR.I WELLINGTON, March 28. The winding-up of ten of the fifteen concerns which comprise the M'Arthur group of investment trust companies is recommended by the inspectors who, in accordance with the powers of the special legislation passed last year submitted to the Government a 200page report embodying the results of their investigations into the affairs of the fifteen companies.

STERLING INVESTMENTS COMPANY OF NEW ZEALAND LTD, Messrs Griffen and Elliffe reported that through this concern sums totalling probably over £200,000 were advanced at if*Arthur’s direction to pro tect his assets and personal interests during a critical period, and to buy OU; dissatisfied debenture holders, who threatened to cause trouble. No satisfactory explanation was given tor t ie disappearance of the books covering the period to February 28, 1934, and the removal of the books and records to Sydnev in May or June. 1934, was most improper. The principal tvansaction ot this company, involving £6O,9UU, uas not authorised by any directors minute. “Wo are definitely of opinion that this company was hopelessly insolvent,” added the inspectors, who recommended that in view of that fac , and the large indebtedness of the company to the British National Trus Ltd., that the Sterling Investments Company be wound up. WYNWOOD INVESTMENTS LTD. Inspector Elliffe stated that the in vestigatiou disclosed certain irregularities which, appeared to require further examination. The transaction by wince it acquired certain assets Irom wj-nsc Timber Co. Ltd. on October 9, 1933, boro many unusual features, and apparently was undertaken with the primary object of protecting M Arthur from attack concerning certain transactions which were alleged to have been irregular. Jfi the inspector s opinion it was desirable that the assets of Wynwood Investments Ltd. should not agai he brought under M'Arthur’s control until the reports of the inspectors on the affairs of the other companies had been fully considered. Ho therefore recommended that the company remain meantime under the control of the Public Trustee as receiver. THE INVESTMENT SECURITY ASSOCIATION LTD. The winding up of this concern was recommended by Inspector A. *■ ‘ j man, who reported that the Statei o the company’s records made it itnpos sible to ascertain the true position. Apparently the only real asset was £3OO a mortgage on a property in fellington, while its liability to I'reoholds Ltd. alone was £4,400. frrom the tion available it appeared that the company was insolvent. NEW ZEALAND SHAREHOLDERS " TRUST LTD. This was described by Inspectors Seaman and Griffin as a tool of the Investment Executive Trust for carrying out a series of transactions which were not in tho interest of the general bodv of the debenture holders of such. “ We are unable to see any good purpose which can be served by, the continued existence of the conipany, they added. “In our opinion it should be wound up. 44 e further recommend that if a liquidator is appointed, he pay careful consideration to tho amount of income which has been allotted to this company as interest on debentures held the Investment Executive Trust. We are cf opinion that investigation will show that approximate allocations only have been made, and if such proves to be less than the conipany is entitled to, legal advice should be sought as _to whether there are grounds for action against any officer or officers of the Investment Executive Trust. PACIFIC EXPLORATION CO. LTD. According to Inspectors Elliffe and Griffin, this company throughout its existence lias been under the sole control of M'Arthur, who used it for his personal convenience, and benefit, and for obtaining cash advances without the payment of interest, and apparently without giving security. There were irregularities of administration. The only assets of any consequence were a property at Parengarenta, and .ydvances. made to the Liberty Motors Corporation Ltd., the latter representing the only present source of revenue, the former being a source of expense. In recommending the winding up of the company, the inspectors suggested that the assets be applied firstly in repayment of advances made by tho Sterling Company and of any other liabilities, and thereafter by way of return of capital to the share holders. FARM AND FARMLETS LTD. No recommendation to make with respect to this company was the finding of Inspectors Griffin and Elliffe, who said that if tho company were wound up it appeared that the surplus of realisable assets' over secured liabilities other than debenture creditors would be small, if any. Any such surplus would bo payable to the debenture holders—namely. M‘Arthur and Alcorn. Although believing that no good purpose could be served by the continued existence of this concern, the inspectors said they saw no benefit that would accrue by its liquidation to the debenture holders. BRITISH NATIONAL INVESTMENT TRUST LTD. The opinion expressed by Inspectors Seaman and Griffin was that the company should be wound up, and in view of its interests in tho trust building, the liquidator should not endeavour to force an early sale, except at a satisfactory price. In order_ to effect the best possible sale in the interest of the debenture holders in the British National Trust, Southern British National Trust, and the Investment Executive Trust, their liquidators should act in co-operation. FIRST MORTGAGE FREEHOLD SECURITY COMPANY OF NEW ZEALAND. Inspectors Griffin and Seaman point out that if tho four other companies which are the principal debtors of this concern are wound up the probable result would be to throw into its hands various properties which have been taken as securities for advances, and on which there would be continued outgoings for rates and taxes, and only a small revenue. It would be impossible to pay interest to the debenture holders. Liquidation would then probably be the wisest course, but the wishes of the debenture holders should be ascertained, and if they desired the properties to be held a satisfactory system of control would have to be devised. TRANSPORT MUTUAL AND GENERAL INSURANCE COMPANY LTD. It was reported by Inspectors H. D. Vickery and Seaman that the company had nob so far engaged in insurance business, and debenture securities valued in the balance-sheet at £22,565 were not in the possession of its officials, having' been removed to Sydney. The inspectors had been informed that the company’s activities had been almost entirely confined to tho purchase of investments from the Investment Executive Trust, and to tho purchase of shares in the Trustees Executive and Agency Company of New Zealand Ltd. and the Perpetual Trustees Estate and Agency Company of New Zealand Ltd. No recommendation is made.

It is recommended that the following companies be liquidated: — The Investment Executive Trust of New Zealand Ltd. The Sterling investments Company of New Zealand Ltd. The investment Securities AssociaNew r Zealaud Shareholders’ Trust Ltd. • The Pacific Exploration Co. Ltd. The British National Investment Trust Ltd. V. B. MTnnes and Co., New Zealand, Ltd. A. Loom Trowel 1 and Co. Ltd. The Southern British National Trust Ltd. The British National Trust Ltd.

No recommendations were made regarding Financial Publications Ltd., which is already in course of liquidation, the Transport Mutual and General. Insurance Co. Ltd., and Farms and Farrnlets Ltd. , , , It is suggested that Wynwood investments Ltd. should meantime remain under the control of the Public Tiustee as receiver, and that the debenture holders should be consulted regarding the First Mortgage Freehold Security Company of New Zealand Ltd. FINDINGS SUMMARISED The following are the summarised findings of inspectors the investment executive TRUST OF NEW ZEALAND LTD. Inspectors J. L. Griffin and J. M. Elliffe reported that the trust had no substantial backing in real capital; that practically no cash was put into it, or the associated companies by J. W. S. M‘Arthur or his principal associates; that M'Arthur’s personal finances were in an involved state about the time the trust started business m 1931; that M'Arthur, through subsidiary or associated companies, used funds subscribed by the debenture holders m the trust to protect and salvage his own assets, and to finance the purchase of a trust building—a transaction which was admittedly for tho purpose of securing financial gain, to himself and C. G. Alcorn: and that a large portion of funds subscribed by the Executive Trust debenture holders waj now for all practical purposes locked up in investment in real estate. The debenture holders had no share in the control of the trust. The control and affairs on the accountancy side has been very weak, and the accounts of many companies have never been audited. The prospectuses issued by the trust were misleading, as were the statements to investors by the representatives of V. B. M'Jnnes and Co., the Executive Trust authorised brokers. Control of the trust and the many associated companies has been exercised in a way greatly prejudicial to the interests of the debenture holders. M‘Arthur exercised a dominating influence over his associates. Nearly half a million pounds in cash or securities has been collected from the public of New Zealand and brought under the control of one man, M'Arthur, who used a large portion of this money, firstly, in extricating himself from his own financial difficulties, and subsequently in furthering schemes for his own enrichment, in utter disregard of the representations upon which the money had been obtained from the public. It would be definitely prejudicial to the interests of the debenture holders that M'Arthur or his nominees should continue to have any voice in the control of the trust or its associated companies, and as it is ’ likely that further debenture funds would not for a long period be available from the public, and only portion of the trust’s present investments were suitable for those of an investment trust company, it was desirable that the Investment Executive Trust of New Zealand Ltd. should be wound up. Pressure should not be exerted to euforce speedy realisation of the trust building in Sydney unless at a satisfactory price. If liquidation proceedings were started by petition to the court, and the petition was opposed by the trust, protracted and expensive litigation might ensue. In the legislation consideration should be given to the appointment of an advisory board to assist the liquidator, who, if appointed, should seek legal advice as to whether any of the statements published in the prospectuses of the companies constituted false pretences, and if so, take appropriate action. “ We further consider,” said the inspector, “ that the liquidator should seek legal advice as to whether certain actions of the directors of the investment Trust, more particularly those relating to the financing and purchasing of the trust building, constitute misfeasance or breach of trust on the part of M'Arthur, Alcorn, or other directors.”

V. B. M'INNES AND CO. Inspector Vickery stated that it seemed desirable that liquidation as originally planned should bo proceeded with. Its main business had been that of organising broker to the Investment Executive Trust. Although considerable profits were made prior to 1934, the commissions received latterly had not been' sufficient to pay tiie heavy overhead expense. The second concern in tho M'lnncs organisation was M‘Junes and Co. Ltd., incorporated in Australia. If it were wound up the liquidation proceedings would be conducted in Australia, but in view of the relatively large amount of share capital subscribed by New Zealanders it seemed appropriate that they should be consulted regarding the company’s future activities. ALCORN, TRAWER, AND CO. LTD. A recommendation that the company be wound up is made by Inspectors Seaman and Griffin, who state that it has no funds to meet current liabilities for rates, interest, and other expenses, nor was its income from rents sufficient to cover those payments. FINANCIAL PUBLICATIONS LTD. Inspectors Seaman and Griffin reported that as the conipany was now in liquidation they had no recommends tion to make. Tho balance-sheet at March 6, 1934, showed that the company was then insolvent. SOUTHERN BRITISH NATIONAL TRUST. It was reported by Inspectors Griffin and Elliffe that, as the company was •Incorporated outside New Zealand and its affairs were being investigated by Royal Commission in Sydney, in their opinion it was desirable the concern lie wound up in the interests of the debenture holders in the Investment Executive Trust. BRITISH NATIONAL TRUST LTD. This company, according to Inspectors Griffin and Elliffe, is registered as the owner of all but seven of_ tbe 250,000 shares in the British National Investment Trust, w’hich owns tho Trust Building in .Sydney. As it is incorporated outside New Zealand, the inspectors had no recommendation to make, but expressed the view that, in the interest of the debenture holders of the Investment Executive Trust, the British National Trust Ltd. should also be wound up.