Opinion & Analysis
OPINION: There is a worrying parallel to the financial uncertainties facing investors in the David Ross group of companies and those confronting shareholders 50 years ago in the crash of the Dunedin based Standard Insurance Company, then rated as one of the country's soundest investments.
Initially no-one knew how much they stood to lose: and only one man had all the answers.
But there was a crucial difference - the devastated Standard Insurance widows and others desperately seeking information about their lost money had another ghastly headache: the prospect of having to find even more to settle the company's huge losses. Each investor was in trouble because each £1 (or 20 shilling) share was paid to only half this: meaning each was liable to pay a further 10 shillings a share when called on to do so.
The Standard liquidators duly called this money up in April 1962. It was a sizeable sum when the daily paper cost three pence and a five ounce beer sixpence. With ten bob I could buy 20 small beers - if I could drink that fast before the pub closed at six o'clock.
The company's problems were the result of a series of unauthorised, shonky deals run up over a decade by a rogue manager, H D C Wilson, in the Sydney office.
Even though I've reported numerous corporate disasters over the ensuing years, I've no trouble recalling the total disbelief investors felt after some were left penniless by the actions of a single individual. Many were widows or single women (there were a lot of these in the post war years) who had been left money by their parents and told: "Never sell Standard."
The situation facing many of them is likely to have been worse than for those who lost money in recent finance company or other corporate disasters. In the sixties there was little social welfare available and the state pension was relatively tiny before the initially extremely generous Muldoon superannuation scheme was launched a decade or so later.
I was 20 when details of the crash broke - it was the biggest business story I covered as a reporter on the Dunedin Evening Star. It gave me an early insight, understanding and sympathy for people faced with sudden financial loss. People at Standard's final annual meeting couldn't comprehend what had gone wrong. Their faces were bleak; many had no-one to turn to.
The 1500 shareholders thought their money was secure. Standard, founded in Dunedin in 1874, had 70 per cent of its business in Australia, and had paid dividends of up to 22.5 per cent on capital. The 1959 annual report, at a time of known economic problems in Australia, showed underwriting and investment had fallen slightly to £90,000. But reserves stood at £590,000 with a further £443,000 set aside for unpaid and unadjusted risks. It had just built a fine new Sydney office.
The shares were selling at up to 42 shillings before rumours began circulating that the company might be in trouble. A prominent Dunedin broker told me he was advising his clients to sell: most refused.
The company's problems began when it gave Sydney manager Wilson power of attorney to sign documents rather than send them to Dunedin for signature. In 1957 he began giving solvency guarantees to a company called Production and Enterprises Ltd, one of 30 companies in the Harp and Stuart Credits group that had a poor reputation in Australia, and was regularly criticised in the financial press. This investment cost the Standard £263,000, about a fifth of which was made by Wilson against board directions.
Wilson continued to make things worse by issuing further loans and guarantees to the same group: none of which were apparently advised to the Dunedin head office.
Alarm bells finally rang when Wilson refused to take sick leave and the Dunedin management took over, discovering many irregularities. This included a cache of guarantee and reinsured bonds totalling A£2.9 million hidden in an unused staff locker. In total Wilson had issued loans totalling A£3.4m effectively to a single customer, Harp and Stuart. None of this was reinsured or recovered.
As the company's problems unravelled, Standard directors played for time, turning down a takeover proposal from NZ Insurance. When they finally agreed to the offer, NZI said no.
Currently there is much talk about courts being lenient to white collar criminals. The Standard directors issued a writ against Wilson for A£2m but he filed a counter claim and the action was discontinued. In June 1964 however the liquidators took proceedings against Wilson in the Sydney Equity Court. On July 23 he was found guilty of malfeasance involving nine transactions and was ordered to pay A£211,848 in compensation to the company - not to shareholders.
In the final chapter - according to the Te Ara History of New Zealand - the Supreme Court ordered that all the guarantees issued by Wilson, in defiance of his head office instructions, were none the less enforceable in law. A single man had cost the company's shareholders a fortune.