Skip Navigation.
Go to home page - Securities Commission New Zealand.
  • About
  • Publications
  • Exemptions
  • Notices
  • What's new?
  • International
  • Speeches
  • Information for investors
  • Contact us
  • Site map
  • Home
Print this page.

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

3

EXECUTIVE SUMMARY OF VOLUME 1
 
3.1 This volume of the report considers aspects of the affairs of Max in the period 1996 to early 1998, in particular, the disclosure of substantial security holdings in Max and the conduct of Max's directors during this period.
 
3.2 The directors of Max during this period (at varying times) were Jeff Verheggen, Langoulant, Johnson, McShane, Verheggen Snr and Briggs. Czechowski, an Australian businessman, was subsequently appointed to the board of directors. Langoulant and McShane were also joint Company Secretaries.
 
3.3 The report considers the following issues:

  1. Was there significant non-compliance with the requirements of Part II of the Securities Amendment Act 1988 ("the Amendment Act") in respect of the disclosure of relevant interests in Max's listed securities? In particular, was there significant non-compliance with these requirements by any of the directors of Max, or any persons associated with them?

  2. Did Max's directors, in procuring Max to enter into certain transactions in 1996 and 1997, have proper regard to their duties to the Company and the interests of Max's shareholders and creditors, in particular:

    1. the duty to act in good faith and in what they believe to be the best interests of the Company; and

    2. the duty to exercise the care, diligence and skill that a reasonable director would exercise in the same circumstances?

Disclosure of Relevant Interests in the Listed Securities of Max
 
3.4 Under Part II of the Amendment Act, every person who becomes a substantial security holder in a public issuer is required to give notice of that fact (in the prescribed form) to the NZSE and the public issuer. The Amendment Act defines a "substantial security holder" as a person who has a "relevant interest" in 5% or more of the voting securities of the public issuer. The notice must be given as soon as the person knows, or ought to know, that the person is a substantial security holder. "Relevant interest" is widely defined and includes any form of beneficial ownership, the power to acquire or dispose of the securities, the power to control the acquisition or disposition of the securities, the power to exercise the voting rights or the power to control the exercise of the voting rights of the securities.
3.5 The disclosure provisions of the Amendment Act also apply when a substantial security holder changes its holdings by each 1% or more of the voting securities of the issuer.
 
3.6 The Amendment Act provides that, where there are reasonable grounds to suspect that a substantial security holder has not complied with the Act, the High Court may, on application, make a number of orders relating to the issuer, the substantial security holder and the securities, including orders directing forfeiture of securities. Appendix A to this report sets out the relevant definitions from the Amendment Act.
 
3.7 As at 30 October 1997, Max had on issue:

  • 39,147,499 ordinary fully paid 25 cent shares

  • 22,967,725 options to acquire fully paid 25 cent shares on or before 31 July 1999. The options carried no voting rights.
 
3.8 We believe there are reasonable grounds to suspect that Briggs, during 1997 and subsequently, had a relevant interest in 4,500,000 Max shares (11.49% of the voting securities of Max) held by various companies owned by him. Briggs has subsequently acknowledged he has an interest in some of these shares. Briggs did not disclose any of these interests to the NZSE or the Company as required by Part II of the Amendment Act. The Company did not publish information about these interests in its Annual Report.
3.9 We believe there are reasonable grounds to suspect that Jeff Verheggen had, at various times in 1997 and subsequently, a relevant interest in 11,619,898 Max shares (29.68% of the voting securities of Max). The Company reported a relevant interest of Jeff Verheggen in 5,650,142 shares (14.43%) in its 1997 Annual Report and Jeff Verheggen filed a substantial security holder notice with the NZSE on 8 August 1997 in respect of a similar number of shares (5,650,000). This leaves 5,969,756 shares (15.25%) concerning which we believe there are reasonable grounds to suspect Jeff Verheggen had a relevant interest and in respect of which there was no disclosure to the NZSE or, to our knowledge, to the Company, as required by Part II of the Amendment Act. (For further explanation see para 5.15 onwards and Appendix B.)
 
3.10 We also believe there are reasonable grounds to suspect that Jeff Verheggen changed his relevant interests in the voting securities of Max by more than 1% in 1997. In May 1997 Jeff Verheggen entered into a put option with TPIC Limited, a wholly-owned subsidiary of Wyllie Group Pty Limited, under which he agreed to buy back 1,397,000 Max shares during a one month period late in 1997 if they were put to him. We do not know whether TPIC Limited acquired these shares from Jeff Verheggen subject to the put option, or whether Jeff Verheggen agreed to give a put option in respect of shares to be acquired by TPIC Limited on the market. We believe Jeff Verheggen changed his relevant interest in Max shares for a period late in 1997 when the put option for 1,397,000 shares (3.6% of voting securities) he had granted to TPIC Limited was put back to him, without disclosing this change as required by the Amendment Act.
 
3.11 When the respective interests attributed to fellow directors Briggs and Jeff Verheggen referred to in paragraphs 3.8, 3.9 and 3.10 are combined, the overall total of Max shares in which we believe there are reasonable grounds to suspect that they had, in aggregate, a relevant interest in late 1997, was in the order of 16,119,898 (41.17%).
 
3.12 In addition, it appears that Pica (M) Corporation Berhad ("Pica Corporation"), a company listed on the Kuala Lumpur Stock Exchange, held, as at 30 October 1997, a relevant interest in 5,810,000 Max shares (14.84% of the voting securities). These holdings were held through Myles Nominees Pte Limited ("Myles Nominees"), a wholly owned subsidiary of Pica Corporation as to 5,000,000 (12.77% of the voting securities) and through PS Holdings Limited, also a wholly-owned subsidiary of Pica Corporation, as to the balance of 810,000 Max shares. Although Myles Nominees gave notice of its 12.77% interest, Pica Corporation did not disclose its interest in 14.84% of Max shares to the NZSE nor, to our knowledge, to the Company, as required by Part II of the Amendment Act. In addition, Mr Salim Cassim, a substantial security holder of Pica Corporation, held some 800,006 Max shares personally. Cassim has informed the Commission that at the time of purchase he was not aware that Myles Nominees had bought Max shares.
 
3.13 We have also been told by Jeff Verheggen that 4,400,000 shares (11.24% of the voting shares of Max at 30 October 1997), registered in the names of two nominees, are held on behalf of an organisation called Global Portfolio Management, at the time based in London, England. Global Portfolio Management's interest in these shares was not disclosed to the NZSE and nor was it disclosed, as far as we are aware, to the Company in accordance with the law. We understand that Global Portfolio Management is managed or controlled by a Mr Connor Maloney.
 
3.14 Based on our observations in paragraphs 3.8 to 3.13 above, we consider that there has been significant non-compliance with the disclosure requirements of Part II of the Amendment Act by Jeff Verheggen, Briggs and Global Portfolio Management. We also consider that Pica Corporation has not complied with the law. As a result, information about the extent of the shareholding interests by these people, and about changes to some of those interests, was denied to Max's other shareholders and to the markets of Australia and New Zealand.

Conduct of Max's Directors in Relation to Transactions Entered into by Max in 1996/1997

Change of business direction

 
3.15 Around November 1996 Max's directors decided to change the nature of the Company's business from the holding of interests in mining tenements to the processing of organic fertilizer. This change of business direction was referred to in a statement released to the NZSE on 13 December 1996. On 8 May 1997 the directors obtained shareholder approval to this in accordance with NZSE Listing Rules. This decision of directors was material to a number of important transactions.

Purchase of fertiliser processing plants in the United States and Asia
 
3.16 In December 1996 Max's directors decided to purchase a WRS plant in Ohio in the United States. The purchase price was US$0.7 million, with payment of US$100,000 in the form of a non-refundable deposit before the end of December 1996 and the balance payable at the end of January 1997. An announcement of the purchase, including a statement that it was subject to shareholder approval, was included in the statement to the NZSE of 13 December 1996 referred to above.
 
3.17 In February 1997 Max advised the NZSE that it had acquired interests in WRS plants in Indonesia, Sri Lanka and India. These were acquired for consideration of 5 million Max shares issued to companies nominated by Briggs.
3.18 Significant funds were committed to the Ohio transaction before the Max shareholders approved a change in the nature of Max's business in accordance with the NZSE Listing Rules at their meeting on 8 May 1997.

The French Venture
 
3.19 WRS Europe, which was owned by Max director Jeff Verheggen and his father, Verheggen Snr, had a right to acquire an 87% interest in AFA, a French company developing a WRS plant at St Thois, France ("the French Venture")1 . The Verheggens arranged for Max to acquire this right by the Company purchasing all the shares in WRS Europe. As consideration for the shares in WRS Europe Max agreed, at a meeting of directors on 12 December 19962 , to:

  1. Issue 20 million 31 July 1999 Max share options to Jeff Verheggen and Verheggen Snr;

  2. Inject FF1.96 million of long term loan funds into WRS Europe to enable that company to meet financial obligations it had entered into in respect of the French Venture; and

  3. Obtain a loan of FF13 million from a French bank over a period of 10 months at a rate of 6% p.a. interest and to make money available to assist with development of the French plant.

Jeff Verheggen has told us that the issue of Max options to himself and his father did not take place.
 
3.20 Max's directors would have been well aware that the purchase by Max of shares in WRS Europe was a material transaction with a related party and that the Company needed to comply with Rule 9.2.1 of the Listing Rules. Rule 9.2.1 provides that an issuer shall not enter into a material transaction with a related party unless it has been approved by an ordinary resolution of the issuer in general meeting. Further, an appraisal report prepared by an independent expert is required to accompany the notice of meeting called to consider the resolution.
 
3.21 Indeed, the need to obtain shareholder approval and an independent appraisal report is referred to in various Company papers, including the 1997 Annual Report and the initial announcement to the NZSE. Max's directors were also well aware that the directors needed to secure shareholder consent to any change in business for the Company (see paragraph 3.15 above).
3.22 In mid-December 1996 Max's directors commissioned KPMG Corporate Pty Limited (Perth) ("KPMG") to prepare an independent appraisal report to put to the meeting of shareholders necessary to approve the purchase of WRS Europe shares. KPMG in turn commissioned its French counterpart firm to prepare a report on the French Venture. However, the appraisal report was not formally released by KPMG (France) to Max because of a dispute over non-payment of a fee owed by Max to KPMG (France). Shareholder approval to the transaction was not obtained and it appears the transactions between Max and WRS Europe, or by Max on behalf of WRS Europe, were in breach of the NZSE Listing Rules.
 
3.23 Despite this, Max forwarded a total of around NZ$1.18 million to France in respect of the French Venture. In December 1996 Max sent approximately NZ$0.5 million (FF2.56 million) to Conception Realisations Industrielles et Immobilieres ("CR2I"), the company constructing the French plant for AFA, a payment said by Langoulant in affidavit evidence to be "... on behalf of WRS Europe". Further sums were paid in respect of the French Venture in June 1997 and in October 1997, when A$0.24 million from the sale of Robregal's interest in Intrepid was loaned to CR2I.
 
3.24 Since agreeing to acquire WRS Europe Max has had difficulty in meeting the financial requirements of the French Venture. At the date of this report, the statutory managers had entered into an agreement to sell Max's fertiliser assets (including the remaining interest in AFA). Max's investment of around NZ$1.18 million in the French Venture has not been fully recovered.
 
3.25 The NZSE Listing Rules require any transaction needing shareholder approval to be made conditional on obtaining such approval. Moreover the Listing Rules state that the transaction shall not be completed until the approval is obtained and, if approval is not obtained, the public issuer shall terminate its obligations. In this case, Max's shareholders did not have the opportunity to vote on the French Venture or have the benefit of an independent appraisal report which would have enabled them to decide whether the transaction price and terms were fair. Around NZ$1.18 million was loaned to CR2I under the transaction, even though it had not been approved by Max's shareholders and the acquisition of WRS Europe was never actually formally completed.

Comment

 
3.26 The Commission considers that there are reasons to conclude that one or more of the directors did not show sufficient regard for:

  1. their duties to Max; and

  2. their obligation to use their best endeavours to procure Max's compliance with the NZSE Listing Rules; and

  3. the interests of Max's shareholders;

with respect to these transactions involving the French venture.


1 We understand that, because certain share transfers had not been effected in AFA, WRS Europe was not in fact entitled to 87% of AFA. This matter was unresolved at the time of the statutory management of Max. - BACK

2 The minutes of the meeting noted the interest of Jeff Verheggen and his father in the transaction and that it was a material related party transaction. There is no indication in the minutes of the meeting that Jeff Verheggen did not participate in discussion on this matter. There is also no statement in the minutes identifying the directors who voted for the resolution, although Langoulant and Jeff Verheggen have told us Jeff Verheggen did not vote on the resolution. - BACK