INVOLVED TRANSACTIONS

Hawera Star, Volume LIV, 29 March 1935, Page 5

INVOLVED TRANSACTIONS

REPORTS OF ADVISERS PROTECTING SHAREHOLDERS REASONS FORi LEGISLATION. Referring to a. large volume containing the inspectors’ reports, ■which he tabled, Mr Coates stated that, there were many involved and questionable transactions. He added, that it vi as moat important . foi- the debentureholders in the Investment Executive Trust to note that the result of the series of transactions was to fix their relative rights according to mere accidental effects and the results of these transactions. “All the Governments’ advisers m 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. It 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 expensive and wasteful litigation which might easily dissipate the funds of the debenture holders. Furthermore, debenture holders of the Investment Executive Trust should note caref.ully tjiat 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 Neither inquiries in New South Wales nor New Zealand could get the complete history of the transactions involved without taking into account the material obtainable in tho 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 full inquiry. If, however, the new phase of inquiry should involve reference to the courts under the existing laws there was presented a good opportunity to use the difficulties inherent in these facts to sup- , port the technical and legal objections and submissions. It might bo prorn-

isctl for af .start, for instance, that any appeal to the existing; law on either side of the Tasman would ho strenuously fought by the directors.

PRESENT POSITION. “Nothing is more certain,” said Mr Coates., “than that if any appeal is made under the existing law to the Supreme Court of New Zealand or to the Supreme Court of New South Wales that Full advantage will be taken of the difficulties created by the inter-State nature of the problem produced by these directors. If the court in New Zealand, for instance, is asked to deal with a transaction that originated at Auckland but which was carried, to fruition in Now South Wales, it may be expected that objection would be raised immediately to the admissibility even of the sworn testimony of McArthur himself in relatibh to* the whole of this transaction a.s tendered before the Royal Commission at Sydney, and it is probable that our court would hare to uphold the objection. If so the matter could hot be proceeded with further without the expensive procedure of endeavouring to take this evidence over again in'New South Wales under a coin mission 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 would be raised to the admissibility of any evidence taken in New Zealand, however logically relevant it might be or however well it might bo authenticated. The next act in the jugglery, and probably a successful act, would be to compel the courts to keep within the letter of the rules of evidence and the fexisting law to protect the original jugglery.

OPERATIONS IN BRISBANE. “Since the closing of the Royal Commission at Sydney there is evidence that McArthur has been busily engaged trying to consolidate the position created by these • transactions with his oh'h assets,” added the Minister. “Certain operations are being conducted at Brisbane and a trust company is being formed there, i ''° of the assets so taken over from the Sterling Company, a yacht and McArthur’s property at Hillsboro, have been first mortgaged and later transferred to a Brisbane mortgagee and purchaser. Caveats certain other properties have within the past two months been filed in: public offices at 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 aiid tho debenture holders of the Investment Executive Trust will receive nothing in respect of tho sum of from £OO,OOO to £90,000 of their money so diverted. The 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 South British National Trust first call on the proceeds of the building those debenture holders will find themselves thrown into competition to a greater or lesser extent with other holders of British National Trust debentures issued as part of the profits of McArthur and Alcorn on the sale of their 8.N.1.T. 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. The 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.”

ADVISERS’ OPINIONS. The Minister, referring to McAitbur’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 McArthur 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. I am satisfied that they are genuinely workinrr in what they believe to be the interests of the New Zealand debentureholders. . , , . “In settling the details of the proposed legislation the Government will give full consideration to any representation that may be made by those men 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 neatly all, if hot 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. Tins also will net 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.