INSPECTORS’ ADVICE

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

INSPECTORS’ ADVICE

LIQUIDATION PROCEEDINGS A COMPLICATED POSITION SUMMARY or RECOMMENDATIONS (By TeTegrapU— Yr£sa Association.) WELLINGTON,. March 2S.

The reports of the inspectors appointed under the Companies (Special investigations) Act of last year to investigate the affairs of the Investment Executive Trust of New Zealand, Limited, and other associated companies, were tabled in the House of Representatives late to-night. Separate reports are made regarding 15 companies, and there are 200 pages in the complete document. Owing to the lateness of the presentation of the reports it is possible to give only a summary of the main recommendations. The inspectors state that in their opinion it is desirable that the Investment Executive Trust should be wound up. ‘ They did not think, however, that pressure should be exerted to enfoice speedy realisation of the Trust Building unless at a satisfactory price. They thought that if liquidation proceedings were commenced by a petition to the Court, and if such a petition were opposed hv the Investment Trust protracted an dexpensive litigation might ensue. . The inspectors quote the following comment by Mr Justice. Halse Rogers: £< As the net result of the transactions of McArthur and Alcorn is that they seem to have enriched themselves by some £IOO,OOO -without risking a penny of their own, and entirely through using money contributed by the public through the trust companies, the justice of the case seems to require that they should he declared trustees of these profits for the benefit of the companies, and in view of the . legal difficulties it may be deemed advisable to legislate for that purpose.” “EXTREMELY COMPLICATED.”

The inspectors state: ( “Wc say with respect that the justice of the foregoing comment is, in our opinion, undoubted.” The inspectors say that if any special legislation is suggested in connection with the winding-up of the investment Trust they think consideration should be given to the question of appointing an advisory board to assist the liquidator. Continuing, the inspectors say: “If McArthur and Alcorn are declared trustees of the profits tnaae by them, the question will arise as to the parties for whom they are to be declared trustees. The w-hole position is extremely complicated. The principal claimants on any such trust fund would doubtless be directly or indirectly the Investment Executive Trust and the Southern British National Trust. Perhaps the most equitable way in which | to divide any such trust fund would be in proportion to the debenture capital subscribed to each company respectively. “If on winding-up there is any shortage of funds with which to pay the de-benture-holders out of the investments, etc., of their respective series funds subscribed by them, then in our opinion the debenture-holders rank under the terms of clause 1 oi their debentuies as unsecured creditors for any shortage pari passu with other unsecured creditors ... .” say the inspectors. The statement made in the various prospectuses undoubtedly induced persons to give credit to the company. If a liquidator is appointed we consider lie should seek legal advice as to whether any of such statements constitute false pretences, and that if he is so advised ho should take appropriate action.

“Wo further consider that any liquidator appointed should seek legal advice as to whether certain actions of the directors of the Investment Executive Trust, more particularly those actions relating to the financing and purchasing of the Trust building, constitute misfeasance or breach of trust on the part of McArthur or Alcorn and/or other directors of the company.

“The suggestion has been made that the wishes of the debenture-holders should be ascertained before any action is taken relative to liquidation. With this suggestion in the abstract it is impossible to do otherwise than agree. It must, however, bo borne in mind that the problems arc of so complicated a nature that it is extremely difiicult for the debenture-holders in general to form a clear conception of the issues at stake, and if any action is to be based on the expressed views of the deben-ture-holders we consider it important that steps should be taken to supply them with such information as may enable them properly to form an opinion.” .

ACTION RECOMMENDED. ' Reporting on the Sterling Investments Company the inspectors -say that they are definitely of the opinion that the company is hopelessly insolvent. They recommend that it should be wound up.

Of Winwood Investments Ltd. it is recommended that the company remain for the meantime under the control of the Public Trustee as receiver.

The winding up of the Investment Securities Association is recommended. The inspectors express the opinion that the New Zealand Shareholders’ Trust Ltd. has been utilised as the tool of the Investment Executive Trust for carrying out a scries of transactions which were not in the interest of the general body of debenture-holders of the Investment Executive Trust. The inspectors add that they are unable to see any good purpose which can be served by tlie continued existence of New Zealand Shareholders’ Trust, which in their opinion should be -wound up.

The winding up of the Pacific Ex ploration Company is also recommend cd.

The inspectors say they see that no good purpose is likely to be served by the continued existence of Farms and Faimlets Ltd. On the other hand they see no benefit that would accrue to the debenture-holders of the British National Trust, the Investment Executive Trust and the Southern British National Trust by its liquidation. They therefore make no recommendation in connection with Farms and Farmlets Ltd.

The opinion is also expressed that the British National investment Trusl should also be wound up. The inspectors think, however, that the liquidator appointed should hot endeavour to force the early sale of the property, except at a satisfactory price. In order to effect the best possible sale in the interests of the debentureholders of the British National Trust, the Southern National Trust, the Southern British National Trust and the Investment Executive Trust the liquidators in all companies should act in co-operation. Regarding the First Mortgage Freehold Security Company of New Zealand the inspectors say that udder certain conditions liquidation would probably be the wisest course, but the wishes of the debenture-holders should be ascertained after a full statement of the position lias been laid before them, and if they desire the properties to be held a satisfactory system of control would have to be^devised. Regarding Y. B. iMclnnes and Company the inspectors’ report says: “In view of the relatively large amount of share capital subscribed by New Zealand residents it seems appropriate that New Zealand shareholders should be consulted regarding tlic company’s future activities or continued existence.”

The winding up of Alcorn, Troner aud Company is also recommended. As Financial Publications Ltd. is now in liquidation the inspectors make no recommendation regarding it. As the Southern British National Trust is incorporated outside New Zealand and is not carrying on business m the Dominion ,and as its affairs are being investigated, the inspectors have no recommendations to make regarding it. However, as the inspectors lia\e recommended the winding up of the Investment Executive Trust they express the opinion tliat if that advice is followed it would be desirable in the interests of the debenture-holders in the Investment Executive Trust that the Southern British National Trust should also be wound up. Similar remarks are made by the inspectors regarding the British National Trust. The inspectors add: “In the event of liquidation of the British National Trust liquidation of the British NaTrust the value of the debentures issued by that company is very directly connected with the value of the trust building, and we _do not consider that on a liquidation that building should be. sold at a low value merely to effect the speedy realisation of the assets of the British National Investment Trust.”