“THE PERSONAL FACTOR”

Taranaki Daily News, 10 August 1934, Page 5

“THE PERSONAL FACTOR”

MR. McARTHUR’S CONTROL

RELATIONSHIP OF COMPANIES THE PRACTICES FOLLOWED WEAKNESSES POINTED OUT Continuing its report under the heading “J. W. S. McArthur; the Personal Touch,” the Company'Commission states: “This man controls the four main investment trusts of the group—two in New Zealand and two in New South Wales. “In the year 1930 he was financially embarrassed. He was interested in and controlled a group of timber and afforestation and allied companies, as’ intermeshed in proprietorship and transactions as the group of investment trust companies described herein. He owed £3OOO to the State Forestry Department; legal proceedings were instituted and judgment was obtained against him; he wrote admitting- inability to pay, and suggested paying £350 per annum out of ,his director’s fees. A bankruptcy notice was issued against him. In July, 1932, at the latest .moment possible if bankruptcy were to be averted, he paid the whole amount in cash. (Vide files of State Forestry Department and of the Crown solicitor at Auckland. . . .)

“The foregoing reveals the extent to which Mr. J. W. S. McArthur is involved in the control and operations of the Investment Executive Trust of New Zealand, Ltd., and its affiliates. “In this connection, it is, in our opinion, an important, disquieting fact that many of the liquid investments of the Investment Executive Trust of New Zealand Ltd. are held either in the name of J. W. S. McArthur personally, or in the name of vendors 'from, whom McArthur holds a power of attorney,. This power of attorney is full and unqualified, and permits McArthur to effect transfers of the shares and investments of such vendors, when and to' whom he pleases. “It is true that holding companies #ke the Investment Executive Trust of New Zealand Ltd. are compelled to appoint a trustee or trustees to hold in their own names shares, stock and other forms of security issued by corporations which will not place the names of other corporations on their share ledgers or stock and debenture registers. A recognised safeguard is to appoint at least two directors or officers of known integrity to act as trustees, and to adopt, for safe custody of the scrip, checks devised and required by an experienced auditor. “No effective audit of the companies controlled by M. J. W. S. McArthur and his associates is possible, unless it is a comprehensive and contemporaneous audit of all these companies made at a common date. CO-OPERATION REFUSED. “All the timber, plantation and bondissuing companies have assisted us in our inquiries, and have given us all the information we require, except the group controlled by J. W. S McArthur and his associates. “All the investment trusts have responded to our invitation to co-operate with us and give us information, except the McArthur group. “The New Zealand Investment Trust Ltd., of Wellington, instructed its solicitors, secretary and a director to appear before us; they gave us all the information we required, and offered to disclose all details of their portfolio of investments to any independent auditor of standing whom we chose to nominate, and to permit him to report to us. “We approached the Investment Executive Trust of New Zealand Ltd. in the same spirit, with the same request . for amicable co-operation, and we received from their solicitors, Messrs. Hampson and Wiseman, of Auckland, a letter dated May 21,. 1934, containing the following under the heading ‘New Zealand Red.. wood Forests Ltd.’: ‘The fact that this inquisition is sought by your commission compels us to state in clear and unequivocal terms that our client company will not disclose to a hostile, biased and interested commission, which has been declared to be not a judicial tribunal, the business of the company of four years ago or to-day.’ “Under the heading ‘lnvestment Executive Trust of New Zealand Ltd,’ in the same letter, the writers say: ‘lt is clear that as your commission desires to discredit Mr. McArthur as chairman of directors of New Zealam.. Redwood Forests Ltd., different treatment cannot be expected to be accorded to Mr. McArthur, as managing director of the Investment Trust of New Zealand Ltd. We are instructed by this company that it adopts the same attitude as New Zealand Redwood Forests Ltd.’ “The writers of this letter arc the solicitors who acted for the parties who made application to the Supreme Court recently for a writ of prohibition against this Commission of Inquiry. COMMISSION’S POWERS. “Our present order of reference does not authorise us to inquire into the nature and effect of the transactions we have referred to herein, except to establish general principles. After the judgment of the Full Court was delivered, counsel for the Crown (Mr. J. B. Callan, K.C.) advised us, inter alia, that: '. . , the commission is a commission set up merely for the purpose of searching for and suggesting remedies to evils which. the Government believes to exist; that it is not the purpose of the commission to ascertain which companies or individuals have been following undesirable practices, or, alternatively, which companies or individuals have entirely clean hands. It does not, however, follow that the commission is not to inquire into the doings or misdoings of individual companies. On the contrary, no commission can intelligently suggest remedies unless it knows sufficiently the nature of the evils and abuses to be prevented. And it cannot know the nature of evils or abuses in the abstract. It has to make their acquaintance in concrete facts and happenings. For this reason, and this reason only, it is forced to inquire into the affairs of individual companies.’ “In these circumstances, we have had a difficult task in shaping our policy and procedure toward the affairs of the two groups of companies referred to. These companies have, through their solicitors, refused to co-operate with us on any amicable basis, and have, in our opinion, watched every move we made with a view to attacking oui- procedure and securing at least delay by a furthei application to tire Court. “In the affairs of these companies the line between inquiries which lie within the limits of the proper exercise of our power and inquiries which transgress those limits, cannot be drawn with precision. In many instances it seems to us that their propriety could be determined only by reference to the motives and objects underlying each particular line of inquiry, “Furthermore, we submit that the matters properly within the scope of our order of reference tend, as to moral gravity and urgency, to be overshadowed by the issues raised by the facts herein set out.

“These issues, in our opinion, call for immediate further inquiry, and action in the interests of the debenture-holders in

particular, and of the community in general.

“Our legal position under the Commissions of Inquiry Act, 1908, as interpreted by the Full Court is so delicate (in relation to disaffected companies) that we are reluctant to pursue such further inquiries under our existing powers. “There is evidence that the financial and administrative control of the investment trusts of New Zealand are being transferred to Sydney, New South Wales.” After giving details of the transfer of shares and personnel from Auckland to Sydney, the report continues:— “Daily Telegraph Building, Sydney: This building seems to be the financial kernel of the whole group of McArthur’s financial companies, and the work of reconstruction is being pushed on rapidly. The financial scheme of all the companies seems to be a gamble on this speculation, the money of innocent bondholders being committed to it. “Possible Financial Readjustments and “Doctoring” of Records: The desirability of urgency is strengthened by the possibility that certain financial arrangements and documentary adjustments are now in train or contemplated. These may take the form of financial rearrangements and manipulation of records, with a view to placing certain transactions or the general position in a more favourable light. The Investment Executive Trust and its affiliated companies are still operating actively.” The commissioners concluded with the submission “that a case is made for consideration of the advisability of appointing some inspector or body of inspectors with power to inquire fully into these matters, to demand full disclosure of books and documents, and to report as directed, with a view to such further action as should be deemed to be necessary. This procedure would seem to require legislation.” Their recommendation was accepted and the new legislation was passed on Wednesday,