TRUST METHODS

Taranaki Daily News, 12 September 1934, Page 7

TRUST METHODS

COMPANY INVESTIGATION / McARTHUIR GIVES EVIDENCE PROMISE TO BONDHOLDERS VALUE OF THE SECURITIES COMPLAINT OF TREATMENT By Telegraph—Press Assn.—Copyright. Rec. 5.5 p.m. > Sydney, Sept. 11. The Royal Commission which is inquiring into the activities of 17 trust companies resumed its sittings to-day. Mr. Justice Haise Rogers presided as Commissioner, Mr. W. W. Monahan, K.C., and Mr. J. B. Colliei' appeared as counsel assisting the commission, Mr. R. Windeyer, K.C., and Mr. B. Fuller for the Investment Executive Trust of New Zealand Ltd., and the Southern British National Trust Ltd., and Dr. F. Louat for three other companies. Major M. L. F. Jarvie, a member of the New South Wales Legislative Assembly, was the first witness. Jarvie made a statement regarding his association with Mclnnes, the companies' sharebroker. He said he met Mclnnes through a member of a firm of accountants. He had never been associated with Foster, who it had been alleged had a criminal record. Jarvie explained that after accompanying Mclnnes on a business tour of the country he had been offered a directorship with the British Medical Investment Trust and had accepted. He had approached Dr. Colvin, chairman of the Hospitals Commission, who was a lifelong friend and suggested that he too become a director. Dr. Colvip agreed and both applied for 500 shares, paying £5O application money as provided in the prospectus. Later Dr. Colvin resigned for health reasons and his place was taken by Alcorn. MEDICAL ASSOCIATION OBJECTS. Jarvie said that after further association with Mclnnes and McArthur he had been offered a position with the British National Investment Trust at a salary of £5OO a year, the appointment taking effect on April 1, 1934. The £125 he had been paid in June was for three months’ salary, When the British Medical Association objected to the name British Medical Investment Trust, it had been resolved to change it to British Vocational Investment Trust. He did not know whether the change had been effected because he resigned on August 8. Mr. Monahan: The commission was appointed on August 8. Didn’t you resign after Parliament had taken action? —No.

Jarvie added that he knew the Government intended to take action.

Replying to Mr. Monahan Jarvie said that his appointment was in an advisory capacity, but he was not expected to give advice in business matters. Mr. Monahan: So the only thing you did was to give advice regarding invitations to attend the opening of the trust building? Jarvie: I attended at the trust offices daily. Jarvie added that there had been nothing to do during July, though he had drawn his salary. He had never taken any part in the business transactions. “EVIDENCE INACCURATE.” Jarvie denied having told Mclnnes that Dr. Hunter approved of the name of the British Medical Investment Trust, Mclnnes’ evidence in that respect was inaccurate. Jarvie had merely asked Dr. Hunter for his approval of Colvin being on the board of this trust. Jarvie said he had retired from the board, as he wanted as a public 'man to be free and to vote in Parliament free from association with trust companies. Mr. Monahan: It was in your mind there would be a Parliamentary action before you retired?—Yes. I discussed the matter with the Premier. Glasson was recalled and was questioned regarding the production of bal-ance-sheets. He said Sterling Investments balance-sheet was the key to everything. Mr. Monahan: And the books of Sterling Investment are missing?—Yes. Glasson said the books had been left by him at Auckland but had disappeared. Apparently they had been removed from the office. Mr. Monahan: I suppose without the books the truth will never be known?— I woudn’t say that. Is there any doubt that as a result of McArthur’s and Alcorn's dealings with the books of these companies some or one or all of them have made £340,000 profit in connection with the. trust building?—l could not say. Isn’t it somewhere near that?—On paper. McArthur as a result of these transactions has a whole lot of assets of Wynwood?—Yes. He has a charge over the assets. Such r. charge that it makes him virtually the owner of the lot. He also has property than belongs to Pacific Explorations, including a yacht. That is all paid for out of the profits of these transactions. Can you unravel it?—l fear I cannot.

If you had Sterling Investments’ books would you be in a position to do it?— Probably.

“EVERY PENNY PROTECTED.”

McArthur presented a lengthy state; ment to the commission. He said every penny of the debenture-holders’ money was fully protected and secured by sound investments/ which exceeded in value the sum charged upon them. The total amount subscribed by the public for debentures in the Southern British and in the Investment Executive Trust was £648,194, while the book value of the investments at cost was £649,153. The present market value of investments held on behalf of the debenture-holders was much higher than the value set against them in the company’s books. Debentures of the British National Trust were supported by a great deal more in the way of substantial assets than the trust building alone. After dealing with the general plan of the Investment Executive Trust and the Southern British National Trust, McArthur said one clause of the debenture provided that 95 per cent, of the annual net earnings should be set aside for the holders of debentures as interest. The security given to subscribers to these trusts was a first mortgage debenture, which must always take precedence over creditors of every class, no matter what kind of charge or mortgage the directors of the trust might attempt to create over any of the assets. He had attempted to plan the operations of the trusts in such a why as eventually to return to the debentureholders a rate of profit exceeding that of the interest on an ordinary investment trust debentures. An indication of the success which the trust, had achieved was that after less than three and a-half years' activity the Investment Executive Trust had been able to pay ‘the debenture-holders a total of 26 per cent, by way of return on the capital invested by them. McArthur contended that the affairs of the companies were being investigated at an incomplete stage of their develop-

ment. He admitted that on a general view the relations of the various companies with one another might seem to have been needlessly, even purposelessly, involved. Many matters had their explanation in the condition under which the Investment Executive Trust had been compelled to operate. It was necessary to understand the nature of the forces working against this trust since its inception. There had been “strong influence at every point of the financial and political life of New Zealand against trust companies,” and “deliberate attempts to injure the Investment Executive Trust by making it appear that its debentures had been bought at below par value.” Suggestions had been made during the inquiry that the financing •of the trust building involved sonrje misuse' of money subscribed by the public, and that portion of that money had been transferred from the debenture fund to Alcorn and himself. There was not the faintest foundation for any such suggestion. McArthur said the primary function of the Sterling Company had been to conserve the interests of the debentureholders by doing what the Investment Executive Trust was not able to do for itself. The Sterling Company in the early stages of the life of the main company had been used to purchase certain assets of his, and at the same time to take over liabilities secured on them ip order to frustrate those who desired to strike at the Investment Trust by accomplishing his own financial ruin. CASE OF MISS SMITH. A further purpose for which the Sterling Company was employed on behalf of the debenture holders had been in a few cases to purchase debentures from individuals who for one reason or another were threatening action against the Investment Executive Trust. The hostile condition with which the trust was surrounded had made it even more important that no weapon should be given to opponents with which they could stampede the debenture-holders. Referring to the case of Miss Smith, Christchurch, McArthur said the Guardian Trust and Executors Company of New Zealand had obtained control of her estate and a writ had been issued against the Investment Executive Trust seeking to recover securities which had been transferred by Miss Smith to the trust in payment for debentures. The directors knew that whatever the issue of the trial might be the ultimate result would be to injure the company and the debenture-holders. The claim had accordingly been settled for £29,000, which represented substantially the value of the securities originally transferred to the Investment Executive Trust and the amount by which they had appreciated.

McArthur said the Guardian Trust was connected with companies with which he had to contend during the Redwood Forests negotiations. Mclnnes during his three years of service as a director of the selling system in New Zealand on behalf of the Investment Trust had carried out his duties faithfully. McArthur declared the accounts of all the companies were now in order. Referring to the assets of the Pacific Explbration Company he said it possessed 27,000 acres of freehold land in the northern part of the Auckland province, which contained rich and extensive deposits of kauri gum. On a conservative estimate the quantity of gum on the area was worth £3,000,000 gross. This asset was set dow.: in the books of the company at £4700, being the cost of the land to the company. The commission adjourned till tomorrow.