INVESTMENTS BUREAU

New Zealand Herald, Volume LXXII, Issue 22018, 26 January 1935, Page 12

INVESTMENTS BUREAU

FUNCTIONS DEFINED COMMISSION'S PROPOSAL r CHECK ON MALPRACTICES [BY TELEGRAPH —OWN CORRESPONDENT] WELLINGTON, Friday The functions of the corporate investments bureau, the formation of which has been recommended by the Company Promotion Commission, wero explained by Mr. J. S. Barton, who was chairman of the commission, in an address on company legislation delivered to-day to the executive of the Associated Chambers of Commerce. He said it was his considered belief that such a bureau, if it had been in operation during the past decade, would have prevented most of the bad practices that had come into vogue in that period, and at the same time would have involved very little trouble or restriction on the part of honest company promoters and directors. " There seems to be in some places a misunderstanding of the nature of this proposal," Mr. Barton said. " Tt is not intended that this bureau shall pronounce upon the commercial soundness, or otherwise, of any enterprise or project. On the contrary, it is proposed that, in its regulations and reports, it will expressly disavow any such object or function. "The Only Approval" " It is also proposed that the Act will make it a punishablo offence for any promoter, director, or company to publish a statement representing or calculated to lead to the belief that tho Government, or the bureau, or any department of State, warrants or is responsible for any such project. "Tho bureau will issue no certificates, minutes of approval, or licences in relation to prospectuses. The only approval that a good prospectus will get will lie in the negative fact that the bureau will do nothing. This will be the fate of 99 per cent of the prospectuses filed.

" In the case of the misleading prospectus, however, the bureau may' be expected-to be active. It will respond to the invitations in the prospectus. It will examine preliminary agreements, options, memoranda of transfer and agreements for sale and purchase, and all preliminary agreements between vendors and the company. It will examine carefully tho transactions and proposed transactions on which tho valuation of the promoters is based. All this will be done with the object of seeing that a fair and candid disclosure is made of such things as should, be disclosed. Function to Prosecute'

"If the device of ' swopping' cheques, has been used to enable , tho promoters to say with a merely colourable adherence to truth that all shares have been paid for in cash, the bureau should have power to require a more honest and accurate description of the transaction to be disclosed. If the directors are found to be personally interested in the vendor company or the , brokerage company, those facts must be clearly and unequivocally stated.

"It will be a function of tho bureau to prosecute in all cases of breaches of the.Act. At present it is nobody's duty to prosecute, and, in spite of the that have been in vogue for the last 10 j'ears, there have been practically no prosecutions or civil actions. If an aggrieved investor goes to his legal advise? now he' js usually invited to authorise his solicitor to endeavour to get his money back. This is done, and,in this way promoters and directors manage to buy immunity from publicity. "In those comparatively rare cases where a dissatisfied investor's rights are pushed to the limit, most of the questionable practices lie in a difficult legal territory, between public wrongs capable of punishment by criminal pro-< ceedings and civil wrongs the remedy for which may lie anywhere between an action for misrepresentation or for money had and received and a mere action for accounts. Matters Needing Inquiry "This fact tends to give immunity to unscrupulous company .operators. In a large percentage of their transactions it is this fact that principally operates to make a dead letter of a penal provision in the Crimes Act relating to the issue of misleading prospectuses. No public officer with the powers vested in him to-day can be expected, on the complaint of an aggrieved shareholder, to launch serious criminal proceedings in respect of a, transaction which, if it could bo investigated fully from both sides, might turn out to be one giving rise to rights of civil action only." "The only body whose functions include inquiry into such matters is the police, and in the very nature of things they'cannot be expected to embark upon and conduct such inquiries skilfully.- In any event, they have no right at all to require any statement from the company or access to its books, and it may be: safely taken for granted that in every case where there was real ground for inquiry the company's officials would refuse to supply any information to the police* Statutory Definitions

"I have discussed this matter with officials of the Crown Law Department, with the Crown prosecutors and with the Commissioner of Police. They all acquiesce in this view. The whole system tends to offer immunity to unscrupulous company operators. It can be changed without appreciable inconvenience to the 99 per cent of honest companies. "It is suggested also that the bureau should have power in some carefully limited and defined cases to apply statutory definitions. This proposal has been misunderstood and misrepresented. The proposal is that the cases in which this power should be used must bq clearly defined and stated by Parliament. So far, only two suggested exercises of the power have been' recommended. One relates to the definition of 'subsidiary' company and the other to the definition of 'investment trust..' "It is a matter for consideration firstly by the commercial community, and, secondly, by our legislators, whether this is necessary. In view of the difficulty of prescribing elfectivo definitions, the effect will be to pit brains against brains rather than to pit the skill of a draughtsman in 1935 against the misapplied zeal and ingenuity of an unscrupulous company operator in 1936."