COMPANY INQUIRY

Otago Daily Times, Issue 22373, 21 September 1934, Page 9

COMPANY INQUIRY

INTEREST ON DEBENTURES PAYMENT OUT OF CAPITAL M’ARTHUR QUESTIONED ■ (United' Press Association.) (By Electric Telegraph—Copyright.) SYDNEY, September 20. '(Received Sept. 20, at 8 p.m.) The commission which is inquiring into the activities of trust companies resumed its sittings, to-day. In answer ■ to a question, M'Arthur said an arrangement had been made that MTnnes should occupy offices in the Trust Building rent free until be was able to. pay. rent. The commissioner: How much has he made out of the Southern British ? M'Arthur: MTnnes tells me lie has not made any profit. He made a loss. Mr Monahan: As a-matter of fact, he had beep overpaid £4OOO up to June? M'Arthur: Yes, Mr Monahan : He has retained £4334 that belongs to the Southern British without making an attempt to pay it over? ~ M'Arthur said M'lnnes had made an attempt to pay it over. The debt had not been allowed' to be extinguished. MTnnes had to sell shares in V. B. MTnnes and Co. and pay the debt. That undertaking was given about two months ago. The commission had' then come along and' he had not been able to do anything. Mr Monahan: Had MTnnes any Justification for taking that money? M'Arthur; I do not say he had. He disputes the amount. Mr Monahan: He held the money received on your account and kept it for his,own use? M'Arthur: I would not say that until he has had an opportunity of explaining the position. The commissioner: But he must have had an opportunity of explaining it. M'Arthur: Well, it was not explained to our satisfaction. Explaining the meaning of the Polab Association, which has been frequently mentioned before the commission, M'Arthur said it was headed by Mr Glovef-Clarke, of New Zealand, whose plan had been to approach electors and ask them to induce their parliamentary representatives to prevent a hostile report on the companies being forwarded to the New Zealand Parliament. He denied that there had been any attempts at bribery, saying that the £IOOO which had been mentioned had been for travelling expenses for GloverClarke. - “Nine months ago,” said M'Arthur, “I told Glover-Clarke that we, would have to organise a movement to resist ' hostile attacks being made on us. Nothing was done until July, when Glover-Clarke came to Sydney on urgent business. He told us that a biased and hostile report was being forwarded by the New Zealand Royal Commission, and that it was very detrimental to the trust’s interests. ’ “ He then said he would form an association,” continued M'Arthur, “ to interview electors in various con- . stituencies throughout New Zealand.” Mr Monahan asked why, if the £IOOO was for travelling expenses, mention was made in a' letter of £SOO to be paid if. the report was discreditedM'Arthur- asserted that there had been no bribery. Mr Monahan: What about this? (read-. Tnjf ‘from-a letter)": - '.“’Regarding the, Polab plan. as persqhally discussed with you, a mutual agreement has been reached.” • : \ .v _ ; MiArthur: It .is not intelligible to me. ' Mr Monahan (continuing reading): “A case is being prepared by me. Polab requires ,my presence in Wellington.” Now, who is Polab? v M'Arthur; I don’t know. •Mr Monahan: Do yon seriously say ■ that Polab is some association of voters and. not a political party in Parliament? ...■■// Mr M'Arthur: I understand en. i don’t think it is a political party. Mr Monahan continued reading: “ I spoke of the report and asked them to discredit it when it does arrive. I am working on the case, and they say they should be able to put up a good barrage when necessary.” Mr Monahan: Would “they” not he in Parliament f M'Arthur:- No. It would he done through the voters. Mr Monahan: Who is Anchor? M'Arthur: One of two persons. They are not politicians, and I do not want to mention names. I will write them down for the commissioner. . The commissioner, after seeing the names, said they need ndt be disclosed. Replying to further Questions, M'Arthur said that Glover-Clark was managing director of Financial Publications, Limited. Financial Publications was known in the code as “guidance,” Mr Monahan said a letter M'Arthur had received from Glover-Clarke stated: “ Polecat .has received instructions immediately to start organising a plan ol , attack which will culminate in three years, a long term which I anticipated and didn’t particularly relish. The first step is to put Polab on the Treasury benches and keep them there by a group which holds the balance of power.” Mr Monahan asked: “ Do you still say Polab is not a political party? Who is going to be put on l the Treasury benches ? M'Arthur: The Polab Association. The commissioner: Come, Mr M'Arthur. Mr Monahan: Do you realise you are on oath? M'Arthur: I do. Mr Monahan: Then what was meant? M'Arthur: I think it was partly the ; Labour Party and partly the Country Party. That was what I understood, but I do not know any of the individuals. Mr Monahan; What is the group that holds the balance of power. M'Arthur: I can’t remember. Mr Monahan: But this was last month —August. Continuing, M'Arthur told Mr Monahan that in the code “ virens ” was Red wood Forests, Limited,, and “wiseman ” a solicitor. Mr Monahan questioned witness with regard to the increase of capital of Financial Publications, Ltd., under which, according to cabled advice from Glover-Clarke, the latter was to be given financial assistance by Sterling Investments in order to wipe off a loss of £BOOO incurred in the first year of lication.Asked by Mr Monahan if the trans•action was to cover up a loss of £BOOO, : witness said that every newspaper must -incur losses at the start of its existence and it was quite right that establishanent charges should be capitalised. He said the money was to be found by the .debenture holders in the Investment Executive Trust. e ■ The commissioner said it seemed that -the money of the Investment Executive Trust was being used, in the widest isense, jin any way that M'Arthur as managing director determined. “You used it any way you liked?” he asked. M'Arthur: That is so. 5 The commissioner said his present; view was that legislation should be introduced to ensure that those who controlled trust companies put a good proportion of real money into them. In this case money subscribed by debenture

holders was being managed by people who did not put a penny into the concerns.

Dr Louat said it seemed more important to know 7 whether the men controlling a company had ability. The commissioner: I think integrity comes first. Dr Louat: It often happens that men who put very little money into a company are allowed to control it simply because they have-the ability to control it. M'Arthur: The newspaper is paying its wa/ and'l believe is showing profits now.

M'Arthur was then questioned about the balance sheets. Mr Monahan: You showed in the Southern British balance sheet an item of £6802, representing interest and dividends. I suggest that £4483 of that is interest on British National Trust debentures?

M'Arthur: I presume so. Mr Monahan: How was it paid? M'Arthur: Out of capital until we can get the revenue which will be coming in next year.

Mr Monahan: To date people have been paid out of capital?

M'Arthur: Yes.

Dr Louat; The English Court says that is quite all right. "J ;

Mr Monahan : I think it will be most interesting to the people who put money in. Dr Louat: It may be a quite sound business method.

M'Arthur was questioned at length with regard to the resignation, of the New Zealand auditor, Anderson. Ho denied that the latter had taken exception to a balance sheet issued at the end of 1932. Mr Monahan . submitted that the balance sheet had not shown that of a lunip sum of £31,000 MTnnes had received £12,000, and the auditor thought this should have been shown. M'Arthur said that rvas not the position.

Mr Monahan: The auditor, drew attention to this doubtful item of £12,000 and in the meantime wanted it shown as payment to MTnnes?

M'Arthur: I don’t think there was any objection to that.

Mr Monahan: You never disclosed that MTnnes received it. M'Arthur: You don’t say In a balance sheet who gets the money. What we disclosed was that it was paid out. Continuing, M'Arthur said the amount originally paid out of debenture capital to MTnnes had been replaced by British National Trust debentures.. He did not attribute Anderson’s resignation to the fact that the directors had failed to agree to'his suggestions. Replying to Mr Monahan, M'Arthur said the books of the companies bad been brought to Sydney from New Zealand about 'May last because the directors had intended to create a head office in Sydney. - r ■ Mr Monahan: Were you advised by your solicitor, Wiseman, that you were committing a breach of the law in doing so? M'Arthur: No.

Mr Monahan produced a letter which he said had advised M'Arthur that unless the hooks were available in New Zealand for inspection by the directors the consequences might be grave. ■ M'Arthur said he did not regard the position as serious. He had given instructions for some of the books to be brought to Sydney. Mr Monahan read a letter which he said M'Arthur had sent to 22 agents in towns in New Zealand. This letter gave a list of, holdings in overseas companies but did not disclose the extent of the holdings. Mr Monahan, turning to M'Arthur, said: “You refer to the Canadian Pacific Railway, .with a capital of. £95,000,000. I understand you had £lO2 in that?” M'Arthur: Yes. •

Mr Monahan: You refer to : Lever Bros, with a capital of £59,000,000. You had £l4O worth' of that? M'Arthur: Yes. Mr Monahan: Then you mention the International Nickel Company, in which you had £118? M'Arthur: Yes. Mr Monahan: How much did you have in Imperial Chemical Industries?

M'Arthur; About 100 shares. Mr Monahan: Do you think that is honest?

M'Arthur: I admit we had a small holding at that time, hut we intended to increase it.

Mr Monahan: Your,debenture capital is now £400,000, and all that you had invested in these companies when you dangled them before investors’ eyes was £1100?

M'Arthur: That was at that time, but the exchange went against us. The commissioner; What did you tell investors to expect from these companies?

M'Arthur: From 0 to 7 per cent., perhaps more. At a later stage -M'Arthur said he had taken exception to some statements made by salesmen who were selling Trust debentures, with the result that about 30 agents were brought to Sydney from other States and New Zealand to attend a sales convention at which he gave certain instructions. He also learned that certain salesmen were representing themselves as officials of the Primary Producers’ Bank. He instructed Hewitt and MTnnes that if misrepresentation was proved those who wanted their money back could have it. Mr Monahan: As the result of litigation or voluntarily? M'Arthur: Voluntarily.

The commissioner: I suppose if the hawking of shares was prevented in this State it would very scVionsly interfere with your business, would it not? M'Arthur: I do not think it would. We have no objection to wiping out business methods which are not right. The commission adjourned until tomorrow.

REFERENCE TO LABOUR PARTY LEADER’S EMPHATIC DENIAL (Pei: United Press association) WELLINGTON, September 20. “It is news to me that the Labom Party has joined forces with the Country Party to get M'Arthur out of his mess,” the Leader of the Opposition, Mr M. J. Savage, said this evening, when his attention was drawn to the statement concerning the Labour Party and the Country Party, made by M'Arthur at the inquiry in Sydney into the activities of companies.' In giving M‘Arthur’s statement an emphatic and unqualified denial, Mr Savage said that the Labour Party -bad no secret to bide relating to investigations by the Company Promotion Commission. The Opposition had done all in its power to facilitate the inquiry into the operations of companies deii.lt with by the commission, and this was clear from its attitude in expediting the passage of the Companies (Special Investigations) Bill. “I have said in Parliament what I am prepared to say from the housetops,” added Mr Savage. “ The suggestion that the Labour Party was endeavouring, with the help of the Country Party, to save M'Arthur from the consequences of his actions is too absurd for words.”

COUNTRY PARTY’S ' DENIAL (From Odb Parliamentary Reporter' WELLINGTON, September 20, “ The Country Party is an entirely separate political entity and has no agreement, compact, arrangement or understanding of any description with the Labour Party or any other political organisation,” said Mr H. M. Rushworth when invited to comment on the cabled evidence given by M'Artliur before the

Royal Commission. Mr. Rushworth said he was the sole representative of the Country Party in the New Zealand Parliament. He did not know either M'Arthur or Glover-Clarke, and he had had no communication of any sort 1 or kind from either of them or with any of their agents. INVESTMENTS SOUGHT THE "X” COMPANY SALE METHODS CRITICISED. Steps taken by the Investment Executive Trust to acquire shares in two New Zealand companies, referred to as the “ X” and “ Y ” companies, were described by Mr J. W. S. M'Arthur in his statement made to the Royal Commission in Sydney on Tuesday of last week. The company referred to as “ X ” was later identified as the Trustees, Executors and Agency Company of Now Zealand, Limited. M'Arthur said the Transport Mutual and General Insurance Company, Limited (a subsidiary company), had been engaged in acquiring these shares for the Investment Executive Trust. The plan to obtain a controlling interest in these companies was primarily in the interest of Investment Executives Trust debenture holders, and success would add to the Investment Trust capital a’ large amount of funds without appreciably increasing the costs of management and administration, There was no question of prejudice or oppression of the minority of shareholders in the companies over which control was sought. A change of control would benefit the company’s shareholders as well as debenture holders in Investment Executive Trust.

It was further stated by Mr M'Arthur that V. B. MTnnes, as director of the share-selling system in Now Zealand, had carried out his duties faithfully and with a due regard to his responsibilities to the public. Complaints of misrepresentation were few and relatively unimportant, and offending salesmen were promptly dealt with. The matter of MTnnes’s company’s operations on behalf of .Southern British National Trust seemed on a somewhat different footing, and evidence before the commission appeared to show that methods had been adopted in this State which witness would not have countenanced. The directors of Investment Executive Trust had taken every step that was reasonably possible to ensure that all dealings of its agents with the public, were fairly and honourably conducted.

The witness also said that it could not be denied that the entries in the books of certain of the companies were very considerably behind. Those of the Investment Executive Trust, a company of outstanding importance, by which the great bulk of the capital was held, had always been in good order. The lists of debenture holders and the securities held by the respective companies on their behalf had always been a subject of care and precision.

The total assets of the Investment Executive Trust amounted to £539,000. The equity and trust building was £400,789, less British National Investment Trust credit of £55,475, or £345,314 making the total value of the building £500,789. The remaining assets aggregated approximately £164,000 The total net assets as security for debentures of £415,000 was £478,000. Witness added, that the company indirectly owned 27,000 acres of freehold unencumbered land in New Zealand, on which the kauri gum alone was worth £3,000,000' gross. The net profit which would- accrue on the working the gum deposits would be £1,500,000.