COMPANIES INQUIRY

Hawera Star, Volume LIV, 25 October 1934, Page 9

COMPANIES INQUIRY

PRESENTATION OF REPORT DANGER TO SMALL INVESTORS LENGTHY RECOMMENDATIONS. The Companies Commission’s report tabled in. the House of Representatives this evening is a lengthy document of 133 pages and deals exhaustively with the tendencies and developments apparent in the Dominion in relation to the promotion, financial methods, control and operations of certain companies. The report demon strates the dangers which beset the investor, especially the small investor, because of the existence of companies whose finahoial schemes are unsound, and whose promoters and directors are often unscrupulous or display an unduly imaginative optimism. The Commission’s main report establishes the fact that an enormous volume of investment has gone into certain types of company, particularly land-utilisa-tion companies and investment trusts during the past ten or twelve years. The Commission points out that evils have been possible despite the existence of a considerable body of law designed to prevent abuse and protect the investor. This imperfection forces’ the Commission to the conclusion that the time is overdue for the adoption of a new principle designed to strengthen and supplement the operation of the law as it applies to companies. This principle consists in ,the vesting of a defined and limited discretionary power in the hands of a body which they describe as a Corporate Investments Bureau. It is suggested that the Bureau be administered by a controller and a council of three members, known as the Corporate Investments Council, these members to be nominees of the New Zealand Law Society, the New Zealand Society of Accountants, the New Zealand Stock Exchange Association, respectively, and appointed by the Gov-ernor-General j also that the controller as a Government officer, shall have a skilled staff at his disposal, and be empowered, where necessary, to employ outside accountants and auditors. The Commissioners are Mr J. S. Barton, S.M., Professor Belshaw and Mr F. E. Graham.

COMMISSION’S PROPOSALS. Some of the recommendations made hv the commission are as follow : ’ That the offence or publishing a misleading prospectus be defined and incorporated with a penal clause in section 46 of the Companies Act, 2933. That the law be amended to extend to trustees for bondholders of landutilisation companies the same concessions in the matter of lang aggregation ns are now extended to land-util-ksation companies. That the issue of bonds, investment certificates, or similar instruments or contracts issued in series (with or without a prospectus) shall be prohibited for the future. That all companies raising moneys in New Zealand by the_ issue of debentures (or contracts)'ln series, however these may be defined, and using the proceeds for investment in securities of any kind, shall be required to furnish to the Government Statistician an annual statement. That no investment trust company and no company whose Plain purpose is the investment of its capital in securities shall be permitted to commence business as an investment trust unless and until it has a subscribed capital of not less than £40,000, of which at least £20,000 shall be fully paid up in cash. That all subscribers to a memorandum of association must be required to subscribe for a substantial holding of shares. That the provision of the Act that no subscriber shall subscribe for less than one share shall be repealed and replaced by the provision that subscriptions of subscribers to the memorandum of association shall be in accordance with a scale designed to give effect to the principle embodied in the above recommendation.

MINUTES OF MEETINGS. That every declaration of interest made shall be clearly and fully entered in the minutes of the meeting at which the declaration was made. That within one week of the making. of any such declaration at a directors’ meeting it shall be the duty of the directors, the secretary, or other official of the company to transmit to the Corporate Investments Bureau a copv of each such minute. That failure to comply with the above provisions shall render the director or officer at fault liable to a fine not exceeding £IOO. That in no case shall investment trusts be permitted to issue debentures whether at a fixed rate of dividend or at a rate of dividend expressed as a percentage of net profits, of a nominal value exceeding twice the sum of the ordinary and preference-share capital of the company, which has been allotted and paid.up in cash; or three times the amount of ordinary share capital allotted and paid up in cash, whichever is the lesser. That in no case shall investments made by an investment company in the securities issued by any one eompanv exceed one-twentieth of the combined subscribed share capital and debenture capital nor one-tenth of the subscribed share capital of such investment company, whichever is the less.

That all investments trusts raising capital by the issue of debentures of contracts in series be forbidden to distribute as dividends capital profits resulting from the sale of securities, and be required to place them to reserve.

STOCK EXCHANGE. That the Stock Exchange Association of New Zealand be incorporated bv statute as a society or association. That all stock exchanges at present existing or hereafter established shall be affiliated to the Stock Exchange Association of New Zealand. That the Stock Association of Now Zealand shall prepare rules governing such matters as conditions of membership, the conduct of stock exchanges. and the infliction of fines or other penoliiei on affiliated stock exchanges, such rules before adoption to

be approved by the Governor-General, on the recommendation of the Corporate Investments Bureau.

That every broker or salesman of shares or other securities shall he registered with the Corporate Investments Bureau.

That each broker or salesman of shares or other securities whose name is placed on the register shall be an individual, and in no case shall a lim-ited-liability company be registered. That every applicant for registration shall be required to apply in writing to the Corporate Investments Bureau, giving such particulars as are required by the Bureau. That accompanying the application for registration there shall be required = (a) A certificate of approval from the magistrate residing or exercising jurisdiction in the district in which the applicant resides, (b) Such financial guarantees as may be required from time to time by the GovernorGeneral in Council.

That applications for membership of a stock exchange shall be approved by the Corporate Investments Bureau, and. the Applicant shall then be eligible for membership of such stock exchange, subject to election under its rules.

That power to cancel membership for a breach of its rules shall lie with » stock exchange in respect of its membership, subject to the rules of such stock exchange. That, subject to a right of appeal to file Coilrt, the Cbrpdrate Investments Bureau shall have power to cancel the registration of any broker or salesman of shares dr Other securities, or to close any exchange. That the Stock Exchange Association of New Zealand shall present an annual report to the Corporate Investments Bureau on such matters as are required by the Bureau, together with reports op such special matters as may be demanded from time to time.

That tbe 'Corporate Investments Bureau shall have power to veto the official listing rtf any security on any exchange. _