TRUST ACTIVITIES

Otago Daily Times, Issue 22372, 20 September 1934, Page 9

TRUST ACTIVITIES

MISSING DEBENTURES M'ARTHUR QUESTIONED (United Press Association.) (By Electric Telegraph—Copyright.) SYDNEY, September 19. (Received Sept. 19, at 8 p.m.) At the sitting of the Royal Commission to-day M'Arthur was further questioned with regard to the issue of British National Trust debentures. ... Mr Monahan said that 410 debentures for £IOOO each bad been issued, but 18 were not accounted for in the balance sheets of the other companies. Furthermore, the Southern British balance sheet showed its holdings at 115, while the British National Trust had the figures as 166. M'Arthur said he was unable to explain the discrepancy, but thought that the 18 missing debentures were probably those owued privately by Alcoru. The commissioner said he had repeatedly asked how much money M‘Arthur had ever put into any companies since 1922. M‘Arthur replied that his activities had begun long before that date, the Sclwyn Timber Company having been started in 1907. That had been his “life’s work.” Mr Monahan: How much actual cash have you put in since the Investment Executive Trust started? M'Arthur: I have put in assets. Mr Monahan: But how much of your own personal property in cash? AT Arthur; No cash, but many assets. M'Arthur added that the assets he had nut into the Sterling Company had realised £28,000. He had been credited with a “nominal consideration.” Mr Monahan: How much? M'Arthur: £6OOO. Questioned with regard to Redwood Forests, Wynwood Investments, Ltd., and Modern Homes, Ltd., M'Arthur said he had been troubled financially when Modern Homes was floated in 1931. He practically controlled Modern Homes, but could not explain how 19,000 shares had been acquired in Redwood. The £60,000 he had received from the British National Trust represented part of the profit made on the sale of the trust building. The money had come from the Investment- Executive Trust, which had purchased Sterling debentures. Mr Monahan: You used Investment Executive Trust capital to rescue your own private assets? M'Arthur: They protected me, but they had a good investment.. They got 14 per cent, interest altogether. Mr Monahan; But I suppose yon admit that a considerable amount of debenture interest was paid out of capital? M'Arthur: Yes. Whilst Mr Monahan was questioning M'Arthur about the Investment Executive Trust, Dr Louat took exception to the statement by Mr Monahan that “ this tangled skein was to be worked out so that M'Arthur would get the whole of the assets back to himself.” The . commissioner remarked that it had been a tangled skein for days past. One of the points of difference between M'Arthur and the New Zealand Stock Exchange was that he refused to make available his investment schedule. “It seems likely,” added the commissioner, “that I shall report that the whole of the transactions of the Investment Executive Trust were subsidiary • to M'Arthur’s personal interests, and if I do not report that way he will have to help me io form a different conclusion;” : --M'Arthur replied:-“ I can show you that the interests of the debenture holders are protected.” The commissioner retorted that the debenture holders’ interests were only protected secondarily and because M'Arthur had made a very advantageous deal, although that depended on the value of the former ■ Daily Telegraph; Building. Apparently M'Arthur had used the Investment Executive Trust money for private speculation, his first object being to make a profit for himself. M'Arthur interjected“ No. : I had an idea of making a profit for the debenture holders, but my main object was to build up a strong trust.” The commissioner; Your method of hiding yourself behind aliases does not inspire confidence. At a later stage the commissioner said he bad ample evidence that M'Arthur was an expert in company matters, but there was no evidence that he was an expert in real estate in Sydney. M'Arthur said he came into business association with Alcorn . in 1931, when he placed him on-the directorate of the Investment Executive Trust. Hewitt at that time was Alcorn’s solicitor. M'Arthur admitted that about that time he received a letter from the Alcorn, Trower Company, Ltd., in connection with a debt he owed them amounting to £6147, which was contracted some time prior to the formation of the Redwood Company. Alcorn had helped considerably in the formation of tbe company. The demand came through an agency of which Alcorn was principal, and a writ was threatened. Mr Monahan: At that time you had nothing at all? M'Arthur: I had very little. I had assets, however, which turned out to be substantial. Mr Monahan: Wasn’t it pretty rough on you for him to make a demand on you through a solicitor? M'Arthur; I suppose be was forced to do it. Mr Monahan; He sort of forced himself to threaten you with a writ? M'Arthur; Yes. Mr Monahan: Docs it ring true to you, all this business? M'Arthur: He was protecting me as well as himself. Mr Monahan : It was a stage-managed affair, wasn’t it? You got him to write that letter? . M'Arthur: I did not request him to write the letter. Mr Monahan: The position was that you had made up your mind you Were going to take up a big block of shares in the Investment Executive Trust and you feared your creditors would seize on them. Is that not' so? M'Arthur; That is so. Mr Monahan: And you got this letter and arranged a transfer of your shares to. Alcorn? M'Arthur: That is so. Mr Monahan: You now admit that the whole of this arrangement was to protect your interest in the Investment: Executive Trust from your creditors? M'Arthur: It was. Questioned about £1650 allotted to him by the Investment Executive Trust for services rendered, M'Arthur claimed that the information he collected was worth more than £1650. Questioned by Mr Monahan, M'Arthur said he had transferred certain shares to protect himself against unfair attacks. Mr Monahan: Was it an unfair attack for the Grown to ask you for money due to it? M'Arthur ; It was an absolute swindle by the Crown. Continuing, he said he had asked for time to pay, but had told the Crown it was a swindle. The commissioner said M'Arthur might have been quite justified—as he claimed —in stripping himself of his assets, but he was not quite frank with the Crown solicitor of New Zealand. Asked by the commissioner why he had not revealed

that he, as Modern Homes, had £2375 worth of assets, M'Arthur said he thought he was perfectly justified in making an untrue statement so that he could postpone payment of a debt which he regarded as unjust. The commissioner: You think untrue statements are justified in business dealings ? M'Arthur: They made an untrue state meat to me. Mr Monahan; You took certain steps through your companies against any chance of your assets being taken by your creditors? M'Arthur: That was against unfair attacks. After further questioning M'Arthur admitted that he had paid a debt to the Crown through Sterling Investment out of Investment Executive Trust Debentures. The commissioner: As far as I can see the investments of the Investment Executive Trust were gambled on your solvency. It was all being used to protect your interests and if you could not be protected the money put into that vanished. M'Arthur: The assets at that time were worth many times the value of the debentures. The commissioner: Unless it is shown to the contrary I shall report on this transaction that you gambled with the debenture holders’ money. You paid the Crown solicitor a private debt of your own with Investment Executive Trust money. M'Arthur subsequently said he had •had an opportunity of looking at the share register of Modern Homes and found he had only a nominal holding. The commissioner: The point is you thought you had made a false statement and considered it perfectly justified. M'Arthur said he was considerably heated at the time because he considered he had been badly treated by the Crown. The main shareholder at that time had been his son. M'Arthur was questioned about a transaction with Sterling Investments. Mr -Monahau (holding up some papers): This is a memorandum in your own name of the assets taken over from Sterling Investments. Were they fair valuations at the time you made them? M'Arthur: They would he later. They were the prices at which they were taken by Wynwood Investments, I was Wynwood, Mr Monahan said that the property had been taken over for £50,000 odd. He asked whether the assets taken out of Sterling Investments had been worth about £90,000. M'Arthur: No. Not at the .price at ’which they stood in Sterling's books. Replying to further questions, M'Arthur said he had transferred debentures in exchange for the other assets to better the position of the Investment Executive Trust debenture holders. He was giving them revenue producing assets for non-revenue producing assets. The commissioner: It will take a lot to convince me that was your motive. M'Arthur: I can assure you it was. I wanted to strengthen the position of the debenture holders. Witness admitted that a substantial State Forests’ debt had. been wiped out iu the transaction. The commissioner: What holdings had you in Sterling Investments at that time? M'Arthur: . I held debentures. 1 wanted to leave Sterlings in a position where the only assets they had were connected with the trust. The commissioner: But ultimately the result was that they retired the debentures and you got the. assets belonging to Sterlings. Who conducted the transactions on behalf of'Sterlings? M'Arthur: Alcorn, I think. The commissioner: But he says he knows nothing about it. Sterlings were making a sale to you and you got those assets. Didn’t you send Alcorn a list of the, assets you were to take over and tell him to sign the necessary documents? M'Arthur: It may have amounted to that, but it was quite an equitable transaction. . The. commissioner: How could it be from Sterlings point of view, when nobody on their behalf considered whether it was fair value or not? What interests me is that every transaction h. the.ease appears to have been done entirely at your dictation. M'Arthur: Yes, most of it. The commission adjourned till tomorrow. COMPANY LAW AMENDMENT SYDNEY, September 19. The Herald says that, the State Cabinet is drafting an amendment of the company law, and a Bill, will he introduced in Parliament when it meets this month. There will he drastic alterations in the present law. Ample protection will he given to the investing public. The hawking of shares will he prohibited, or restricted, and there will he restrictions on statements in prospectuses. There is a proposal to place certain control over the financial arrangements of companies and to make it impossible for profits to be absorbed.in unreasonably high directors’ fees and salaries. It is probable that when the capital of a company exceeds a certain amount the company will be required to employ a qualified secretary. Similar legislation is contemplated in other States to make the law uniform throughout the Commonwealth. The Federal Government has not the power constitutionally to legislate on company laws. TIMBERLANDS WOODPULP STATEMENT BY SECRETARY (Per United Press Association) AUCKLAND, September 19. In a statement to-day referring to the evidence given by J. W, S. M'Arthur before the t Sydney Royal Commission, the secretary of Timherlands Woodpulp, Ltd., said that in April, 1931, his company agreed to purchase about 21,000 acres, known as the Matahina block, between Tcteko and Murupara. The price was £33,350, payable by instalments. By direction of the vendors, the balance of the purchase moneys was payable to one only of the vendor companies, viz., Eclgecuinbc Forests, Ltd. The other vendor company was Kotahi Lands, Ltd. Several instalments were paid to Edgecumhc Forests, but in April, 1033, the company received advice that Edgecnmbe Forests was being wound up, and that it had sold its assets to the Sterling Investment' Company (N.Z.), Ltd., to whom the remaining payments were to be made. Accordingly the balance of the purchase money was paid to Sterling Investments. Timherlands Woodpnlp bought the Matahina block for afforestation purposes, and had already planted about 10,000 acres. CLAIM FOR £20,000 DAMAGES WRIT AGAINST COMMISSION (Per United Press Association.) AUCKLAND, September 19. Damages of £20,000 are being claimed from .the members of the Companies Commission —Mr J. S. Barton, S.M., Professor Belshaw, and Mr F. E. Graham—by. Martin Heywood Hampson, barrister and solicitor, "of Auckland. The papers relating to the claim were served in Wellington to-day on Air Barton, chairman of the commission. . The statement of claim says that the plaintiff was a director of New Zealand Redwood Forests, Limited from September, 1029, until March, 1931. During that period he was a director and share-

holder of Edgecumbe Forests Limited, a company holding 3800 shares out of a capital of 4000 shares in Kotahi Lands, Limited, which was the registered proprietor of some 22,000 acres at Matahina, near Te Teko. On January 17 the dependants were appointed a commission to inquire into and report upon tendencies and developments apparent in the Dominion relevant to company promotion methods and otherwise. The plaintiff claims that the commission is not a judicial tribunal. The statement continues that on August 28 the defendants presented a report recommending, inter alia, that Edgecumbe Forests, Limited, Kotahi Lands, Limited, and the Overana Land Company, Limited, should be added to the schedule of the Companies (Special Investigation) Act, 1934. It is stated that the Overana Land Company Limited is' a private company, the shares being held solely by the plaintiff and his wife, and that the concern is a shareholder in Edgecumbe Forests,. Limited. In their report under the heading “ Reconstruction Scheme ” the defendants made representations concerning a reconstruction scheme placed before the debentureholders in New Zealand Redwood Forests Limited and approved by them in 1930, which involved the acquisition by the Redwood Company of certain land from the Edgecumbe Company. It is held by the plaintiff that the defendants were under a duty to him to take care that such representations were true and fair and he alleges that in the exercise of their powers the defendants acted negligently. The statement of claim gives particulars of four paragraphs in the commission’s report and in respect of two of them it is alleged that the defendants knowingly omitted from their statement facts which were required to render their statements completely true. It is alleged that the third paragraph misrepresents facts and that the fourth is untrue. The plaintiff contends that “ the negligence of the defendants as aforesaid has caused great damage” to his practice and reputation and for that reason he claims damages and costs and such further relief as the court may decide. THE COMMISSION PROTECTED (Feb United Peess association.) WELLINGTON, September 18. The Company Promotion Commission was appointed under the Commissions of Inquiry Act, 1908. By section three of the Act, members of commissions are protected. This reads as follows: “So long as any member of any such commission acts bona fide in the discharge of his duties, no action shall lie against him for anything he may report or say in the course of the inquiry.”