McArthur case

Timaru Herald, Volume CXLII, Issue 20493, 11 August 1936, Page 4

McArthur case

CROSS-EXAMINATION OF ACCUSED RULING BY BENCH By Telegraph—Press Association WELLINGTON. August 10. The McArthur prosecution was resumed in the Supreme Court this morning, with the continuation of the examination-in-chief of McArthur. With regard to the power of attorney to control Stirling Investments, Ltd., he said the Investment Execuitve Trust was advancing funds to the Stirling Investment and Executive Trust, and wished to have control. Questioned with regard to 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 possibiltiies of certain islands in the Pacific, principally for timber, minerals and phosphates. The building of the boat was started from share subscriptions in the Sterling Company. The judge here asked who were the shareholders, to which McArthur replied the Sterling Investment Trust and a few nominal shareholders in the Investment Executive Trust, which was really Alcock 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. The money owing to Sterling Investments for the construction of the yacht was approximately £lO,OOO. He arranged to take over the yacht himself, and assume the liability of cost. The debt was eventually cancelled, when he cancelled his Sterling debentures. The yacht was thus paid for by him. Cross-examined by Mr Meredith, McArthur agreed that he brought the Investment Executive Trust into being really, and controlled its activities. Prior to that he was mainly concerned in the Selwyn Timber Coy, and the Redwood Forests. He was chief ordinary shareholder of the Selwyn Timber Company. That company got into difficulties and went into liquidation in June, 1930, he thought. He admitted there were substantial liabilities, but said there were very substantial assets also. Debt to Forest Service Mr Meredith went on to question McArthur with regard to a judgment for £3OOO against him on the State Forest Service. McArthur 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 £19,240 and assets £405..

McArthur admitted that the letter' was not true, but said it was fair. It i was untrue because it did not contain the 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 a bankrupt, and would have to pay £3OOO to do it. There were 25,000 shares in the Edgecumbe Company, paid up to 6/-. They were transferred to the Sterling Company for a £1250 consideration. Those were practically all the assets he had besides those he put in later. Cross-examined with regard to properties he then held in Grey Street, Parnell, he admitted that there were mortgages on these of £6OOO, and that he got them back free of mortgage, through the Wynward transaction, by a round of dealings, which, he admitted, virtually made him a reciever for the assets of his own company, and that the creditors in the Selywn Timber Company were placed in the same position in relation to himself as formerly they were to the bank. "A rather neat position,” commented Mr Meredith. After further questioning designed to force admissions that McArthur 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 McArthur that from the very first the yacht was intended for McArthur himself. McArthur said that was not so. It was not originally intended for him, but laterly it was so. A sum of about £lO,OOO for the yacht came from the realisation of his own assets, and from the investment executive trust. It came from the funds of the Sterling Co. He took the Morewa over in December, 1933, before she was quite finished. Mr Meredith: She was fitted out for comfort. McArthur: She was well fitted out Mr Meredith: I think she had her own special silver? —Yes. What was the inscription on the silver?—There was just a flag. on it. The silver was about £5OO worth. I think it was less than that. To further questions, McArthur said he once took her to Norfolk Island. Purchase of Trust Building The purchase of the “Daily Telegraph” building in Sydney was the subject of Mr Meredith’s questions. McArthur said he and Alcorn decided to buy it at a time when they had no available cash. The £50,000 needed was obtained from the Investment Executive Trust. He then formed the British National Investment Trust which became the owner of the building. He and Alcorn were proprietors of the British National Investment Trust and then increased its shareholding capital and themselves subscribed for more than 230,000 2/shares. They paid nothing for them. They could control the whole thing. They passed a resolution allotting to Alcorn 9,598 shares and 190.000 to McArthur, 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 that

the British National Investment Trust I owned the building and that he and Alcorn owned the shares in that trust. I 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 a value in Australia. He and Alcorn sold the British National Investment Trust shares to the British National Trust the same day that they got them for 23 - a share on which they had not paid sixpence. He and Alcorn then held paper amounting to more than £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 a prospect that it had been well bbught. It was bought, however, for much less than its value, so that the British National Trust had a real equity in it. Mr Meredith: You and Alcorn had made your profit on paper?—Yes. That profit, I take it, really would be realised later when the building was sold or something was done with it?— Yes, or when it was revenue-producing. About a Yacht McArthur said it was not intended at the beginning that the yacht was to be built for him. 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 the bulkheads had been put in. in reply to further questions, McArthur agreed that it was the intention to house the various organisations in which he was interested in the “Daily Telegraph” building. Mr Meredith: So you were really going to occupy and not sell it?—Yes. McArthur said that extensive alterations were required to make the building suitable, and about £115,000 was spent in this connection. 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 McArthur closely on the contents of the literature issued by him. He asked McArthur 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. McArthur said that with the plans they had in mind he thought it was. In reply to Mr Meredith as to the way the purchase of the “Daily Telegraph” building was financed and the implications of the transaction generally, McArthur said that a successful deal meant a substantial profit to the investors, to Alcorn and he. If the deal had failed the investors would have had to stand the loss. Unfair Comparison Mr O’Leary said this was an unfair ■ comparison to put to McArthur, as the deal was a successful one. McArthur interposed that had it been other than a good investment it would not have been made. His Honour said that this seemed to him, as had been quoted in the ; recent English pepper case, like an i 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 Honour said that was the way it was put in the English pepper case. Mr O’Leary replied that in the pepper case the persons who put their pioney in lost it all. The same thing happenied in the Lord Kylsant case. In the j present case they would lose only 6/-, I not through McArthur’s fault, but I through the legislation. I His Honour: I say without hesitation j that where directors take trust moneys

Mr O’Leary: But they were not trust moneys. His Honour: I rule that 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 McArthur): In your view the directors of Investment Trusts can use public moneys for their own speculation? McArthur: No, but if investors are going to benefit I say it is quite equitable. McArthur’s cross-examination was not completed when the Court rose.