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Trustees Open To Changes After Damning Finance Company Report

Fuseworks Media
Fuseworks Media

Wellington, March 22 NZPA - Trustee companies say they are open to new measures to protect investors after a report said their failings were partly responsible for a "tsunami" of finance company collapses.

NZPA reported last week that the Companies Registrar said there had been failures across the entire supervisory framework for finance companies before their collapse.

In a report for Parliament's commerce select committee, Registrar Neville Harris painted a picture of multiple failures and dodgy practices among directors, management, trustees, receivers and auditors.

Trustees who were meant to take a supervisory role had failed.

There are five trustee companies in New Zealand and at least 25 of the failed companies had used just two trustee companies -- Perpetual Trust and Covenant Trustee.

"This degree of involvement raises issues to the quality of due diligence ... and in particular the extent to which they accepted circumscription of their powers."

Covenant and Perpetual "were slow to detect adverse financial issues" and too timid in their response, Mr Harris said.

The trustee companies did not have staff to deal effectively with "widespread failure" within the finance companies.

The Trustee Corporations Association (TCA) today said it was open to further measures to protect against finance company collapses.

The TCA has four full members -- Guardian Trust, Trustees Executors, Public Trust and Perpetual Trust, with Covenant Trust as an associate.

Parliament's commerce select committee is considering whether to hold an inquiry into the collapses and could make recommendations for changes to the law.

TCA chairman Clynton Hardy said trustees had learnt lessons and were keen to work with the committee to ensure investors received the protection they deserve.

"We are working on a number of initiatives, including the registration and supervision of all trustees and are keen to share these with the committee," Mr Hardy said.

"We did not run the companies, and relied on open and honest provision of information from the directors and management. It was just as difficult for trustees, like everyone else, to hold back the tsunami of company collapses as property and other asset values plunged from 2007 onwards."

Trustees were not the only party fingered by the registrar.

Auditors had also been exposed as lacking teeth.

The big four accounting firms had not been particularly interested in finance companies' audit appointments.

"There was a significant concentration of audit appointments with second-tier accounting firms such as BDO Spicers, Staples Rodway and Hayes Knight."

Issues arose as to whether they had capability to do proper due diligence or ongoing auditing.

Many of those running companies had records of failure and their boards had lacked experience and skills, and "were not adequately informed, misled or failed to take sufficient interest in the affairs of the company".

The companies had also disguised non-performing loans and engaged in related-party loans to benefit a director or prop up poor investments.

"It is our understanding that a number of the failed finance companies were in the end acting in a similar manner to ponzi schemes," Mr Harris told the select committee.

In their last months, money from new investors was being used just to repay maturing loans.

Select committee chairwoman Lianne Dalziel told the Sunday Star-Times that proposals could include laws making it compulsory for those with knowledge of financial wrongdoing to blow the whistle.

Ms Dalziel said the committee was still looking at an inquiry, but would have to take legal advice on how to proceed on matters that might be before the courts, or being investigated by authorities.

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