Other publications: Report on Aspects of the Affairs of Max Resources Limited

Max - Incorporation and Nature of Business

2.1

Max is a New Zealand public listed company. It was incorporated in New Zealand on 8 October 1987 with its registered office at the offices of Sinclair & Wood, chartered accountants, 510 Cameron Road, Tauranga. Max has been principally operated from West Leederville, Perth, Western Australia and is registered as an overseas company in Australia under the same name.

2.2

The directors of Max during the period from 1996 to early 1998 (at varying times) were Jeff Verheggen, Langoulant, Johnson, McShane, Mr Josephus Theodorus Herbertus Verheggen ("Verheggen Snr") and Briggs. Mr Edmund Czechowski, an Australian businessman, was subsequently appointed to the board of directors. Langoulant and McShane were also joint Company Secretaries.

2.3

Until 1997 Max's principal business was described in the Company's annual reports as being "mineral operations and exploration and direct investment in other resource based companies". In July 1995, Max, through its wholly-owned subsidiary Robregal Investments Limited ("Robregal"), acquired approximately 29% of the shares in Australian listed mining exploration company, Intrepid Mining Corporation NL ("Intrepid"). Intrepid had a major tenement holding in the second largest gold province in Victoria - Walhalla Woods Point. In addition, Max also held interests in joint venture agreements for mining tenements in the Norseman Dundas North province ("the Norseman Venture") and Leonora, both in Western Australia, and the Bay of Plenty, New Zealand.

2.4

In May 1997, at an Extraordinary General Meeting of the members of Max held in Auckland, it was resolved to change the principal business of Max to the manufacture and distribution of organic fertilizer ("Waste Recovery Systems" or "WRS") and to divest the company of all investments in the resource sector.

2.5

Prior to or around the time of the May 1997 meeting, Max acquired various assets of WRS Pacific Pty Limited ("WRS Pacific"), a company controlled by Briggs. These assets consisted of organic fertilizer production facilities in Indonesia, India, Sri Lanka and the USA and associated intellectual property.

2.6

By this time, Max had already agreed to acquire a right to an 87% interest in Amendements et Fertilisants D'Amorique SA ("AFA"), a French company engaged in a joint venture for the construction of an organic fertilizer plant in France. Max acquired its interest in AFA by agreeing to acquire the issued shares of a company called WRS Europe Limited ("WRS Europe"), which was to directly hold 87% of the shares in AFA. Jeff Verheggen and Verheggen Snr held all the shares in WRS Europe.

2.7

In the period 30 June to October 1997 Max entered into agreements under which:

Max sold its interest in the Norseman Venture to Australasian Gold Mines NL ("AusGM"), one half in return for 5 million fully paid shares in AusGM, and the other half for A$2 million, which was only payable upon a positive feasibility study being completed for the project and provided the transaction was completed by June 1999;
Max acquired an additional, minority interest in the Norseman Venture from its partner in the project, Darkdale Pty Limited, for A$1.1million and then onsold that interest to AusGM in exchange for 3.75 million fully paid shares in AusGM

2.8

In October 1997 Max (through Robregal) sold its interest in Intrepid to three entities - Village Lake Pty Limited, Garland Investments Limited and Wah Fung International Limited. According to Max's 1997 Annual Report, Max sold this interest for a total consideration of A$2.4 million, an amount described in the financial statements as being "... above the June 1997 book value.." and "... having exceeded the original cost of the investment by A$1,000,000".

2.9

In March 1998 McShane and Johnson applied to the Australian Federal Court for an order that Max be wound up pursuant to the Australian Corporations Law and for the appointment of a provisional liquidator. In support of the application McShane and Johnson commissioned Horwath, Perth Chartered Accountants, to review Max's financial statements and affairs, and a private investigation firm, McLernon Group Limited, to investigate certain transactions of the Company and its substantial shareholders.

2.10

The Federal Court proceedings were contested by the Australian directors and former directors. The action was subsequently withdrawn when McShane, Johnson, and McLernon Group entered into a deed of settlement on 22 May 1998 with Jeff Verheggen, Briggs, Langoulant, Johnson's wife (who was a creditor of Max) and Max.

2.11

On 23 March 1998 the Market Surveillance Panel of the NZSE suspended the quotation of Max shares following the application by McShane and Johnson to the Australian Federal Court.

2.12

On 31 August 1998, by an Order in Council pursuant to section 38 of the Corporations (Investigation and Management) Act 1989, Max was declared subject to statutory management with effect from that date.

Max's financial position

2.13

Max's audited consolidated statement of financial position as at 30 June 1997, as set out in the company's 1997 Annual Report, showed that Max had a share capital of NZ$10,602,124, reserves of NZ$8,254,626 and accumulated losses of NZ$6,062,535, giving a total shareholders' equity/net assets of NZ$12,794,215.

2.14

The statutory managers reported to shareholders on 2 March 1999. Their report contained an unaudited management consolidated balance sheet as at 31 October 1998. This balance sheet showed Max with share capital of NZ$10,634,000, reserves of NZ$1,145,000 and accumulated losses of NZ$8,211,000, leaving total shareholders equity/net assets at NZ$3,568,000. The statutory managers' report, however, stated that the statutory managers had reservations about the book values of the assets disclosed in the unaudited balance sheet and that, in their view, the realistic value of Max's assets could be less than its liabilities.

2.15

The Commission reviewed Max's 1997 financial statements and the circumstances in which they were prepared. The Commission's comments are contained in Volume 2 of this Report.

Directors of Max

2.16

From October 1994 to 4 January 1998, Max had two Australian directors, Jeff Verheggen and Langoulant, and two New Zealand directors, Johnson and McShane. Jeff Verheggen and Langoulant reside in Perth and were executive directors of Max. Johnson and McShane reside in New Zealand and were non-executive directors. Johnson and McShane have advised us that Perth solicitors, Clayton Utz, initially approached them to act as independent directors of Max. Clayton Utz had acted for Restech International Ltd, a company McShane and Johnson had been directors of for a period of eight years.

2.17

On 4 January 1998 Jeff Verheggen resigned as a director of Max. Verheggen Snr, Jeff Verheggen's father, replaced him on the board. Around the same time, Briggs was appointed to the board of Max.

2.18

On 1 June 1998 the NZSE was advised that McShane and Johnson had resigned as directors of Max. On 19 June 1998 the NZSE was advised that Langoulant and Verheggen Snr had also resigned from the board. We understand that Briggs and his business associate, Czechowski, are presently the only directors of the Company. We understand that Briggs had been operating the Company from his offices at 26 Colin Street, West Perth until the appointment of the statutory managers in August 1998.

Shareholdings in Max

2.19

Although presently suspended, Max's shares are listed on the NZSE. Max's 1997 Annual Report stated that, as at 30 October 1997, the Company had on issue:

39,147,499 ordinary fully paid 25� shares
22,967,725 options to acquire fully paid 25� shares on or before 31 July 1999. The options carried no voting rights.

2.20

According to the 1997 Annual Report, the 20 largest shareholders of the company, as at 30 October 1997, were:

SBC Warburg NZ	7,553,400
NZ Central Securities Depository	4,434,286
Gybson Pty Ltd	3,000,000
Hendry Nominees Ltd a/c 486	2,794,815
Forbar Nominees Ltd	2,567,900
Hampton Snow Ltd	2,135,000
Interbac Australasia Pty Ltd	2,000,000
RJ Peters Pty Ltd	1,725,000
Palliser Nominees Ltd	1,171,100
Portfolio Custodian Limited	1,050,000
Fidelity Mutual Funds Management Inc	928,572
Zurich Capital Management	785,715
AJ Cartwright	750,076
Hendry Nominees Ltd a/c 263	681,143
John Cartwright & Co Pty Ltd	600,000
Salim Cassim	542,858
Wilbur Nominees Ltd	511,700
Adubos Company Ltd	500,000
PT Eltro Machino	500,000
Isseka Ltd	400,000
Total	34,631,565

Shareholder distribution

2.21

We have been advised by Computershare Registry Services Limited that, as at 13 January 1999, there were 625 shareholders in Max. The geographical distribution of shareholders was as follows:

Country	Number of holders	Quantity	%
Australia	114	14,270,726	36.45
Canada	1	572	0.00
Germany	1	500	0.00
Great Britain	8	1,687,460	4.31
Hong Kong	2	542,858	1.39
Channel Islands	1	2,135,000	5.45
Indonesia	3	6,310,000	16.12
Ireland	1	785,715	2.01
Malaysia	2	545,144	1.39
New Zealand	492	12,869,524	32.87
Total	625	39,147,499	100.00

2.22

On the basis of the above analysis, it appears that the majority of Max's small shareholders, as at 13 January 1999, were New Zealand residents.

Suspension of the quotation of Max's listed securities

2.23

On 23 March 1998, as noted above (see para 2.11) the Panel of the NZSE suspended the quotation of Max's listed securities following the application by New Zealand directors Johnson and McShane to the Australian Federal Court to have a provisional liquidator appointed with power under the Australian Corporations Law to review transactions recently entered into by Max and the payment of Max's creditors. The basis for the Panel's suspension order were the conflicting reports received by the NZSE from Max's New Zealand and Australian directors concerning the Company's affairs. There was also uncertainty as to whether Max had been complying with the NZSE Listing Rules concerning the issuing of relevant information about the Company's activities, including the change in the principal business of the Company.

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Report of the Securities Commission on Aspects of the Affairs of Max Resources Limited