Merger or Acquisition


Taking It

The trust of the innocent is the liar's most useful tool.

- Stephen King

The part in the article below which pertains to Flat Rock is highlighted in purple.

Merger with the Aussies?  The Sooner the Better!

by Chris Lee, Kapiti

When the perennial question about merging our country with Australia is raised, the fiercest argument against such a merger is our desire to maintain independence.  Bean counters would argue that this desire is as irrational as Jim Anderton's determination to take us back to the 1950s.  Their argument would be that we lost our "independence " when our terms of trade slipped badly 30 years ago and we traded in our independence then for some foreign loans.

The argument would carry on that when you prop up your living standards with other people's money, you gradually become their property, just as a company or person loses their autonomy when they fall into the hands of moneylenders and cannot extract themselves.  The answer, of course, was to adjust your living standards when your income fell, and work smarter.

We didn't, so we are not free to do as we wish and a merger with Australia may well be our best outcome and may even be as inevitable as Hawaii's union with the USA.

For two very specific reasons, it might be good if it happens soon.

Look at Australia's forthright response to the introduction of Iamb subsidies in the USA.  Australia immediately adapted its own policies rather than simply accept the loss of a major market.  And look at the Australians' far more realistic attitudes towards dismantling those in the road of efficiency, especially in the financial sector.

A full-blown merger with Australia may be a drastic method of solving our inefficiencies, and I have tongue in cheek in proposing such a union, but boy, I do prefer the way the Australians cut through fat.  A specific example of this is their determination to rid investors of the belief that the cost of trustees to police trust deeds is offset by value.  The Australians have worked out that the trustees add no level of protection, and probably add a level of cost without any benefit.  Their argument is supported if we look at three instances in New Zealand involving Trustees Executors, Perpetual Trustees and Guardian Trust. 

In the case of Rural Superbonds, Trustees Executors oversaw the funding mechanisms for Rural Superbonds, which effectively raised money secured by the land owned by Applefields and Dairybrands.  The faltering fortunes of these companies led to Trustees Executors seeking to protect investors.  So far their "protection" has cost their own substantial fee and nearly one million dollars in fees to others engaged to write reports and to advise Trustees Executors.  Rural bondholders seem certain to get all their money back eventually but it seems highly doubtful that the process will have been hastened by the trustee, or even improved by it.

Perpetual Trustees had a similar function with Flat Rock Forest, which was managed by New Zealand Trade and Investments Limited (a grand name which some investors mistook for a government agency).  This fund, now under investigation by the Serious Fraud Office, moved from a risk-averse, income-producing fund into a heavily geared, risk-taking, no-income fund.  It then went broke, to the obvious discredit of the management, and to the investors who lost the lot.  Investors are now demanding a meeting to hear why they should not sue the individuals who arranged the fund, the trustees, and possibly Joseph Banks who were also involved initially.  They cannot sue the managing company for it has been liquidated.

In a letter received from the trustee last week, the claim was made that the trustee had always acted in the best interests of the investors.  If a 100% loss was the outcome, what would the result have been if the trustees were not involved?

Guardian Trust, of course, managed the abortive Skellerup/Maine investment trust deed and many investors wanted to sue them for failing to prevent some appalling decisions, such as investments in luxury yachts and art, when this company was losing money by the truckload.  And this ignores the level of executive salaries!  The Australians to their credit, are abandoning the role of such trustee companies, realising that their cost was not offset by value.  No doubt it is a bit harsh to say that New Zealand will solve this issue only by capitulating to Australian government but for some investors that might be a cheap cost!

The patient people putting their pensions into the New Zealand Rural Property Trust years ago remain chastened and, well, patient.  They are now being asked to wait another five years before they can redeem their units, with little prospect of meaningful returns along the way.  The managers of this trust have had some fairly lavish feeds from the fund since its inception whereas unitholders have had 1ยข per unit since July 1996.

Part of the problem has been the punitive trust deed, which requires a 75% majority to change it but ironically this provision may work against the manager's proposals, as the deed does not permit an extension of the fund's closure from redemption, unless 75% of unitholders agree to extend this period.  The NZ Rural Property Trust is another example of the impossibility of expecting land-based activities to produce reliable short-term returns for passive investors.  Inevitably cash flow will be directed towards those with first call on it - in this case, the managers - leaving passive investors to remain patient, and poorer.

If ever again I invest money in agriculture, horticulture or aquaculture, it will be time to put me out to pasture.

Source: The Mail Horowhenua 14 October 1999 (? - date uncertain)

For news articles on the Flat Rock Forests Trust, forestry, the Serious Fraud Office, one immigrant family's experiences, immigration specialists, fraud, juries, logging, and more, pressing the "Up" key below will take you to the Table of Contents for this News section.  Or you may wish to visit the Forestry Trust Table of Contents to read how a unit trust went bust.  Or the Topics Table of Contents which offers a different approach to lots of topics - among them poisonous insects, eating dogs, what's addictive, training vs teaching, tornados, unusual flying machines, humour, wearable computers, IQ tests, health, Y chromosomes, share options, New Jersey's positive side, oddities, ageing, burial alternatives, capital punishment, affairs, poverty, McCarthyism, the most beautiful city in the world, neverending work and more...

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