M'ARTHUR TRIAL

Otago Daily Times, Issue 22956, 11 August 1936, Page 7

M'ARTHUR TRIAL

CONTINUATION OF HEARING EVIDENCE BY THE ACCUSED OPERATIONS OF VARIOUS COMPANIES (Peh United Press Association) WELLINGTON, August 10. The M'Arthur prosecution was resumed in the Supreme Court this morning, with a continuation of the examination-in-chief of M'Arthur. In regard to his power of attorney to control Sterling Investments, Ltd.. he said the Investment Executive Trust was advancing funds to Sterling Investments, and the Executive Trust wished to have control. Questioned regarding the transactions whereby he got the yacht Morewa, he said the Pacific Exploration Company was formed chiefly for exploratory purposes. In connection with the building of a yacht to explore the possibilities in certain islands in the Pacific—-principally timber, minerals, and phosphates—the building was started from share subscriptions in the Sterling Company. The judge here asked who were the shareholders, to which M'Arthur replied: Sterling Investments and a few nominal shareholders in the Investment Executive Trust, which was really Akorrt and himself. He did not think there were any other shareholders in the Investment Trust at that time. The project was abandoned in the early stages because it was evident that, with the growth of the trust, it would be impossible for him to consider any exploration work. Money was owing to Sterling Investments for the construction of the yacht, approximately £ 10,000. He arranged to take over the yacht himself and to assume liability for the cost. The debt was eventually cancelled when he cancelled his sterling debentures. The yacht was thus paid for by him. M'ARTHUR CROSS-EXAMINED Cross-examined by Mr Meredith, M'Arthur agreed that he really brought the Investment Executive Trust into being and controlled its activities. Prior to that he was mainly concerned In the Selwyn Timber Company and Redwood Forests. He was the chief ordinary shareholder of the Selwyn Timber Company. That company got into difficulties, and went into liquidation in June, 1930, he thought. He admitted that there were substantial liabilities, but said that there were very substantial assets also. Mr Meredith went on to question M'Arthur in regard to a judgment of £3OOO against him on the State Forest service. M'Arthur denied wishing to avoid pressure, but said he wanted time to pay. He admitted that he was being threatened at the time with bankruptcy proceedings. He identified a letter he wrote to the Crown Solicitor in Auckland, enclosed with which was a statement of his financial position, showing liabilities as £19,240 and assets £405. M'Arthur admittted that the letter was not true, but said it was fair. It was untrue because it did not contain assets transferred by him to the Sterling Company, and held nominally in his son's name. It was strictly true because the assets were not in his name. He was being pursued by powerful financial interests who wanted to make him bankrupt, and would have to pay £3OOO to do it. There were 25,000 shares in the Edgecumbe Company paid up to 6s. They were transferred to the Sterling Company for a £1250 consideration. Those were practically all the assets he had besides those he put in the letter. Cross-examined in regard to the properties he then held in Grey street and Parnell, he admitted that there were mortgages on these of £6OOO, and that he got them back free of mortgage through the Wynward transactions, by a round of dealings which he admitted virtually made him receiver for the assets of his own company, and that the creditors in the Selwyn Timber Company were placed in the same position in relation to himself as formerly they were to the bank. " Rather a neat position," commented Mr Meredith. THE YACHT MOREWA After further questioning,- designed to force admissions that M'Arthur had used the money of the companies to his own advantage, Mr Meredith went on to question him in detail as to the nature and fittings of the yacht Morewa. He put it to M'Arthur that,' from the very first, the yacht was intended for M'Arthur himself. M'Arthur said that was not so. It was not originally intended for him, but latterly it was so. The sum of about £IO,OOO for the yacht came from the realisation of his own assets and from the Investment Executive Trust. It came from the funds of Sterling. He took the Morewa over in December before she was quite finished. Mr Meredith: She was fitted out for comfort? M'Arthur: She was well fitted out. Mr Meredith: I think she had her own special silver?—Yes. What was the inscription on the silver?—The inscription—there was just a flag on it. I think the silver was about £SOO worth?—l think it was less than that. To further auestions, M'Arthur said he once took her to Norfolk Island. M'Arthur said that when the yacht was started it was for exploratory work, but when he decided to take it over he altered the internal arrangements. At that time the hull had been completed, and bulkheads had been put In reply to further questions, M'Arthur agreed that it was intended to house the various organisations in which he was interested in the Daily Telegraph building. Mr Meredith: So you were really going to occupy it, and not sell it? M'Arthur: Yes. M'Arthur said that extensive alterations were required to make the building suitable and about £115.000 was spent in this connection. Witness said he did not at the time he bought the Telegraph building notify the debenture-holders of his intentions, and no minutes were kept of any advances. Mr Meredith questioned M'Arthur closely on the contents of literature issued by him. He asked M'Arthur whether he suggested it was quite reasonable and justifiable to divert huge sums of money from various companies for the purpose of purchasing a building in Sydney. M'Arthur said that, with the plans they had in mind, he thought it was. DAILY TELEGRAPH BUILDING The purchase of the Daily Telegraph building in Sydney was the subject of further questions by Mr Meredith. M'Arthur said that he and Alcorn decided to buy it at a time when they had no available cash, and the £50,000 needed was obtained from the Investment Executive Trust. He then formed the British National Investment Trust, which became the owner o* the building. He and Alcorn were the proprietors of the British National Investment Trust, and they increased its shareholding capital and themselves subscribed fcr more than 230,000 2s shares. They paid nothing for them. They could control the whole thing. They passed a resolution allotting to Alcorn 49,598 shares and 190.000 to M'Arthur, and a resolution that they should pay 10 per cent. of the cost within a month. That amount was paid later The position then was, witness continued, that the British National Investment Trust owned the building and that he and Alcorn owned the shares in the British National Investment Trust. Then the British National Trust was formed with one of its principal objects the taking over of the British National Investment Trust shares. There was a distinct advantage in transferring them at a price representing the equity in the building that would establish the value in Australia.

Witness and Alcorn sold their British National Investment Trust shares to the British National Trust the same day that they got them for 23s a share on which they had not paid sixpence. He and Alcorn then held paper amounting to over £250,000 for which they had paid nothing. At that time nothing had been done to the building by way of improvement and there was only the prospect that it had been well bought. It was bought, however, for much less than its value so that the British National Trust had the real equity in it. , Mr Meredith: You and Alcorn had made your profit on paper? M'Arthur: Yes. Mr Meredith: That profit, I take it, really would be realised later when the building was sold or something was done with it? M'Arthur: Yes, or when it was revenue-producing. M'Arthur said it was not intended at the beginning that the yacht was built for him. M'Arthur was further crossexamined regarding various transactions. In reply to a question by Mr Meredith as to the way the purchase of the Daily Telegraph building was financed and as to the implications of the transaction generally, M'Arthur said that a successful deal meant a substantial profit to the investors, to Alcorn, and to himself. If the deal had failed the investors .vould have had to stand the loss. Mr O'Leary said that this was an unfair comparison to put to M'Arthur, as the deal was a successful one. M'Arthur interposed that had it been other than a good investment it would not have been made. PEPPER CASE QUOTED His Honor said this seemed to him, as had been quoted in the recent English pepper case, like an office boy, taking half a crown from the till because he thought he had a good thing for the Grand National. Mr O'Leary: I submit, with respect, that that is an unfair remark to make to the jury. _ His Honor said that was the way it was put in the English pepper case. Mr O'Leary replied that in the pepper case persons who put their money in lost all. It was the same in the Lord Kylsant case. In the present case they would lose only 6s, not through M'Arthur's fault but through the legislation. , .. A His Honor: 1 say without hesitation that where directors take trust moneys , , Mr O'Leary: But they were not trust moneys. His Honor: I rule they are. Where moneys are received by directors from the public for investment, these are trust moneys, and it is a wrongful thing in such circumstances that such money should be invested in something that must be a gamble. Mr Meredith (to M'Arthur): In your view, the directors of investment trusts can use public moneys for their own speculations? M'Arthur: No; but if the investors are going to benefit I say it is quite equitable. M'Arthur's cross-examination was not completed when the court rose.