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Insolvency law document out for discussion

Shorter bankruptcy term one of the proposals

The Ministry of Economic Development (ex Commerce) competition & enterprise branch released discussion documents on Friday for a review of both personal and corporate insolvency law.

Among the recommendations is a proposal to shorten the three-year bankruptcy period to one or two years, but with more post-bankruptcy monitoring.

Submissions on the tier one discussion documents close on 6 April.

The first batch of issues for discussion, tier one, “are discrete problem areas of a technical nature which are causing unnecessary costs or have recently been the subject of consideration by the Law Commission,” the ministry says.

The four issues, discussed separately, are bankruptcy administration, voidable transactions, priority debts in distribution of insolvent estates, and phoenix companies.

The second tier issues are: the role of the state and enforcement mechanisms, voluntary administration procedures, directors’ duties, insolvent partnerships, statutory management, and harmonising personal and corporate insolvency law into a single statute.

The ministry said the second tier issues were generally broader, more fundamental, and dealt with the structure and objectives of insolvency law.

The discussion paper is a low-key document which includes a great deal of background putting issues in context, sometimes making recommendations and at others saying the ministry doesn’t have a view but awaits submissions.

The papers in full can be found on the website of the Ministry of Economic Development, formerly Ministry of Commerce, The ministry says it welcomes submissions on any of these papers. Comments and questions should be sent to the Insolvency Law Review, Ministry of Economic Development, PO Box 1473, Wellington (or email by 6 April 2001.

This article, minus the careful contextual detail by the ministry team headed by Martin Fowke, takes you through the recommendations on bankruptcy administration, priority, voidable transactions, phoenix companies, and a list of questions on which the ministry wants further submissions.


Bankruptcy administration

That the doctrine of relation back be removed, and the rules of voidable transactions be relied on to achieve the same purpose. To remove this doctrine, the bankruptcy should begin at the point of adjudication, not the time the act of bankruptcy was committed.

Introduce a financial audit, instigated by a request for solvency assessment form (RSA form), and a 14-day stay of proceedings that begins when the RSA is filed with the Assignee. The ministry has no recommendations to make in terms of financial counselling. It seeks comments on this issue.

Increase the threshold of debt for a summary instalment order from $12,000 to $40,000, providing for private administrators to run part XV proposals and summary instalment orders, and increasing the commission for private administrators to 10%.

The ministry doesn’t have a preferred solution on post-adjudication proceedings for estates with no assets for distribution and seeks comment on issues and options for reform of this area.

Bankrupts who have not been involved in commercial misconduct should receive an automatic discharge after one or two years, instead of the present three years. The ministry seeks comment on which discharge period is preferred.

Repeat or fraudulent bankrupts should not qualify for automatic discharge until after three years.

Income payment orders (IPOs) could be used for debtors who experience a significant increase in assets or income after discharge from bankruptcy.


The ministry supports the introduction of a priority that will provide incentives to creditors to help liquidators in preserving the assets of an insolvent estate.

The ministry should continue to assess the fiscal impact of the proposal to introduce a new priority for costs associated with unsuccessful compromise.

A new priority should not be established for the costs of remedying environmental damage unless further submissions reveal a case for such a priority.

Priority should not be afforded to holders of gift vouchers.

The Law Commission could see no legitimate basis to question the priority given to secured creditors. The ministry agrees with this assessment. However the commission recommends the definitions of “secured creditor” in the Insolvency and Companies Acts should be harmonised, and that only persons with perfected security interests under the Personal Property Securities Act and those with registered mortgages over land should be considered as secured creditors for insolvency law purposes. The ministry seeks submissions on this proposal.

Voidable transactions

Voidable transactions provisions in the Insolvency Act should, like those in the Companies Act, set aside transactions based on their effect, regardless of the intention, motive or knowledge of the debtor or the recipient of the transaction.

The ordinary course of business exception should be removed and replaced with a simple rule that will achieve greater certainty. This should be coupled with a shorter time period so as to minimise the likelihood that any injustices will result from the application of a more rigid rule.

Personal and corporate insolvency voidable transactions law should be harmonised into a single law.

The ministry considers there are strong policy arguments in favour of replacing the existing voidable transaction provisions with one provision that would cover all types of voidable transactions. The ministry seeks submissions on whether a single provision could be achieved, with careful definition of terms, to cover any depletion of the insolvent’s assets, that enables another person to receive more than they would have in the liquidation. Could such a provision be effective regardless of whether the recipient is a creditor, the beneficiary of a gift, the grantee of a security, or a person acquiring an asset for less than the market value?

The ministry does not propose that any amendments be made to section 47 of the Matrimonial Property Act 1976 at this time.

Section 60 of the Property Law Act provides that every alienation of property with intent to defraud creditors is voidable. The ministry says this section should be retained.

New Zealand should enact a provision that is in line with the United States “net effect” provision (not the Australian “running account” principle). The provision should not, however, include the defence of “ordinary course of business” exception or the requirement of insolvency contained in that provision. Further, the New Zealand provision should be phrased more widely than the American provision so that it encapsulates all types of depletion of assets rather than just payment of a pre-existing debt.

There should be one period in which transactions may be set aside unless there is a strong justification for a different time period. The ministry recommends that the period in which payments may be recovered be six months from the date of filing the application commencing formal insolvency procedures.

The High Court masters should have jurisdiction over all matters relating to voidable transactions.

The notice system contained in section 294 of the Companies Act and rules 700ZJ and 700ZK of the High Court Rules should be retained and used as the single process for challenging voidable transactions. Voidable transaction matters should remain within the jurisdiction of the High Court.

Insiders should be treated more severely with regard to voidable transactions by extending the length of time within which insider transactions may be challenged to two years rather than the six months generally.

The existing defence should remain available to recipients who, acting in good faith, have altered their position in reliance on the receipt of the transaction and would suffer such hardship as a result of having to repay it that it is inequitable to require repayment. The court would be given the power to order either partial or no return of the transaction in such a situation.

Phoenix companies

Sections 297 and 298 of the Companies Act, which specify as voidable the transactions most likely to arise in phoenix company situations, could be amended to make it easier for liquidators to take action under those sections, putting the onus of proof on the receiver of the assets to demonstrate that the assets were not acquired at undervalue. The ministry does not support this option.

In insolvencies, most enforcement action is undertaken by liquidators/receivers and during the insolvency. Another option is to allow creditors to also take certain enforcement action, and before the insolvency. Provision could be made, for example, for creditors to apply to the court before insolvency to challenge the consequences of a company transferring business or assets. The ministry does not support this option.

Lawyers could be able to operate on a contingency fee basis when enforcing insolvency provisions.

Criminal penalties could be available to the courts where directors are shown to have acted in bad faith to defeat creditors’ legitimate interests.Legislative Options

The ministry’s assessment of the phoenix company problem, and its conclusions regarding the most appropriate options for addressing that problem, are preliminary only and should not be seen as implying the ministry is closed to alternative views. To this end, the following briefly identifies possible legislative options to protect creditors’ rights including:

Strengthening voidable transactions provisions, for example, to counter efforts to transfer assets from an ailing company to a related company.

Restricting owners’/directors’ involvement in companies following insolvency.

Restricting the use of company names following insolvency.Although the ministry welcomes comment on these options, or any other legislative solutions, it says it favours in the first instance addressing barriers to more effective enforcement before addressing the legislative issues.

Questions for further submission

The ministry has highlighted a list of questions on which it wants further submissions:

Administration costs: Should the Insolvency Act be amended so the priority is extended to include remuneration granted to those helping the Official Assignee or liquidator in an official capacity?

Employee-related claims: Should the priority afforded to employees in respect of any arrears of salary and wages and related earnings be retained?

Will a solution based on the European Union acquired-rights directive resolve the problems associated with the sale of a going concern?
Should priority be extended to redundancy payments?

Apprentices: Should apprentices be afforded the same priority as that presently offered to employees?

Revenue-related claims: Should the priority of gst, customs duty and levies under the Fisheries Acts and the Radiocommunications Act (in corporate insolvency and personal bankruptcy) be abolished?

Should the preferential status of resident/non-resident withholding tax (in corporate insolvencies under the Companies Act) be retained and extended to personal bankruptcies under the Insolvency Act?

Is it feasible to abolish specific priorities and replace them with a single provision based on clause 2(d) of the seventh schedule of the Companies Act?

Reorganisation costs: Should the Insolvency Act be amended to provide that the actual expenses incurred by those assisting the Official Assignee or liquidator (in an official capacity) be afforded priority?

One of the key themes of the ministry’s tier two review papers is the development of a corporate rescue culture. In this context, should a new priority be introduced for costs associated with unsuccessful companies?

The papers in full can be found on the website of the Ministry of Economic Development, formerly Ministry of Commerce, The ministry says it welcomes submissions on any of these papers. Comments and questions should be sent to the Insolvency Law Review, Ministry of Economic Development, PO Box 1473, Wellington (or email by 6 April 2001.

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PFI buys Seaview development site for $2 million

8% holding yield with value-adding options

Property For Industry Ltd has bought a property in Wellington’s Seaview industrial district for long-term development & investment in conjunction with the neighbouring Barnes St site.

PFI has bought 48-56 Seaview Rd for $2.06 million.

The listed industrial property investor’s general manager, Peter Alexander, said the adjoining 11 Barnes St, leased to Colgate Palmolive, had 6600m² of undeveloped land.

The new property covers has an 850m² building on a 1.4259ha site, with a 152m frontage to Seaview Rd. It’s leased to BP NZ Ltd until November 2007 at a net annual rental of $165,000, giving PFI an 8% holding yield.

Mr Alexander said the Wellington industrial market had performed very well and there was a shortage of flat land, “By purchasing the Seaview Rd site, PFI has a number of options for adding value to both sites.

“Adding value to existing properties is a core component of PFI’s strategy. PFI has previously achieved excellent outcomes by acquiring & developing sites that adjoin existing properties. This provides flexibility & security for current & new tenants.”

The Barnes St property was PFI’s only Wellington investment, but Mr Alexander said the company had been working to increase its investment in the tightly held market. Latest Property Council figures showed Wellington industrial was the top-performing property sector in the year to September 2002, and took 2nd place over the 5-year term.

“Wellington is a land-constrained location and a flat site is a scarce commodity. Locations of this nature generally outperform,” he said.

PFI is managed by AMP Henderson Global Investors NZ Ltd. It own 47 properties worth more than $210 million.

Website: Property For Industry Ltd

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Update, 17 September 2002: Crown granted leave to appeal; Decision reserved on Crown appeal over Moses & Stevens charges

Update, 17 September 2002: Justice O’Regan has granted the Crown leave to appeal to the Court of Appeal.

Decision reserved on Crown appeal over Moses & Stevens charges

Question of whether court should be asked to do Parliament’s work

Justice Mark O’Regan reserved his decision today on whether to grant the Crown leave to appeal to the Court of Appeal over dismissal of some securities law charges against former Reeves Moses directors Roger Moses & Gary Stevens.

The whole case seems to me increasingly absurd, but my understanding of today’s proceedings was hampered by a desire of lawyers for all parties not to part with copies of their written submissions.

It seemed, from Mr Stevens’ lawyer Chris Morris, that I’d jumbled things in a past story by writing about appeals which weren’t being appealed, etcetera, so they weren’t going to be helpful. My surprise at the particular accusation, and my suggestion that if I make an error it would help if somebody told me about it so I could correct it, didn’t improve anything.

Absolute liability

On my way to the keyboard, it seemed I was being landed with absolute liability of the kind Mr Morris and Mr Moses’ lawyer, Raynor Asher QC, argued their clients shouldn’t be subjected to in their former control of mortgage businesses which, in 1999, were promoted very heavily — and very successfully, with the mortgage book soaring by tens of millions of dollars — but at least in some instances (the loans which landed the directors and their employee in court) were managed very shoddily.

This accusation by Mr Morris made no sense to me, especially after I referred back to my last story: Next court date set for Reeves Moses securities charges, written on 2 August.

And, of course, not having the documentation of what these lawyers think they’re talking about often makes it harder to assess what they actually say in court. They seem to think that because they almost understand what they’re talking about (although occasional mumbling or a wayward sentence structure tend to tell a listener otherwise), an audience lacking documentation will understand them perfectly.

Often a point expressed in part or perhaps phrased slightly wrongly in oral submissions becomes clearer from reading of the written case.

Conduct couldn’t be impugned

Mr Asher raised a point during his submissions — partly from his written submissions & partly in speaking to them — that in the original district court case Judge John Hole had found that in employing mortgage manager Peter van Nieuwkoop and in monitoring subsequent performance, “the defendants’ conduct could not be impugned.”

Without being in court every day of both the directors’ and the employee’s trials, it’s been hard to establish how the directors’ failure (in hindsight) to monitor events adequately could not have been in breach of securities law which stipulates what they are required to do. This is the point of law, concerning regulation 41 of the Securities Act (Contributory Mortgage) Regulations, which is at the heart of assessing the directors’ behaviour in monitoring development loans at Reeves Moses Hudig Mortgage Brokers Ltd (since sold 3 times & renamed).

No case to answer

Judge Hole found no case to answer on charges laid under the regulations because the regulation didn’t impose criminal liability on directors of a broker when it was the broker which contravened the regulations, not the directors themselves. Regulation 41 says: “A broker or a director of a broker who contravenes, or fails to comply with, any provision of these regulations commits an offence, and is liable on summary conviction to a fine not exceeding $5000.”

To me, the district court judge’s rejection of the reference to “who” as meaning a person, instead deciding the legislature really meant “which,” is a contrived elimination of responsibility for directors in a law written to exact responsibility. Nevertheless, Justice O’Regan worked carefully through the language in his judgment on the Crown appeal in May, approaching it from different viewpoints, before concluding this regulation doesn’t impose criminal liability on directors for contraventions of the regulations by brokers.

Judge suggests legislative fix

Justice O’Regan went on to suggest the outcome of this case might lead “to some reconsideration of the ambit of regulation 41. If it is intended to impose obligations on directors for breaches of brokers, then it may be considered appropriate to include suitable exceptions along the lines of those contained in sections 58(2) & 58(4) or 59(2).

All along, Crown counsel Brian Dickey has argued the ability to impose a penalty under this regulation is highly important to the contributory mortgage industry. The case led by the Crown has therefore taken on the shape of a modest crusade to repair an ambiguously phrased law by picking on a couple of directors who, while hindsight suggests they ought to have done a lot better, seem not to have set out to do anything criminal or wrong.

Mr Dickey raised the issue of legislative reform in his oral submission, suggesting it should follow the Appeal Court stage. It was “a narrow neat piece of business law.” He said “the effect on the regulatory scheme if there is no change will be enormous. It will effectively mean there is no regulation until there is a law change.”

At this point, the judge put 1 question and I thought of another, which he didn’t address. “The Crown could already have done that [begun a legislative change] as an insurance policy,” Justice O’Regan put to Mr Dickey.

Mr Dickey: “As I understand it, those schemes take a long time to formulate and are not done (mumble) a 1-off case. The consultation process needs to be gone through. But it’s available and that’s what will be looked at next.”

Judge: “I would have thought the Crown would be doing that anyway.”

Mr Asher said a judgment overturning accepted use of police radar was followed by a legislative fix within 2 months. Mr Dickey said the contributory mortgage regulation wasn’t necessarily wrong, which is why the Crown has been pursuing the court case.

I note that, if the Crown did move to fix the law, that would tell everybody it shouldn’t be applied in its present form, nullifying the prosecution. The question the judge didn’t quite reach was that, if the Crown is thinking of clarifying the law, as both the judge & Mr Dickey suggested ought to happen, isn’t that acknowledgment that the law as it stands most probably can’t be applied?

Mr Dickey went on to argue the general & public importance of the case. True, the issue of keeping directors on the straight & narrow is important, but again it needs to be based on meaningful legislation. Mr Asher said neither side in the court battle could find the degree of absolute liability sought by the Crown duplicated in any other regime, but if there was a change, it was more appropriate that it be made by Parliament, not the Appeal Court.

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Strong growth for Ryman

Landbank promises solid future

Ryman Healthcare Ltd increased its net surplus for the September half-year by 10% to $7 million and has landbanked for strong growth, joint managing director John Ryder and chief financial officer Simon Challies said today.

“Due to the nature of its operations, Ryman is relatively unaffected by fluctuations in the New Zealand economy. The company is the leading operator, in a very large industry, where considerable opportunities remain. The significant growth in the elderly population continues,” they said.

“Management has put a substantial amount of effort into identifying and acquiring sites that are ideally placed to serve the market. These sites are a store for the future and will generate considerable profits over the years ahead.”

Ryman is careful to set itself apart from the real estate market, emphasising the healthcare part of its name. “In spite of a general downturn in the property market, the group’s overall sale of occupation rights to its units continues to be buoyant.

“The company sells long-term healthcare solutions, rather than real estate, and is therefore relatively unaffected by residential property trends. Ryman Healthcare also benefits from operating comprehensive villages, with diverse income streams, rather than just standalone resthomes and hospitals.”

Overall occupancy levels increased during the half-year. The resthomes and hospitals at the recently developed Ngaio Marsh retirement village in Christchurch and the Malvina Major retirement village in Wellington are fully occupied.

Ryman says its second-half earnings will be boosted by the opening of the Rita Angus retirement village in Kilbirnie, Wellington.

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Net September migration inflow 4400

Migrant inflow 37,100 for year

New Zealand’s net migrant inflow rose by 4400 in September, compare to a 3500 inflow in September 2001.

Statistics NZ said that for the September year the net inflow of permanent & long-term migrants was 37,100, compared to a 1700 outflow the previous year.

The inflow over the year was up from all sources, except for a 4.3% fall from Pakistan. The big percentage rises were from China (58%, 15,657 people), India (84%), Korea (76%), Ireland (67%), Russia and Zimbabwe (both 56%).

The downturn in net migration to Australia continued — a net 25,852 outflow for the September 2002 year compared to 39,848 the previous year. The big change is in outflow, down 14,000, whereas inflow from Australia rose 1500.

The net outflow to Australia for the month was 664, down from a 934 outflow in September 2001.

The total migrant inflow for the year was up 27.7%, from 74,702 to 95,417. For the month, the total inflow was up 5.7%, from 7669 to 8106.

Short-term visitor numbers rose 4% in September to 136,100, the number of stay days rose 6% to 3 million, the average length of stay was unchanged at 22 days.

Total visitor arrivals for the year rose 2%, or 30,000, to 1.965 million. China (up 20,300), Korea (up 17,700) & Britain (up 17,600) were the main contributors. Visitor numbers from Australia fell 14,600 and from Japan 11,700.

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Lossmaker Force has a better year

Pre-unusuals surplus, and deficit down to $20 million

Force Corp Ltd, now controlled by casino owner Sky City Entertainment Group Ltd, turned in a $2.28 million surplus before unusuals & tax for the June year, up from a $3.9 million deficit, on operating revenue up 2.1% to $54.5 million.

Unusuals fell from a $44.2 million deficit to a $23 million deficit. After tax & nil extraordinaries, the net deficit fell from $47.5 million to $20.1 million.

Earnings/share improved from a negative 30.6c to negative 13c. Shareholders’ equity improved from $4.3 million to $15 million.

“Non-recurring items aside, this is a promising result for Force,” company secretary Peter Holdaway said.

Group revenue rose 27.8% to $41.3 million and group earnings before interest, tax, depreciation & amortisation (ebitda) rose from $300,000 to $10.1 million.

Settlement of the legal dispute with MTM Entertainment Trust of Australia over ownership of the Force Entertainment Centre on Queen St saw the first-time addition of rental income from there, boosting group revenue by $5.9 million.

New Zealand cinema admissions rose 18.3% to 5.4 million, resulting in a 29.9% revenue growth to $27.1 million.

The average ticket price increased by 9.1% to $8.62, and the spend/customer on concession items (candy bar) rose 9.3% to $2.35.

Ebitda for the New Zealand cinemas business rose 58.7% to $6.9 million.

Damodar Village Force, the company’s joint-venture cinema operation based in Fiji, reported a 20.8% increase in revenue to contribute $2.5 million as Force’s share of revenue. Admissions grew by 22% to 1.3 million.

Force opens a 10-screen multiplex at the Westfield Shoppingtown St Lukes in mid-2003 and expects an improved result for the group in 2003.

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Pye family buys six TasAg farms

Buyer wants land rotated

South Canterbury farmer Alan Pye has bought six of Tasman Agriculture’s farms in Canterbury for $34.25 million.

Listed farm company Tasman Agriculture, two-thirds owned by Brierley Investments, sold another six farms at auction for $18.1 million last month, and sold one Mid-Canterbury farm and two in North Otago for $12.24 million, for a total $64.59 million on 15 farms.

The Pye family has interests in a number of South Island dairy units, and also has interests in agricultural properties in both Australia and New Zealand. The family operates one of the biggest potato-growing businesses in the two countries.

Mr Pye said today he intended to keep existing dairying operations going, with the same sharemilkers in place — but with a difference: he wants to put an area of each unit in potatoes every year, rotated with a cereal crop then regrassed for dairying. He said this would renew pastures for enhanced dairy production and increase the economic use of the properties.

The six properties he bought cover a total 1744ha. The sale price equates to $19,640/ha and, for the top property, $22,700ha. The farms produced 2.09 million kg of milk solids for the 2000 season.

Tasman Agriculture is now negotiating to manage the dairy operations on the Pyes’ behalf.

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Excerpts from the Westfield meetings

Frank Lowy talks strategy, how to win when times are tough

Shopping centre magnate Frank Lowy spoke about long-term goals & policies as well as current market conditions when he addressed meetings in Sydney today of Westfield Holdings Ltd, Westfield Trust & Westfield America Trust.

Below are excerpts from his addresses to these meetings (just over two A4 pages’ worth). I’ve excluded his brief mention of New Zealand, but hope (finally) to follow up early next week with an interview (conducted some time ago) with Westfield’s New Zealand chief, John Widdup.

Mr Lowy discussed the Rodamco dispute briefly and said the first insurance instalment from the World Trade Centre terrorist attack had come through. But what makes the excerpts worth reading is that they’re more about strategy:

Two-part strategy for solid growth

The whole Westfield group has $A24.1 billion of shopping centre assets under management in Australia, New Zealand, the UK & the US.

The company’s solid growth has been made possible through a two-part strategy. The first part aims to grow the business through intensive management and redevelopment of existing assets. The second is to expand the scope of our business both in existing locations and in new markets.

Progress has been made in establishing Westfield’s team in the UK with executives from Australia, the US & New Zealand appointed to work with locally based staff to ensure the successful introduction of Westfield’s intensive management approach.

Cycles come & go, Westfield emerges stronger

We have been in business 40 years, and I have seen economic cycles come and go. Generally, Westfield has emerged from each of these downturns a stronger company.

Westfield Holdings generates profit from four main areas of shopping centre activity — investment income, management income, project income & funds management income.

These activities are not affected to the same extent by month-to-month fluctuations and we are therefore able to sustain our profitability even during periods of slower growth.

All facets of our business are underpinned by the 13,200 leases we manage around the world. Most of these are medium to long-term — at least five years and in many cases 10 or more. This situation works to absorb many of the shocks felt in other businesses that are more susceptible to short-term economic fluctuations, although obviously we are not completely immune to long-term economic downturns.

The softer economic conditions might affect the timing of one or two projects in our global redevelopment program but the intrinsic economic attractiveness of the projects remains, and given that these developments occur over a 3-5-year timeline, we expect our programme will be relatively unaffected by recent events.

$A555 million, three-property Sydney transaction

I’m very pleased to report that earlier this week Westfield Trust & AMP announced an in-principle agreement on an $A555 million, three-property transaction.

In short, Westfield Trust will acquire the Centrepoint complex in the Sydney central business district. This is one of Sydney’s best located and busiest shopping areas — situated between the main cbd stores of Grace Brothers & David Jones, fronting Pitt St Mall, Castlereagh & Market Sts, and we intend to introduce Westfield management & Westfield branding at the earliest opportunity.

AMP will sell its 50% interest in the Bondi Junction centre to Westfield Trust. A major redevelopment of the
centre is expected to get underway next year and the new centre will become a top-class property for the Westfield portfolio.

AMP will acquire a 50% interest in Westfield Liverpool in Sydney and Westfield Trust will retain a 50% interest in the centre.

The total capital required for Westfield Trust as a result of the three transactions, including costs, will be approximately $A210 million. This has been funded by an equity issue to institutions of $A200 million, & the balance by debt.

Rodamco: They were doing it wrong

Most of you would be aware that in August Westfield Holdings purchased a 23.9% interest in Rodamco North America, a Netherlands-based company with a portfolio of 41 shopping centres in the US. The Rodamco centres are very good centres, in good locations, but the current management has failed, in our view, to realise their full potential.

We have prepared a strategic plan for Rodamco North America which would ultimately merge the Rodamco and Westfield America portfolios to create the pre-eminent shopping centre group in the US.

We are a long-term investor in Rodamco. Our current investment is a good one in its own right, we are well funded, it is earnings positive from day one, & we are there to stay.

Strength of the business

Westfield Trust has performed consistently well over the short, medium and long terms. We have been able to achieve these results for a number of reasons.

The strength of our business lies in the fact that shopping centres can create a franchise in their particular trade area, if they are well managed. The high quality shopping centres Westfield Trust acquires are not simply a commodity, like some other forms of real estate.

Our centres are “living assets” which are constantly being redeveloped to adapt to changes in consumer tastes and this provides the opportunity to continually improve the property & increase its capital value & its retail sales potential.

Regional shopping centres generate relatively high returns with low volatility over the long term compared to other types of investment. It is also worth noting that periods of slower growth also provide opportunities to make important acquisitions, as properties that would not otherwise be available come to market.

Mid-90s example of Westfield going shopping

An example was in the mid-90s. Retail conditions were soft and most people were not looking to buy shopping centres. But we look beyond these cycles and used the opportunity to acquire six properties for $A775 million, and these have proven to be very valuable additions to the trust portfolio.

The centres were Carousel, Galleria & Innaloo in Perth, Chermside in Brisbane, Northgate in Sydney & Fountaingate in Melbourne. Most of these centres have already been expanded & redeveloped, making them even more valuable to the trust, and boosting retail sales significantly.

Our redevelopment programme is continuing. Late last year we opened the $A300 million Burwood centre in Sydney and completed an $A235 million redevelopment of Chermside in Brisbane. Since than, we have successfully completed two further developments — the $A360 million Hornsby project in Sydney and the $A190 million project at Fountaingate in Melbourne.

Notwithstanding the softer economic conditions, I am pleased to say that we were able to lease 317 specialty shops at Hornsby and 232 at Fountaingate — a total of nearly 550 new specialty stores.

In fact, we were able to lease 72 shops to retailers who had never had a shop in a Westfield centre before — 47 at Hornsby and 25 at Fountaingate. To achieve these results in a difficult environment demonstrates the quality of these assets and the desire of the retailers to be located in a Westfield Centre.

Stronger corporate governance for Westfield Trust

You will be aware of the strong corporate governance regime that is part of the Westfield Trust structure. Until last year this was overseen by a trustee which was responsible for ensuring that interests of unitholders were protected.

When the Australian Federal Government introduced the new managed investments regime in April 2000, we introduced a compliance plan that we registered with the Australian Securities & Investments Commission.

This plan continues to be monitored by a separate compliance committee which comprises a majority of external members and which reports independently to the board. This compliance committee operates in addition to the continuing role of the separate audit & compliance committee set up by the board to ensure that an adequate compliance and control framework exists for the trust.

This committee also maintains regular contact with the trust’s external & internal auditors and also reports directly to the board. Following the merger of Westfield America Inc & Westfield America Trust, which was completed on 1 October, we propose to adopt a board & corporate governance structure for Westfield America Trust along the lines of that which applied for Westfield America Inc, the main feature of which was a majority of external members on the board.

We propose also to establish a similar regime for Westfield Trust and we intend to introduce the new structure in the coming months.

And last, future returns

Despite the prevailing economic conditions, we can reconfirm that the distribution per unit will meet the consensus forecast for this year, and we expect distribution growth per unit next year of approximately 2%.

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