Sources of Information

Straight from the Source

Information is a source of learning. But unless it is organised, processed, and available to the right people in a format for decision making, it is a burden, not a benefit.

- William Pollard

I have acquired information and/or materials from numerous sources, including:

	Prospectuses and marketing/sales literature,
	Correspondence
	Published annual, quarterly, and miscellaneous reports,
	Official records from the regional Companies Office in Wellington, Auckland, and Napier, and
	Official records from the Wellington regional office of LINZ.

The first thing I discovered was that at the Wellington Companies Office and the Wellington regional office of LINZ, original legal documents (such as Annual Returns, Particulars of Directors and Secretaries, Articles of Incorporation, and title documents) were handed over upon anyone’s request. No identification, authorisation, or signing in was required, though no official back-up copies of these documents exist anywhere. I was left alone to view items and asked to put them on a central counter for re-filing when finished. I discovered:

	documents with company numbers marked out and different numbers written in,
	documents with no numbers,
	gaps in the entry sequence of document numbers.
	company names in official documents for which no computerised file seems to exist,
	companies which had had their numbers swapped on a certain day, and, later, swapped back,
	a company whose name inside didn't match the name on the folder outside,
	documents and folders left by others on chairs pushed underneath tables.

When I first went to the Companies Office to see what information was available, I discovered that information about unit trusts was not available online. I could find no record of the New Zealand Forests Trust. I was told “…archives are not available for unit trusts." Does this mean that any information the Companies Office may once have had is gone? If the system is set up like this, then why?

A happening has no meaning unless a reliable record of it is generally available. The function of a record in the Companies Office is to transmit information to subsequent others who seek it. But it is more than that. It is the means by which a discovery can be authenticated in the long run. Critical readers of the record (the spoor of existence) can pick holes in the flow of events or test for consistency by telling whether diverse documents can be welded into an integral, coherent whole. (One of the problems yet to be solved in online records is that of telling which is authentic.) The Companies Office should not be a place where questions of authenticity arise easily.

There are over 40,000 files at the Companies Office. They should be checked for completeness and accuracy but aren’t. I was told a check hasn’t been done in about 2½ years. The person in charge the day I asked acknowledged that it would be quite possible to replace a document on file with a modified document. All documents are theoretically logged in, but there are documents in some of the files I looked through which bore no stamp. The New Zealand Development Trust has five trust funds. Of those five, two were listed on the official Unit Trust list, but had no annual reports on file and appear to have always been inactive. One trust — ours — was officially listed and had some documents on file, though none had been filed for years. (Two of the modifications the Trustee gave us copies of were not on file, I noticed.) The person in charge thought it was the duty of the Trustee to ensure documents were filed. The fourth unit trust — Phoenix — was not listed on the official list and has no deed filed, but had a financial report filed (so it obviously has been an active trust in the past). The person in charge said reports with no deed should not have happened, but the files aren’t policed sufficiently enough to ensure all reports match up. The fifth unit trust, New Zealand Forests Trust, was not listed on the official list, though they had a deed on file and it was an active trust at one time. No annual reports were ever filed, though reports were produced. The person in charge is told what to list by the lawyers sending papers and acknowledged it appeared both trusts should be listed. However, no obvious error correction procedures were initiated. Overall, accuracy didn’t seem to be a top priority.

From my journal from 1998:

On Tuesday (12 May), I copied the New Zealand Trade and Investment Limited and Clearwood Holdings Limited files. Since I've been going by so much (and complaining so much too, no doubt) the Companies Office security controls (such as they are) have been getting tighter. When I first went in, copying a document involved borrowing their plastic card which activates the copier, copying as much as I wanted, telling them how many copies I had made, and paying the girl behind the counter for them at $.20 per copy. This was made more difficult than it sounds by the fact that the number-of-copies counter would clear itself to zero if you went for more than about 30 seconds without copying a page (say you got distracted by reading an annual return, or delayed while searching for a particular change of registered office). I had more than $60 in copying charges the first day. I had to count all the copies by hand to determine that amount. They took my word for it and didn't even ask to see how tall my stack of copied stuff was. (I'm not complaining, I'm explaining.)

Today, I was informed that I may no longer write out my request for a file using one of the blank request forms clipped together and stuck in an acrylic holder on the countertop. I now have to log on to the computer using one of the touch-screen terminals located at the back of the room and let it print out a request. When I tried that, I found the paper had been inserted upside down so that the strip you tear off to give them didn't say what it was supposed to say (your name, perhaps?). I wondered if they'd had anyone else follow the procedure that day. The form asks for the requesting person's name - presumably for an audit trail in case some file turns up missing or altered. Since the girls made no attempt to get people to write their names on the forms (and the computer didn't require that information to be entered), it just didn't happen.

Are international investors buying companies or property in New Zealand aware of the exposure they face? (When I showed the person in charge where a document that was once logged in now seemed to be missing, I was told I could try calling the company in question to see if they had an extra copy of whatever it should have been.)

Documents and files related to the Trust were riddled with errors and inconsistencies — if even filed at all. Some information (such as who was a shareholder and how many shares had been issued) appeared to have been changed after documents were filed. Sometimes company names were changed after documents were executed but before they were registered. In one case (Francis Creek), a certificate of title change posted between the time a mortgage was executed and the time it was registered.

Directors frequently acted before they were appointed, including changing company names and signing debentures. Sometimes, directors “appeared” (or even resigned) who had never been appointed.

Prospectuses contained errors of fact. The NZFT prospectus reported that Jane Muir (one of the people appointed by Countrywide Bank as a receiver to liquidate the trust's assets) was a director of the trust’s Manager, New Zealand Trade and Investment Corporation Limited — she was not, though she had been a director of NZEB. You might also want to check out Muir's curious letter of resignation which I found on file at the Companies Office.) The FRFT prospectus said the trust was limited to a maximum of 10 million units, but by 1996, there were almost 15 million on issue. The prospectus said the trust Manager was a wholly-owned subsidiary of the Promoter. It was not.

Changes were made on a number of occasions to the trust deed. Some of these changes had a significant impact, such as those for borrowing powers, redemption of units, classes of units and what investments were authorised. Rudd Watts & Stone produced a “compiled” copy of the trust deed and all its modifications. This compiled deed was riddled with errors and repeatedly referred to a trust fund — Flat Rock Forest Income Trust — of which we knew nothing. It appeared to represent another class of units for our trust, FRFT. However, the trustee told us that it had been decided not to do that after all. Instead, they had set up a related trust — NZFT. But strangely the compiled deed didn’t mention NZFT, though it was produced almost a year after that trust had been set up. This unexecuted, inaccurate in multiple places, compilation was filed in the WRET/NZDT file at the Companies Office. The office manager there, when asked, said that no one’s name had been entered as responsible for the filing. (You may also wish to see my request for a copy of the the register for an interesting bit of information about this so-called Flat Rock Forests Income Trust.)

In December 97, we received through our lawyers a copy of the full PriceWaterhouse review of FRFT. They said:

We have not conducted a detailed review of the various transactions in which the Manager and/or other related parties have been involved. It is clear, however, from the work we have done that in some instances (especially Shannon) the Trust has lost a significant amount of value on a forest which was purchased from parties associated with the Manager...

We have briefly reviewed the Shannon and Aokautere purchases. Shannon and Aokautere forests were purchased along with a number of other forests from Carter Holt by Manuka Holdings Limited (a company in which Don Simcock is/was a shareholder) and then on sold almost immediately to FRFT. Manuka Holdings purchased these two forests along with a number of other forests. Manuka Holdings obtained an independent valuation by Groom Poyry supporting the purchase.

...FRFT purchased the properties from Manuka Holdings...

...We are unable to determine whether a profit was made by Manuka on this contract and further work would be required to enable us to make a conclusion on this.

Curiously, given the serious nature and size of the losses, PriceWaterhouse deemed it unnecessary to investigate transactions that had clearly appeared to be not at arm’s-length.

PriceWaterhouse began their report with this “Important Notice”:

In forming our opinions we have relied upon and assumed, without independent verification, the accuracy and completeness of all information that was available from public sources and all information that was furnished to us by New Zealand Trade and Investment Corporation ("NZTIC") the Managers of Flat Rock Forests Trust.

We have evaluated the information through analysis, enquiries, and examination but we have not verified the accuracy or completeness of any such information nor conducted an appraisal of any assets. We have not carried out any form of due diligence, audit on the accounting or other records of Flat Rock Forests Trust ("FRFT") and it should not be assumed that our assessment would reveal any matter which an audit or more extensive examination might disclose.

In other words, their “review” was superficial in nature. For one thing, “all information that was available from public sources” would have revealed that since 3 April 96, the name of the Trust’s Manager had been changed to New Zealand Trade and Investment Limited. As of 5 January 98, Don Simcock was NZTIL’s only director, and, as such, he had executed a debenture in favour of NZEB for “Advances and all money from time to time owing to the lender.” The shareholders of NZTIL are now immigrant investors (all Asians but one) who were issued preference shares in the company. These preference shares became regular voting shares after re-registration under the Companies Act was deemed to have occurred after June 97 (thus, without their prior knowledge, putting their claim to any remaining assets behind creditors such as NZEB).

I feel the “independence” of PriceWaterhouse was compromised because they were the presenter of the prospectus, the share registrar, administration manager, and registered office (until March 96) of Flat Rock Forests Limited. They and the Trust’s Manager have had a long relationship. (You might also want to check out Integrity violations uncovered at PricewaterhouseCoopers.) PW was also selected as liquidator for the Flat Rock forest-holding companies after the receivers took the assets. PW overruled our request to hold those records secure until our investigation was complete; instead, they destroyed them.) Unitholders paid for the "independent" review PW produced.

The full PriceWaterhouse Review said Flat Rock assets were said to be worth $12,328,000. The land was valued at its original cost as there had been no current valuations in respect of the land (page 11). PW said they were unable to determine if the forests were appropriately valued. Since there are experts readily available for a fee who will value whatever forest you ask them to, I wonder why they were “unable to determine” this. I suspect it’s because they weren’t asked to.

On page 19 they did acknowledge that there was a “lack of control extending through: data capture to reporting.” (I took "lack of control" to mean, in that instance, "...accuracy was not their prime mandate.") I would think any serious audit would rate determining the exact value of the assets a prime task. On page 12 they say there is “little justification” for the forest values. (But oh, well, never mind.) They had put the net value of the Trust at $8.009 million. Shortly thereafter, it seemed to have a zero net worth. (Whatever the problem was, the tussock moth pales by comparison.)

I once went by the Land Information New Zealand office to look at two discharged mortgages I had ordered from their archives. They had called and told me the documents were being held — I should go to the sixth floor and ask for them. There, I actually had to initial something before they were handed over — not sign, but at least initial. I was then told to take the documents to the fifth floor to look them over, then leave them in the return tray on the fifth floor when done.

One of the unitholders said it has personally happened to him that he went to find a document (in his case, a copy of a legal easement granted) only to find the document no longer in the file. He said it has happened to other people he’s known as well. He said that’s the reason some people pay a lawyer to file document copies in regional land offices across New Zealand. (For a rather dismaying article on the changes to Linz which make it "as safe as the old system" according to Registrar-General Robbie Muir and considerably less sage according to lawyers, please see Land Title Change Creates Concern.)

I’d like to know more about the definition and purposes of nominee and holding companies. One day, some companies appear to be privately owned, then suddenly they appear to be nominee or holding companies holding shares or assets in trust for unitholders. This distinction, in more than one instance, appears to have been made after the fact. Another thing I’d like to know: is taking “corporation” out of the title enough to change a public company back to a private one? And lastly: how are forest names acquired? Are the names used officially in any way?

Co-receiver John Cregten told me that the only way you can tell a nominee company from the more regular kind is to read its constitution on file at the Companies Office. With the Companies Office records having lax security and being riddled with errors, such obfuscation for something as important as who owns shares for whom make attempting due diligence laughable.

Cregten further said the depressed price of logs and the lower exchange rate is why there was no money left for the unitholders. Curiously, we had been told more than once in the reports to unitholders that the reason the price of logs kept dropping was because the exchange rate was high. Yo, New Zealand! Freeze your exchange rate and your monetary problems will vanish! (I’m joking — that doesn’t really work. I'm merely trying to point out that sometimes people use convenient things to blame that actually aren't to blame.)