In the course of the Investigation, I have examined the relationship of the Bank and Beneficial Finance with the Equiticorp Group of Companies (as described hereunder). This relationship involved the Bank and Beneficial Finance entering into certain transactions with these companies during the period under review as part of the Bank's commercial banking operations and as part of the business activities of Beneficial Finance.

The Chapter refers to several transactions involving the Bank Group and Equiticorp but concentrates on two such transactions; the purchase by the Bank of Oceanic Capital Corporation in March 1988, and Beneficial Finance's purchase of receivables from the Equiticorp Group in early 1988. To put those several transactions into the appropriate context, the Chapter begins with an explanation of a transaction that the Equiticorp Group entered into in October 1987.


The stock-market crash of 1987 occurred in the middle of October.

At about that time, the New Zealand Government was the majority shareholder in New Zealand Steel Ltd (it held about 89 per cent of the issued shares), and was looking to sell its shareholding.

The New Zealand based Equiticorp Group of Companies (`Equiticorp') through the parent company, Equiticorp Holdings Ltd ("Equiticorp Holdings"), was run by a Board of Directors whose chairman was Mr A R Hawkins, and which included Mr T M Clark. The latter had been a director for some years, and continued so until his resignation in July 1988. He and Mr Hawkins had previously had business associations, and were also co-directors of Equiticorp (Tasman) Ltd. Mr Hawkins has recently been convicted in New Zealand of a number of counts of dishonesty in relation to the affairs of Equiticorp. Equiticorp Holdings and the Bank had an ongoing business relationship since 1985.

On 19 October 1987, Equiticorp Holdings agreed with the New Zealand Government to purchase that Government's 89 per cent shareholding stake in New Zealand Steel Ltd.

The total consideration for this acquisition of shares was $NZ 327.0M ("The New Zealand Steel Purchase"). The $NZ 327.0M consideration due to the New Zealand Government was to be satisfied by an issue of 92.9M Equiticorp Holdings shares.

On the same date, Buttle Wilson Limited, an Auckland stockbroker, agreed with the New Zealand Government that it would purchase or would procure a purchaser for the 92.9M Equiticorp Holdings shares, that the Government was to receive in exchange for its 89 per cent shareholding in New Zealand Steel Ltd, on or before 20 March 1988.

The guaranteed price, as explained hereunder, payable to the New Zealand Government for its 92.9M Equiticorp Holdings share was $NZ 327.0M ($NZ 3.52 per share).

Also on 19 October 1987, a further agreement was entered into between Equiticorp Holdings, two companies controlled by Mr Hawkins named Ararimu Holdings Limited and Richardson Camway Limited, and Buttle Wilson Limited (the "Take-out Agreement").

Pursuant to the Take-out Agreement, Ararimu Holdings Limited and Richardson Camway Limited agreed to use their best endeavours to fulfil Buttle Wilson's obligations to the New Zealand Government to find a purchaser for the 92.9M Equiticorp Holdings shares. A further condition of the Take-out Agreement was that, in the event that Ararimu Holdings Limited and/or Richardson Camway Limited were unable to find or procure a purchaser, then they themselves would purchase the shares at the agreed price of $NZ 327.0M.

It was also agreed between the parties to the Take-out Agreement that, in the event of Mr Hawkins' companies acquiring the Equiticorp Holdings shareholding, then Equiticorp Holdings, or companies within that Group, would lend the necessary funds to the Mr Hawkins controlled companies to finance the $NZ 327.0M share acquisition.

When the sharemarket crash occurred, the market value of the Equiticorp Holdings shares fell immediately, to close to $NZ 1.00 thus creating a situation whereby, pursuant to arrangements in place, the purchaser was committed to paying an amount 3.27 times the current market value of each share.

During November 1987, Equiticorp Holdings made a full take-over bid for New Zealand Steel Ltd and between 20 January 1988 and 20 March 1988 acquired the eleven per cent balance of New Zealand Steel Ltd shares formerly held by the public.

On 16 March 1988, Buttle Wilson Ltd advised the New Zealand Government that it had procured Ararimu Investments Four Limited to purchase the 92.9M Equiticorp Holdings shares under the terms of the Take-out Agreement.

Ararimu Investments Four Limited was a company owned as to 80 per cent by the Ararimu Trust, 10 per cent by Richardson Camway Limited, and 10 per cent by Mr Hawkins.

Between 17 and 21 March 1988, Ararimu Investments Four Ltd purchased the Equiticorp Holdings shares by paying $NZ 327.0M to the New Zealand Government.

The funding for this share acquisition was provided by Elders Merchant Finance Limited (New Zealand) to extent of $NZ 105.0M. The remaining $NZ 222.0M was paid by various companies within the Equiticorp Group.

The payments totalling $NZ 222.0M from the Equiticorp Group were made during the period between 24 February 1988 and 14 March 1988.

At the time of the New Zealand Steel Purchase, New Zealand Steel Ltd had important financing arrangements with several Japanese banks. The facilities provided to New Zealand Steel Ltd by those banks were based on their assessment of the degree of credit risk associated with the facilities: New Zealand Steel Ltd was, for the purpose of the arrangements, deemed by the banks to be a `sovereign risk', because it had the backing of the New Zealand Government.

The take-over by Equiticorp Holdings, however, divested the New Zealand Government of all its holdings in New Zealand Steel Ltd, and thus terminated its backing. The Japanese banking interests thereupon declared the risk to be no longer a sovereign risk, but a `corporate risk', that rested solely on the credit-worthiness of New Zealand Steel Ltd, and its principal shareholders. They withdrew their lines of credit to New Zealand Steel Ltd.

The effect of the withdrawal was that New Zealand Steel Ltd, now owned by Equiticorp Holdings, was in pressing need of `working capital' and `liquidity' support, which imposed a burden on it quite independently of the consequences of the funding of the $NZ 220.0M purchase of Equiticorp Holdings shares by Ararimu Investments Four Limited.

The minutes of the directors' meeting of Equiticorp Holdings held in Auckland, New Zealand, on 27 October 1987, indicate that details relating to the share acquisition of New Zealand Steel Ltd were discussed by the directors present at that meeting. The minutes show Mr Clark as being present. The directors' minutes and relevant Board Papers (copies obtained from the Statutory Manager of Equiticorp Holdings) make certain references to this transaction. In particular the minutes state:-

"Details were submitted to Directors recording the proposed acquisition of all the share capital of New Zealand Steel. The following documents were tabled:

A. An Agreement dated 19 October 1987 between the Company and the Minister of Trade and Industry, David Francis Caygill for the sale of the Crown Shares in New Zealand Steel.

B. A draft document relating to the formal take-over offer pursuant to Section 4(1) of the Companies Amendment Act 1963.

C. A Deed dated 19 October between Buddle Wilson Limited and the Company and others.


That the Execution under Seal by the Company of the documents referred to in A and C above be ratified and the execution on behalf of the company of the document referred to in B above, essentially upon the terms and conditions of the document produced at the meeting, be approved." ()

It should be noted that the New Zealand Court, in the proceedings referred to earlier in relation to Mr Hawkins, found that an explanation of the Deed referred to in C above was deliberately omitted from the minutes.

Mr Clark would for the reasons stated hereunder have been aware, as a consequence of his attendance at a Directors meeting of Equiticorp Holdings held on 30 November 1987, that the Equiticorp Group was facing liquidity problems as a result of the New Zealand Steel Ltd deal.

Mention of the impending liquidity problem was made in Board Papers for that meeting under the heading "Comments on Cash Flow and Borrowings" where it is stated:


8. It is presently anticipated that three quarters of the public shareholding in New Zealand Steel will be settled by way of cash with $16M being payable in the last week of December and the balance in early February.

9. New Zealand Steel have a facility with Mitsubishi Bank (Hong Kong) of US$50M which is due for repayment in December and they have also received formal notification from Mitsubishi Bank (Europe) that a further facility of US$50M is repayable under the change of ownership clause, which gave the Bank the right to call the loan in the Crown's shareholding of New Zealand Steel reduced below 51%. At this stage New Zealand Steel will have no available undrawn facilities to meet these repayments and hence the need for Equiticorp to plan for the funding of these repayments.

10. Our cash flow forecast also includes a worst case scenario with regards to the placement of EHL shares by Buttle Wilson whereby we may be required to fund a shortfall on 20 March 1988.

Also included in our cash flow are various possible additional cash flows which are currently being pursued. In addition to those listed several other initiatives are being pursued which will all help to fund the large deficits showing through to March 1988. Obviously the major issues to be solved are:

1. Funding of New Zealand Steel cash shortfall.

2. Payment of Aurora purchase to Chase on 15 January 1988.

3. Funding of New Zealand Steel payment on 20 March 1988." () [Emphasis Added]

The same Board Papers under the heading "Group Investments Cash Flow" shows an anticipated outflow in March 1988 of $NZ 327.0M.()

It is clear from the New Zealand Court finding that Mr Hawkins failed to keep the Equiticorp Holdings Board fully informed apart from those matters referred to above.

For the reasons stated in this Chapter, however, it is impossible to resist the inference that the liquidity problems then facing Equiticorp Holdings were associated with the events leading to several of the Bank's transactions examined below.

It will be convenient to examine the course of transactions that followed, disengaged from the main question of whether Mr Clark caused or contributed to the transactions with intent to achieve the final outcome.

In March 1988, Mr Clark, as well as being a director of long standing on the Equiticorp Holdings Board, had also been Chief Executive Officer and Managing Director of the Bank Board since 1 July 1984. It has been pointed out by Mr Clark, and in evidence given to the Royal Commission, that his appointment to the Equiticorp Holdings Board was discussed by the Bank Board and approved. It appears that the Bank considered it good for the Bank to have this outside connection. As a director of the Bank Board, Mr Clark absented himself from meetings related to Equiticorp Holdings advances.()

As matters fell out, liquid finance was, by the end of March 1988, provided by the Bank to Equiticorp Holdings, in particular through two major transactions - the purchase by Beneficial Finance (a 100 per cent owned member of the Bank Group) of Equiticorp Holdings receivables, and the purchase by the Bank of Oceanic Capital Corporation Ltd ("Oceanic Capital Corporation) - the latter on 24 March 1988, four days after the day for settlement of the cash payment of the New Zealand Steel Purchase; the Premier's approval for the Oceanic Capital Corporation purchase was given on 30 March 1988.

What appears to me to be significant about these two purchases is not so much that they were made, or that they represented the part implementation of the Bank's strategy to expand into New Zealand, but how the deals came to be made, and when they were made, including, the circumstances associated with the payment to the Equiticorp Group of Companies.




Oceanic Capital Corporation was the parent company of the Oceanic Capital Corporation Group. The business of the Group comprised life insurance in Australia and New Zealand, funds management (of about $329.0M), a small general insurance operation, and a majority interest in a credit card services company.

At material times, APA Holdings Ltd ("APA Holdings"), a company owned by Mr G Carter, held 100 per cent of the Oceanic Capital Corporation share capital. APA Holdings had originally planned to make a public float of Oceanic Capital Corporation by December 1987, but the share market crash induced APA Holdings to offer it for sale privately. The acquisition of Oceanic Capital Corporation is examined in Chapter 17 - "Case Study in Acquisition Management: The Oceanic Capital Corporation".

The first move towards purchase of Oceanic Capital Corporation by the Bank was made by Mr Clark, who introduced the subject of the acquisition personally in that he referred information from Mr P Johnston of Campbell Capital Ltd to Mr J B Macky to follow up. Mr Clark subsequently had discussions with Mr Carter in relation to salary packages for senior executives of Oceanic Capital Corporation. On 16 December 1987, Equiticorp (Tasman) Ltd (one of the Equiticorp Group) forwarded, to the Bank, valuation reports on Oceanic Capital Corporation Management Rights and APA Holdings Life Assurance (subsidiaries of Oceanic Capital Corporation and APA Holdings respectively). The covering letter, signed by the Managing Director of Equiticorp (Tasman) Ltd, referred to earlier telephone discussions, and was addressed to Mr Clark.

Mr Clark has confirmed that he "would have been aware", at the time of the negotiations for Oceanic Capital Corporation, that Equiticorp had a loan facility in place with the owner of Oceanic Capital Corporation (ie APA Holdings). In his written submission to me dated 29 January 1992, Mr Clark also advised that:

"Equiticorp board approval of such a facility was invariably based on a detailed submission which I would have seen. Further, the monthly Equiticorp board reports included regular reporting of the status of Equiticorp loan facilities


When Mr Johnston rang me to say that Oceanic was for sale I would have been aware at that time of the Equiticorp/APA facility." [Emphasis Added]

Mr Clark was aware that Equiticorp's loan was secured, and it is likely that he was also aware that that security was by way of a charge over APA Holdings shares in APA Life Assurance Ltd. This company eventually formed part of Oceanic Capital Corporation.

Bank management investigated the proposed acquisition, and, on 17 February 1988, sought approval in principle from the Board to enter into negotiations to acquire Oceanic Capital Corporation. The submission in support proposed: that the acquisition would be subject to independent valuation; that Accountants should make a detailed examination of Oceanic Capital Corporation's records; and that the price should be subject to "due diligence", adjusted, if necessary, according to the results of that process. I am satisfied that Mr Clark participated in the meeting; he told the Royal Commission that he had no input into the Board Paper but in any event, he was accustomed to vetting all documents going to the Board and supporting their contents.()

The Board gave the approval sought, subject to the further condition that there should be a satisfactory independent valuation by consulting Actuaries and Accountants. Minutes of the meeting made no mention of the examination of records by Accountants alone or to due diligence, and did not record the Board as specifying whether due diligence should take place before or after the acquisition.

Mr R G Pitcher (from Peat Marwick, advisers to the Bank on finance and accounting) has revealed to the Inquiry that, at some stage, a decision had been made, somewhere in the Bank's organisation, to offer $55.0M for Oceanic Capital Corporation.

On 25 February 1988, the Board met again and formally approved the $55.0M offer, subject to the conditions particularised at its meeting of 17 February. It also stipulated that the sum of $10.0M be held, `in escrow'. Had that stipulation been complied with, then that $10.0M sum (as part of the price) would be paid only after the report of the consulting Actuaries and Accountants was found to be satisfactory.

The offer was made but was, on 5 March, rejected by APA Holdings.

One should here interpose the comment that the one entity directly or indirectly concerned in the foregoing negotiations which was, at that point, under pressure to see the deal concluded without loss of time was Equiticorp Holdings. For Equiticorp Holdings, the day of cash settlement for the New Zealand Steel Purchase was approaching; it so happened that, at all material times, the Equiticorp Group, was a secured creditor of APA Holdings and would receive much needed funds on the sale of the Oceanic Capital Corporation shares and the concurrent repayment of the debt due by its shareholder APA Holdings. It was very much in Equiticorp Holding's interest for the debt owing by APA Holdings to be repaid on the due date, but this was most unlikely to happen if APA Holdings did not promptly accept the bank's offer.

On 15 March 1988, APA Holdings asserted to the Bank that an offer from another bidder was in the process of being formalised, invited the Bank to reconsider its offer, and proposed that negotiations should be continued in Adelaide.

A week later, negotiations were re-opened, with the Bank's offer now standing, surprisingly, at a higher, rather than a lower, figure - $60.0M (with only $2.0M held in escrow). Mr Clark said in evidence that he had no role in the re-opening of the negotiations, nor in the reduction of the escrow amount(), although as I have noted earlier, the Board Paper which went to the Board would have been vetted and supported by him. Heads of Agreement were thereupon entered into between the Bank and APA Holdings for the purchase at that figure. On 24 March, a recommendation for the purchase of Oceanic Capital Corporation went to the Board, which approved it.

The Premier approved the purchase on 30 March 1988.

The agreement for the sale of Oceanic Capital Corporation identified Equiticorp Holdings Group Limited as a secured creditor of APA Holdings, and as a direct beneficiary of the proceeds of sale; APA Holdings was promptly paid by the Bank, and the Equiticorp Group, received the $A 27.0M outstanding under its loan as part of the settlement of the purchase of Oceanic Capital Corporation.

In his written submission of 29 January 1992, Mr Clark says:

"It seems (with respect) that any suggested conflict is technical - so long as the State Bank Board was aware of the material facts. In this connection, the relevant material fact was that (the owner of Oceanic Capital) was obliged to repay a substantial debt in March 1988, which it was unable to do without selling assets of one sort or another. That fact was clearly and fully disclosed to the State Bank Board.

State Bank Board Paper 88/31 includes the following comments:

(a) At page 2: "Unity Corporation must sell Oceanic as it requires funds to meet debt commitments. A firm agreement is sought by the end of February".

(b) At page 5: "... Unity Corporation are (sic) in urgent need of cash".

(c) At page 6: "... indications (are) that Unity Corporation wish to have a contract to sell the company by the end of February ...".

State Bank Board Paper 88/83 includes the following comment:

(a) At page 2: "APA has a time pressure as it has debts outstanding requiring settlement by the end of March".[Emphasis Added]

The Bank Board would have been aware of these facts having regard to the contents of the Board Papers referred to above. The point, in my view, is that the Bank Board (apart from Mr Clark) did not know that the substantial debt (nearly half of the purchase price) was payable to the Equiticorp Group.

As indicated above, this transaction is examined in detail in Chapter 17 - "Case Study in Acquisition Management: The Oceanic Capital Corporation" of this Report.




On 25 June 1987 the Board of Directors of the Bank confirmed a round robin decision, made by the directors over the period 30 May to 1 June 1987, to approve a $200.0M commercial bill facility to Equiticorp (Tasman) Ltd, Equiticorp (Tasman) Ltd being a subsidiary company of Equiticorp Holdings. The purpose of this facility was to fund a proposed acquisition of the shareholding of Monier Ltd (Monier).

This Board approval was made notwithstanding that the Reserve Bank of Australia ("Reserve Bank") counselled strongly against it. This matter is referred to later in this Chapter in Section 26.8.1 and is also discussed in Chapter 15 - "The Relationship with the Reserve Bank of Australia" of this Report.

The directors of the Bank who were present at this meeting on 25 June 1987 were as follows:

(a) Mr L Barrett;

(b) Mr D W Simmons;

(c) Mr R D E Bakewell;

(d) Mrs M V Byrne;

(e) Mr R E Hartley;

(f) Mr W F Nankivell;

(g) Mr R P Searcy;

(h) Mr A G Summers; and

(i) Mr T M Clark.

Subsequent to the Board granting approval for this facility the Bank reduced its exposure to $65.0M by selling down portion of the facility to Elders Finance and Investment Co Ltd, First Chicago Australia Ltd, and BBL Australia Ltd. On 13 November 1987, Equiticorp (Tasman) Ltd advised the Bank that it would not be proceeding with the Monier bid and would no longer require the facility.

A short time later Equiticorp (Tasman) Ltd advised the Bank that it had extended its offer for Monier until 21 December 1987 and requested that the Bank reinstate $50.0M of the previous $65.0M facility for a term of thirty days from 21 December 1987. This request was approved in principle by a round robin of directors on 14 December and confirmed at a meeting of the Board on 17 December 1987. This approval gave the Bank an existing limit exposure of $155.0M to the Equiticorp Group at this date.

By 11 December 1987 Equiticorp (Tasman) Ltd had acquired approximately forty eight per cent of the shares of Monier.

At this date, Equiticorp (Tasman) Ltd agreed with a United Kingdom based company called Redland PLC (Redland) to purchase that company's fifty per cent shareholding in Monier at an all up cost of $650.0M.

A condition of the agreement between the two companies was that Redland would in turn purchase the Monier roofing tile operations from Monier for $314.0M made up of $298.0M cash and $16.0M by way of assumption of debt. The two transactions were to occur simultaneously.

The Bank's Board Papers indicate "The $650.0M will be raised by ETL as follows:

[insert table here

The share acquisition proceeded with the drawdown of funds taking place on 21 December 1987.

On 15 January 1988 Equiticorp (Tasman) Ltd utilised the $298.0M cash received from the sale of Monier's roofing operations to retire debt owing to the Bank of New Zealand and Equiticorp Australia.

On this same date, $15.0M of an approved and committed Bank facility for Equiticorp Australia Ltd ("Equiticorp Australia") was transferred to the facility of a wholly owned subsidiary of Equiticorp (Tasman) Ltd named URUZ Pty Ltd (URUZ). The effect of this transfer was to reduce the limit of the Bank Facility of Equiticorp Australia to $35.0M and increase the Bank Facility limit of URUZ to $65.0M.

Prior to this transfer URUZ was $15.0M in excess of its facility limits. On 28 January 1988 the Board of Directors of the Bank approved an extension of the $65.0M facility to 30 June 1988. This action was taken on the basis that it did not increase the Bank's exposure to the Equiticorp Group, nor, prejudice the Bank's security position.

At 20 January 1988 the Bank had an exposure of $172.1M to the Equiticorp Group.

At their meeting on 17 December 1987, the Board also confirmed a round robin decision of 14 December 1987 for the Bank to purchase a portfolio of loan receivables from Equiticorp Australia for an amount of $150.0M.

The Board Paper recommending that the Board of Directors confirm their round robin approval of 14 December 1987 stated, inter alia:

- "EAL will apply the proceeds of the sale of this asset to an intercompany loan to ETL.

- ETL will in turn use this loan to assist with the purchase of Redland PLC's shareholding in Monier Limited ("Monier");

- The agreement between ETL and Redland PLC is irrevocable and requires ETL to sell the Monier roofing tile operations to Redland for consideration of AUD $315.0M. The two transactions will occur simultaneously;

- Once these funds are released ETL will repay EAL which will in turn repurchase the loan receivables from the Bank in terms of a Put option between EAL and the Bank".()

The minutes recording the meeting of the Bank's Board of Directors on the 17 December 1987 show the following directors as being present:

(a) Mr L Barrett;

(b) Mr D W Simmons;

(c) MR R D E Bakewell;

(d) Mrs M V Byrne;

(e) Mr R E Hartley;

(f) Mr W F Nankivell;

(g) Mr R P Searcy;

(h) Mr A G Summers; and

(i) Mr T M Clark.

The minutes also indicate that Mr Clark declared an interest in the proposal as a director of Equiticorp Australia and was absent whilst this matter was discussed by the Board.

Following the repayment by Equiticorp (Tasman) Ltd of the $150.0M loan to Equiticorp Australia on 15 January 1988, Equiticorp Australia repurchased its asset portfolio of receivables from the Bank for $150.0M plus an incremental amount of approximately $1.3M.

I am of the opinion, that the `purchase' and `sale' of these receivables by the Bank, within less than a month, was merely a mechanism whereby the Bank granted a loan facility to fund Equiticorp (Tasman) Ltd's share acquisition of Monier. It is my view that the loan was structured in this manner to circumvent the Reserve Bank's large exposure prudential recommendations and to avoid repetition of the objections and criticisms expressed by the Reserve Bank in June 1987 when the Equiticorp request for a $200.0M facility was first proposed. There is no evidence to suggest that the Board was a party to structuring the loan in the way outlined above or for the purposes suggested.

Any involvement by the Reserve Bank at this stage could have, at the very least, caused delay to the availability of the funding to Equiticorp (Tasman) Ltd and prevented the share acquisition of Monier proceeding as planned.

The timing in this transaction was crucial. On 13 November 1987 Equiticorp (Tasman) Ltd had advised the Bank that it was no longer proceeding with the share acquisition of Monier and would no longer require the funding previously negotiated in June 1987 for that purpose.

By 27 November 1987 Equiticorp (Tasman) Ltd had changed its mind and advised the Bank that its intentions were to proceed with the share acquisition and extended their offer to Monier shareholders to 21 December 1987. On 14 December 1987 the Directors gave a round robin approval for the facility of $50.0M and to purchase the portfolio of receivables to the value of $150.0M from Equiticorp Australia. The Board met on 17 December 1987 and confirmed their decision of 14 December 1987. Clearly, the four day period between 17 December 1987, (being the date the Board confirmed the decisions to re-instate the $50.0M facility, and to purchase the receivables), and 21 December 1987 (the date the offer closed, and the date the actual draw down of $150.0M took place), did not allow for any delays as a consequence of issues being raised by the Reserve Bank.

The same Board members were present at the meetings on 25 June 1987 and 17 December 1987. I have discussed the Reserve Bank relationship aspect of this matter in Chapter 15 - "The Relationship with the Reserve Bank of Australia".




On 21 January 1988, Equiticorp Australia Limited (EAL) formally requested that the Bank provide a $100.0M standby sale and buy back of receivables arrangement. It was intended that the mechanics and documentation of this facility would be similar to the December 1987 transaction between the Bank and Equiticorp (Tasman) Ltd, described above in Section 26.3.

The Facility was requested for the period ended 29 June 1988. It was anticipated that the facility would be available during this period provided that the purchase of receivables would not extend beyond thirty days and that a guaranteed take-out was in place beforehand.

The approach to the Bank for this facility was a consequence of the liquidity problems that the Equiticorp Group was experiencing at this time. These liquidity problems were a result of the withdrawal of funding lines to New Zealand Steel Ltd due to the change of ownership.() The Equiticorp Group were currently negotiating with the Mitsubishi Bank and the Bank of New Zealand for replacement facilities for New Zealand Steel. They were seeking, however, the additional comfort of knowing that they could sell portion of their receivables portfolio at short notice to reliquefy.

A submission to this effect to the Lending Credit Committee was prepared and recommended by Mr R C Norris, Senior Manager, Corporate Banking and supported by Mr D C Masters, Chief Manager, Corporate Banking. The submission was dated 21 January 1988.

This submission stated inter alia:

"The proposed arrangement to purchase the asset portfolio will be on the basis that it is non-recourse to EAL. There is therefore no exposure to the Equiticorp Group." ()

The submission also stated that Equiticorp Australia had identified $75.0M in take-out funding that would be available within the Group by February 1988.

The Lending Credit Committee, at its meeting on 27 January 1988, approved the standby facility, and, on that date, made a recommendation to the Board of Directors that they approve the arrangement. At a meeting of the Board of Directors, on 28 January 1988, the Bank's Board approved the Lending Credit Committee's Recommendation.

No mention was made in the papers submitted to the Lending Credit Committee or to members of the Board of legal advice, previously received from the Bank's external solicitors, that was relevant to this matter. The Bank's external Solicitors expressed serious concerns regarding the Bank's position at the time of the $150.0M receivables purchase in December 1987. I am not aware of any evidence which would indicate that these legal concerns were advised to Board members.

These legal concerns have been detailed in Chapter 15 - "The Relationship with the Reserve Bank of Australia" of this Report.

By an internal memorandum dated 1 February 1988 an officer from the Bank's Legal department expressed his concerns to Mr S M Pyper, Manager New Zealand, Corporate Accounts regarding the $100.0M standby sale and buyback of receivables arrangement.

On 2 February 1988, Mr Pyper wrote a paper to Mr Masters expressing his concerns.

In particular some of the concerns expressed in his paper were:

"1. The documents prepared for the initial transaction were prepared on a `one-off' basis and may not be suitable for the proposed arrangement.

2. The proposed arrangement raises further difficulties other than proposed by the initial transaction because of the longer term nature.

3. The proposal appears more like a loan than the initial transaction and when looked at together with that proposal, a loan is the most likely result. Hence the RBA requirements may be of concern".

Mr Pyper concluded in his paper dated 2 February 1988 by stating:

"It is felt that because of the Bank's significant exposure to the Equiticorp Group, the fact that if the facility was deemed a loan, we would be in excess of our prudential limit, and the relationship of the Bank's Managing Director as a Director of Equiticorp and a number of its subsidiaries, participation further in this transaction places the Bank in a precarious position".()

Coincidently, on 2 February 1988 a policy paper from the Reserve Bank was received by the Bank which amongst other things covered Asset Sales and Repurchase Agreements. The Reserve Bank paper confirmed that, in the circumstances of the transaction now being considered, if the Bank proceeded with the `standby sale and buy back facility' it would be required to record the exposure against the Equiticorp Group, at least for measuring capital adequacy ratios.

By letter dated 4 February 1988 Mr G S Ottaway, General Manager, Corporate and International Banking advised Equiticorp Australia that the Bank would not proceed with the Asset Purchase Facility.

The reasons for the Bank rejecting the request of the standby facilities were stated in this letter to be:

"Legal implications, in addition to advice received from the Reserve Bank of Australia on 2 February 1987, (Regarding the Bank's treatment of the exposure under the proposal) preclude the Bank from entering into the transaction".()

A paper dated 5 February 1988 prepared by Mr Pyper was submitted by Mr Norris to the Lending Credit Committee reversing the Board's decision on 28 January 1988 to approve the provision of a standby facility.

The paper quoted the fact that detailed investigations into the practical and legal aspects had established that this facility, if granted, would be considered as exposure to the Equiticorp Group and consequently the Bank rejected the proposed facility.

The Lending Credit Committee at its meeting on 9 February 1988 noted the cancellation of the facility. There is no evidence that management's decision to reverse the Board approval was advised to the Board.




During the period January to March (inclusive) 1988, Beneficial Finance negotiated for the acquisition of, and acquired, five portfolios of receivables, comprising loans from various Equiticorp companies: four portfolios related to Australian receivables, and one to New Zealand receivables.

The circumstances of, and leading up to, these acquisitions, and the respective performances of the portfolios acquired, will be examined at length in a later Report. Several facts can be said to have been established.

(a) Mr J A Baker was, throughout, Managing Director of Beneficial Finance, and Mr Clark was, as well as being Managing Director of the Bank and Director of Equiticorp, also a director of Beneficial Finance.

(b) The acquisitions were carried through by using two subsidiaries - namely, Dynour Pty Ltd and Gaimop Pty Ltd - of a Beneficial Finance off-balance sheet company, Kabani Pty Ltd.

(c) The Beneficial Finance Board did not, formally, approve any of the transactions, but for reasons that will be detailed by me in a later Report, I am satisfied that the Beneficial Finance Board understood what was being done. They were negotiated and concluded by Management of Beneficial Finance, under the direction of Mr Baker.

(d) The portfolios were, from a purely commercial point of view, acquired rapidly, and in successive and overlapping transactions.

(e) In the acquisition of the second tranche of receivables in New Zealand, the funding for which was provided by the Bank of New Zealand (to Ravlick() Ltd), the Bank gave a guarantee for $NZ 20.0M in favour of the Bank of New Zealand; Beneficial Finance provided similar additional security to the Bank of New Zealand in the sum of $NZ 30.0M. Such generous participation by the Bank was, in the circumstances, surprising.

(f) The Beneficial Finance Board resolved to lend moneys to companies associated with Beneficial Finance to enable the acquisition of the Equiticorp receivables to take place; the amounts the subjects of the resolution were [$49.0M and $64.0M]. Minutes of the meeting at which these resolutions were passed indicated that they were held on 5 January 1988. Only two directors ie Mr L Barrett and Mr Baker were stated as present together with Mr B D Barton the Company Secretary of Beneficial Finance. According to the evidence of Mr Baker, no actual meeting ever took place. They were referred to as paper meetings. This subject will be dealt with in more detail in my report on the affairs of Beneficial Finance.

(g) In October 1987, Mr Clark (then a director of Beneficial Finance and Equiticorp) spoke to Mr Baker about the possibility of acquiring the receivable portfolios.

(h) The acquisitions of the Australian and New Zealand receivables, which were concluded before the end of March 1988, resulted in the injection into Equiticorp of a substantial volume of liquid funds, which I may safely place at something in excess of [$NZ 220.0M].




The Oceanic Capital Corporation purchase and the Equiticorp Receivables purchase cannot be considered separately. Time, circumstances, protagonists, and outcome, unite to proclaim the improbability that they were simply parallel, but independent, commercial transactions, which did not share a common origin.

(a) In each case, the deals were pursued and concluded after the stock market crash had left Equiticorp facing the possibility of financial difficulties if it did not access liquid funds, sufficient to meet, before 20 March 1988, the requirements of the Take-out Agreement made on 19 October 1987.

(b) In each case, Mr Clark had been responsible for introducing the proposed deal - in the case of Oceanic Capital Corporation, to the Bank, and in the case of the Equiticorp Receivables, to Mr Baker, Managing Director of Beneficial Finance.

(c) Mr Clark was, at material times, Managing Director of the Bank, and director of Beneficial Finance and of Equiticorp. He was a business associate of Mr Hawkins, who was Chairman of Directors of Equiticorp, Mr Hawkins being heavily interested in meeting the burden of debt created by the Take-out Agreement made on 19 October 1987.

(d) The deals, together, divested and invested an amount in excess of two hundred million dollars. Quite apart from the foregoing directorships which Mr Clark held, he was Chief Executive Officer of the Bank. I accept, whenever it is relevant, that, for the record, Mr Clark declared his interests, and did not overtly press for negotiations to progress to a timely end; he told me in evidence that he was not fully aware of each deal's progress() but it is, to my mind, impossible to suppose that he did not, nevertheless, keep himself reasonably aware of what was happening as each deal proceeded to its conclusion, and of what that conclusion with all its consequences and implications would be. The awareness and burden of conflicts of interest must have been apparent to him in that, as a director of Equiticorp, he was aware, through attendance at Board meetings, of the affairs of that company and its financial position, and as a director and the Managing Director of the State Bank and a director of Beneficial Finance of the need for lending policies to be prudentially based.

In the Oceanic Capital Corporation deal, so far as records reveal, the important conditions that the Bank Board, at its meeting 25 February 1988, required to be fulfilled before the acquisition could be approved, were not thereafter adverted to: in the Equiticorp Receivables deal the Beneficial Finance Management, led, I am satisfied, by Mr Baker, carried through the hasty series of acquisitions without the participation of the Beneficial Finance Board, and involving `paper meetings'.

(e) Notwithstanding Mr Clark's denial in this regard(), in my opinion, he had a motive to relieve the financial burden on Equiticorp, founded on his position as a director and a shareholder.

(f) Finally, there is the question of time. In the setting of all other acts, events, and circumstances, it must be a significant coincidence that negotiations examined above led to the consummation of both deals so close to the day of cash settlement of the New Zealand deal more especially having regard to the otherwise inexplicable haste with which the deals progressed.





The duty of a director to avoid a conflict of interest is one of the duties that arises from his fiduciary position.

A conflict of interest is disclosed where a person, in circumstances where he is obliged to discharge a duty or exercise a power in order to serve the interests of one party, finds that he cannot do so without, at the same time, acting, or running an applicable risk of acting, contrary to the interests of a second party whose interests he is likewise obliged to serve.

All fiduciaries are under a duty to avoid conflict of interest situations.

This means that they must not allow a situation to develop where their duties to the person for whose benefit they act and their personal interests are, or may be, in conflict.

The obligation to avoid conflict of interests aims to prevent directors improperly making a profit from their office. It goes further than this, and prevents directors from putting themselves in a position where it appears that they may act in their own interests.

It is necessary to review the relationship between the purchaser and the vendor for potential conflicts of interests to ensure that any potential relationship did not jeopardise an objective assessment of the transaction.

The fundamental due diligence procedures considered necessary to review potential conflicts in the matters that have been discussed in this Chapter would include an examination and assessment of the following:

(a) The vendor's reasons for selling the portfolio.

(b) The existence of any common associations or relationships between the vendor and purchaser which should be taken to account during the due diligence examination.

(c) The other interests in the transaction which could generate potential conflicts of interest.

The Managing Director of the Bank, Mr Clark, who was also a director of Beneficial Finance, was the person who introduced the proposal to acquire the receivables from the Equiticorp Group. At this point in time, Mr Clark was a director of the New Zealand company, Equiticorp Holdings Ltd, being the parent company of the vendor companies. It was, therefore, relevant to the due diligence assignment to identify all potential conflicts of interest in the transaction to ensure that the Beneficial Finance Board was aware of all conflicts of interest and confirm that actual conflicts of interest did not jeopardise the assessment of the risks and benefits of the acquisition for the Bank and Beneficial Finance.


The specific due diligence procedures required to ensure that any potential conflicts of interest between the purchaser and the vendor did not jeopardise an objective assessment of the transaction can be summarised as follows:

(a) Details of any transactions by the vendor which may be relevant to show the vendor's reasons for disposing of the receivables.

In particular, the Equiticorp Group's vulnerability as a consequence of the October 1987 share market crash and Equiticorp Holdings Ltd acquisition of New Zealand Steel Ltd from the New Zealand Government.

The market price of the Equiticorp Holdings Ltd shares immediately prior to the October 1987 share market crash was approximately $NZ 3.50 per share. Immediately post crash the share market price was approximately $NZ 1.00 per share.

Equiticorp Holdings Ltd's eventual failure was contributed to by the share market crash in October 1987. In January 1989, the Equiticorp Group had collapsed and statutory managers were appointed to administer the affairs of the New Zealand Holding Company and official liquidators were appointed to wind up the affairs of the Australian companies within the Group.

At the time of the share market crash in October 1987, Equiticorp Holdings had agreed to purchase a company called New Zealand Steel Ltd from the New Zealand Government which held approximately 80-90 per cent of the issued share capital.

Equiticorp Holdings purchased New Zealand Steel Ltd from the Government for a consideration of $NZ 327.0M.

Equiticorp Holdings settled the purchase of New Zealand Steel Ltd shares by exchanging Equiticorp Holdings shares. There was also Underwriting Agreements attached to the transaction.

In March 1988, the New Zealand Government exercised its Underwriting Agreement over the New Zealand Steel Ltd shares, thus forcing their purchase at $NZ 3.52 at a time when the market price of the shares was $NZ 1.10. The Chairman of the Board of Directors of Equiticorp Holdings Ltd was Mr Hawkins.

Mr Hawkins' companies had a Take-out Agreement with the Underwriter in respect of this acquisition and accordingly was required to pay $NZ 327.0M to the Government.

This payment was achieved by Mr Hawkin's company, Ararimu Investments Four Ltd borrowing $NZ 222.0M from Equiticorp and $NZ 105.0M from another financier. It would appear that the non-executive directors of Equiticorp were unaware of this. The effect of these borrowings from the Equiticorp Group was to create a severe liquidity position.

In December 1987, the State Bank partially funded Equiticorp (Tasman) Ltd acquisition of Monier. The State Bank provided $200.0M of the $650.0M total consideration, Equiticorp (Tasman) Ltd being part of the Equiticorp Group.

To provide this funding on 16 December 1987, the State Bank purchased receivables to the value of $150.0M from Equiticorp Australia. Equiticorp Australia on-loaned the $150.0M to Equiticorp (Tasman) Ltd.

On 15 January 1988, Equiticorp (Tasman) Ltd repaid the $150.0M to Equiticorp Australia.

On the same day, Equiticorp Australia pursuant to a Put Option repurchased the $150.0M worth of receivables.

The balance of $50.0M was an outstanding loan to the Bank.

15 January 1988 was also the date that Beneficial Finance settled the acquisition of the South Australian receivables for $47.0M.

Directors of Equiticorp (Tasman) Ltd, at the date of this transaction, included Mr Hawkins and Mr Clark.

The supplementary Board Papers of the Bank show that Mr Clark declared an interest in this proposal when it was recommended to the Board of Directors and abstained from voting on the Board's recommendations. Those papers related to Equiticorp's cash flow problem.

Whilst it is acknowledged that certain of these events were subsequent to the period January 1988 to March 1988, being the dates the Australian and New Zealand receivables were acquired, prudent enquiries at the time of the transactions would have established material facts relevant for consideration by the Beneficial Finance Board in their decision-making process.

(b) All associations including common directorships and shareholdings between the vendor and the purchaser should be identified so as to ensure that all interests are adequately disclosed.

Mr Clark had been a director of the New Zealand company Equiticorp Holdings Ltd for some years and remained so until his resignation in July 1988. Mr Clark had previously had a business association with the Chairman of the Equiticorp Holdings Board of Directors, Mr Hawkins.

A reference to the Directors' Minutes of Equiticorp Holdings during the relevant period of October 1987 to March 1988 shows Mr Clark in attendance at the following meetings:

(i) 27 October 1987;

(ii) 30 November 1987;

(iii) 25 January 1988;

(iv) 29 February 1988; and

(v) 28 March 1988.

Mr Clark's shareholding in the New Zealand company increased over the years, mainly as a result of new share issues. From early 1988, through to September 1988, when he disposed of his shareholdings he had approximately 0.5M shares and 0.32M options.

(c) Any assessments of the transaction should be considered to determine whether they relied upon the opinions of parties who potentially have a conflict of interest.


(a) Neither Mr Baker nor any other member of the Beneficial Finance due diligence review team investigated the extent of other transactions between the vendor and any of the member entities of the State Bank Group.

(b) Mr Clark advised the Beneficial Finance Board of his conflict of interest at its meeting on 10 February 1988. There is no evidence that he participated in decisions in relation to the acquisition.() The minutes of the Beneficial Finance Board do not record Mr Clark's participation in regard to the discussion covering the portfolios.

Mr Baker has stated that he was aware of Mr Clark's relationship with the vendor. He has also stated that he was not put under pressure of any nature by Mr Clark to settle the transaction.()

The source through which the South Australian transaction was introduced to Beneficial Finance was noted in Mr Baker's letter to the Beneficial Finance Board of 29 or 30 December 1987 as being Mr Clark.

Mr Baker was unable to recall whether the other transactions were introduced to the Beneficial Finance Group by Mr Clark or through direct contact from Equiticorp as part of an ongoing process.()

(c) No evidence was presented to the Investigation which indicated that Beneficial Finance relied upon any opinions from Mr Clark in considering the transaction. Mr Baker stated that with regard to each of these transactions:

"... Tim Clark certainly never put me under pressure. He would have known it was going on, would have been interested in the progress with it, but I can't remember him pushing me to settle anything anytime." ()




Three other transactions are also relevant in this context.

The first established a setting favourable to the future promotion of commerce between the Bank and Equiticorp, and exemplified the managements willingness to proceed with a large exposure to Equiticorp in defiance of authorative advice - from the Reserve Bank - to the contrary.

The second and third transactions illustrate the dominating influence of Mr Clark within the State Bank Group, and casts, retrospectively, some light on the ways and means available to him to promote that influence.


Towards the end of May 1987, market manoeuvres for the take-over of Monier were in progress. Equiticorp wished to make a bid for Monier, and looked to the Bank to ensure it had the funds to do so.

On 29 May 1987 (a Friday), Equiticorp put to the Bank a request for a large loan facility. This was immediately referred to the Bank's Lending Credit Committee ("Lending Credit Committee"). That Committee worked over the weekend on a draft of the terms and conditions on which the Bank would provide the facility sought. Time was of the essence because Equiticorp, for tactical reasons, wished to announce its take-over bid in the press as soon as possible. (The announcement was, in fact, made at midday on 2 June 1987.)

On Monday, 1 June 1987, Mr K S Matthews, armed with terms and conditions approved by the Lending Credit Committee and by a round robin of at least six of the Bank's nine directors, went to Sydney and held a conference with Messrs Brady, Pierson, and Fitzgibbon, all of the Reserve Bank.

Mr Brady's immediate response was that, on prudential grounds, he had considerable reservations about the proposed exposure, though he had no adverse criticism to make of its commercial viability.

The meeting broke off to enable Mr Brady to consult his colleagues in the Reserve Bank.

Just after noon, Mr Brady informed Mr Matthews that he had conferred with his colleagues and that Reserve Bank counselled strongly against the Bank's entering into the transaction. His reasons (which he repeated, unmodified, by letter on the same day) were that:

(a) The exposure was too large for the Bank's present capital base.

(b) The Bank already had several commitments in excess of thirty per cent of its capital.

(c) There was no assured program to reduce the exposure, by sell-down, sale of assets, or the like, within a very short period.

(d) There was some awkwardness in a situation where a senior executive of a bank [Mr T M Clark] was associated, at Board level, with the borrowing company. That in no way reflected on the person involved, but rather was a matter of possible public perception.

Notwithstanding the strongly expressed Reserve Bank misgivings, the Bank's offer was made on the same day. The Chief Manager, International Banking (Mr T L Mallett), wrote to the Managing Director Equiticorp (Tasman) Ltd (to which the facility was formally to be provided) that a facility of $200.0M was approved by the Bank on the terms and conditions contained in his letter. It is to be observed that, amongst several other conditions, the principal security was to be provided by Monier script purchased; and that the actual loan (over and above a bridging sum of $35.0M provided by the Bank) would not proceed as offered, that is, on a syndicated basis, until Equiticorp (Tasman) Ltd had gained, or was entitled to, 50 per cent or over of the Monier shares. The Bank added, that if that control were not obtained, and the syndicated facility were not required, the funding for shares acquired in Monier would be subject to negotiation, to suit all parties. The offer was immediately and unconditionally accepted. Let it here be stated, for the record, that Mr Clark duly declared his interest; as he did on other occasions; the material before me does not suggest that, with respect to this transaction, he did anything untoward to promote the approval of the facility.

There was, and has been, a disposition, on the part of some senior management, to regard this whole deal ($35.0M apart) as not amounting to a true exposure, because the offer from the Bank contained conditions to be met by Equiticorp; they prefer to call it `an undertaking'. This, to my mind, does not stand close scrutiny. The offer conveyed by the letter of 1 June 1987 was not a conditional offer; it comprised a set of terms which were to be fulfilled if the offer was accepted; those terms were accepted as a whole and unconditionally. The test is this: if Equiticorp (Tasman) Ltd had duly purchased the necessary shares, but before that purchase the Bank had unilaterally gone back on its word, would the Bank have been still bound to provide the facility? In my opinion, it would. The correct analysis of the deal is that once Equiticorp (Tasman) Ltd performed its part, the Bank was bound to perform its part. This, in my opinion, was an exposure, in plain banking terms, to a limit of $200.0M.

How then do the protagonists of this transaction stand in relation to the New Zealand Steel Purchase and the transactions that it set in train? Even though the June 1987 facility was, in the event, not called on by Equiticorp, the proposal for the Bank to grant the facility had gone through. In short, the Bank's Management had taken a position that was contrary to the counsel of the Reserve Bank. It is, of course, plain that the Commonwealth legislation setting up, and conferring powers on, the Reserve Bank did not, in point of law, authorise it to control the Bank, as the Bank was a State instrumentality. This matter is fully discussed in Chapter 15 - "The Relationship with the Reserve Bank of Australia" where the relationship of the State Bank and the Reserve Bank of Australia is examined. But the Bank had, speaking generally, undertaken to co-operate with the Reserve Bank, though it reserved to itself power to differ from its advice in particular cases.

The Bank had in this matter, notwithstanding the advice of senior Reserve Bank officers that these were issues of concern (as discussed in Chapter 15 referred to above), rejected the Reserve Bank advice in favour of its client Equiticorp; this act of rejection, in a deal of such potential consequence to the Bank, served, in my opinion, strongly to confirm the banker-customer relationship between the Bank and the Equiticorp Group. The Equiticorp Group had established itself, in testing conditions, as a welcome and well-served customer. The Bank had knowingly supported the proposed facility notwithstanding the `awkwardness' of Mr Clark's situation.


On 13 January 1989, the Bank's exposure to Equiticorp stood at $54.0M (comprising bill acceptances, $5.0M of which were underpinned by the R&I Bank of Western Australia). This exposure had been substantial since 1984; on 22 December 1987 the actual exposure stood at $147.0M, with a limit of $225.5M. (This omits consideration of the Receivables deal discussed earlier.) It had been clear to Mr Clark for some time (and probably to senior management in the Bank as well) that Equiticorp was experiencing financial difficulties. Mr Clark had remained a director of Equiticorp till 29 July 1988, and the majority of loan approvals to the Group occurred while he was still a director of Equiticorp.

Mr Clark, late in 1988, approached Mr Baker with the request that, for a fee of 1 per cent, that is $0.1M, Beneficial Finance should agree to underpin the Bank exposure to Equiticorp to the extent of $10.0M.

The Beneficial Finance Executive Committee objected to the proposal, but Mr Baker put it to them that any resultant loss by Beneficial Finance could be claimed as a tax deduction, and that Mr Clark had undertaken that the Bank would restore Beneficial Finance's profit if a loss actually occurred. The Executive reluctantly consented, persuaded, in part, by the $0.1M fee.

The transaction was concluded by letter (General Manager, Corporate Banking, to Mr Baker, Managing Director, Beneficial Finance, of 13 January 1989); Beneficial Finance's acceptance appears at the foot of the letter.

There was no sensible commercial reason for the transaction. (The claimed tax deduction does not in my view amount to one.) It was nonsense for the Bank to obtain from a subsidiary a solemn agreement to accept part of the parent company's possible loss when that loss would, in any event, be sustained, and generally felt, by the Group. One can only suppose, having regard to the period in which this transaction occurred, that Mr Clark intended to use the Beneficial Finance underpinning to reduce the Bank's book losses, and to affect the public perception of its finances accordingly - in particular, to minimise the effect of the losses, in the Equiticorp account, on the Bank's reported losses.

On the material before me, I am of the opinion that there was never any intention that Beneficial Finance would be called on to honour the $10.0M.

Beneficial Finance's records contain a set of `minutes' of the Beneficial Finance Board of a `meeting'() on 13 January 1989, which reports the Board's resolution that the arrangement embodied in the foregoing letter of the same date be accepted, and that execution thereof would bind Beneficial Finance.

There is evidence to suggest that this was a `paper' meeting, which never, in truth, took place. The matter of `Paper Meetings' as I have said will be examined in the Beneficial Finance part of my Report.


By letter dated 16 January 1989, Mr B D Fitzgerald, Director Group Treasury, Equiticorp Australia Limited, requested that the State Bank acquire Aurora Mortgage Bonds with a face value of $NZ 4.0M. The mortgage bonds were issued by Aurora Group Limited, being a subsidiary company of Equiticorp Holdings Limited.

Mr Masters, General Manager, Corporate Banking, approved the acquisition, subject to certain conditions, on behalf of the Bank on 17 January 1989.

This approval was made notwithstanding the letter clearly indicates that financial problems were present within the Equiticorp Group.

The letter states, inter alia:

"The Bonds are self servicing when taking into account the monies lodged with the trustee, and therefore insulated from the rest of the Aurora/Equiticorp Group.

We really need an answer early tomorrow to undo the damage done today. We have been unable to get hold of Franklins this evening, but will speak to them tomorrow morning.

I honestly think it is in the interest of the lenders to E.A.L. that this amount is honoured tomorrow. No amount of logic is going to stop an operation like Franklins informing other people in the market. We must ensure E.A.L. is around to complete its restructure, and honouring this sizeable call deposit by your purchase of the Mortgage Bond is essential."

The letter also evidences the fact Mr Clark is agreeable to the purchase as it states:

"Allan has spoken with Tim about the request and he thinks the purchase is a sensible way around the problem, but obviously will leave the decision to you." ()

This approval for the purchase of $NZ 4.0M mortgage bonds occurred in the same month of the financial collapse of the Equiticorp Group.

In the first case,its purpose was, in my opinion, to lessen the impact of losses likely to be incurred by the Bank from its large exposure to Equiticorp, a group of companies with which Mr Clark's name had long been associated, and whose loan facilities had been provided by the Bank, for the most part, while he was still an Equiticorp director, standing under a conflict of interest. In the second case, I believe the imprudent decision was motivated by a desire to assist the Equiticorp Group during this financially troubled period.




In the final analysis, a conclusion about Mr T M Clark's conduct becomes a question of fact and degree.

For the reasons, and on the basis of the evidence as stated in this Chapter, the matters upon which I have reported may, in my opinion, disclose a conflict of interest and a breach of fiduciary duty on the part of Mr T M Clark. It is my opinion that Mr T M Clark had a motive to relieve the financial burden on Equiticorp founded on his position as a director and shareholder of Equiticorp.




I report in accordance with Term of Appointment E that in my opinion such matters should be further investigated.