Story: Business failures and corporate fraud
Page 4 – Failures since 1950
Intercity Distributors, 1958
It was not until 1958 that the state again intervened in company affairs with special legislation. Intercity Distributors were a group of 29 interlocking companies, some of which were in liquidation. Walter Nash’s Labour government, suspecting fraud, passed the Companies Special Investigations Act to stop the destruction of evidence.
Standard Insurance, 1961
In 1961 there was a far more serious business failure – that of the Standard Insurance Company, a blue-chip Dunedin-based general insurer established in 1874. Its crash was the result of losses arising from the mismanagement of its Sydney operation. Fortunately, the Dunedin-based National Insurance Company of New Zealand took over Standard’s policies (other than the finance and performance bonds that had brought the company down), acquired its goodwill, and re-employed its staff.
Standard’s demise weakened confidence in the New Zealand share market – partly because the company’s shareholders had to pay a 10-shilling call on each £1 share to help meet the deficit.
The JBL collapse hurt investors and creditors and damaged the reputation of New Zealand’s small entrepreneurial community. It had all the ingredients of a soap opera – family rivalry, greed, negligence and malfeasance. The only people to emerge looking good were the government and Doug Hazard, the receiver it appointed in place of the one appointed by the major creditor, the ANZ Bank.
In 1956, Jeffs Brothers Ltd was set up in Ruawai on the Kaipara Harbour. It was a contracting and manufacturing company owned by Jim, Kevin and Vaughan Jeffs.
By 1965 JBL was based in Auckland, where it put up commercial buildings, tenanted them and then sold the tenanted building. In 1967 it pioneered real estate syndication – forming syndicates for commercial property investment, with less than 25 members so as not to be liable for company tax. Small investors flocked.
At its height JBL had 52 companies, including fishing, cosmetics and mineral exploration, and had offices in Australia and Japan. It was about to move the corporate headquarters to London in 1972 when it collapsed due to a shortage of working capital, poor investments and failed partnerships, problems partly hidden by its lax accounting systems.
Doug Hazard, the receiver appointed by the government in the JBL collapse, spent 25 years unravelling the mess. He restructured several units of the group and sold them off. Almost $19.6 million was paid to secured creditors, who were paid in full, and $2.5 million paid to unsecured creditors, who were paid in part.
About 3,500 investors and 2,500 creditors were affected. Jim Jeffs was sentenced to jail (serving six months) and his brother Vaughan was fined, along with four other executives – though the Court of Appeal quashed all convictions except those of the brothers.
Cornish Lamphouse (1974) and Securitibank (1976)
The failure of JBL was seen as an aberration. But it was followed by a decade of corporate failures including Cornish Lamphouse in 1974 and the finance company Securitibank in 1976. The Public Service Investment Society nearly collapsed in 1979.
Securitibank was not a listed company and many investors lost all their money. Its collapse led the National government to pass the Securities Act 1978 to ensure that people who invested had a registered prospectus with full and proper disclosure. It led to further securities legislation, including the policing of insider trading (where friends or associates of a company profit from inside information).
1987 stockmarket crash
The international stockmarket crash of 1987 affected New Zealand more severely than other western countries. Between 1988 and 1991 many New Zealand-listed companies fell over, wiping away shareholders’ funds. Bankruptcies, which had risen gradually from under 100 annually in the immediate post-war years to about 800 in the early 1980s, increased to almost 2,000 in 1989. That year there were almost 3,000 company insolvencies – almost a quarter of new company registrations.
In 1990 the National government spent $620 million recapitalising the Bank of New Zealand. This appeared to favour the minority shareholder, Fay, Richwhite & Company, and hardened public attitudes towards the behaviour of big business.
Three years later Allan Hawkins, the founder of the investment company Equiticorp, was jailed for fraud along with other directors after the company’s collapse.
The founder of Bridgecorp Finance, which collapsed in 2007, was Rod Petricevic. He had worked for Securitibank, which crashed in 1976, and was a casualty of the failed investment bank, Euro-National Corporation, which was taken over in 1992. Petricevic was declared bankrupt in 2008.
Rising interest rates and weakening used-car and property markets impacted heavily on the finance company sector from 2006. In May that year, car financier National Finance 2000 failed.
It was followed by a string of other finance company failures, the most notable being property financier Bridgecorp Finance (New Zealand), part of the large Bridgecorp financial services group. It collapsed in 2007, owing 18,000 investors half a billion dollars.