Archive | Regulation

Commission sets out preliminary issues on Daiken takeover of Dongwha MDF business

The Commerce Commission published a statement of preliminary issues yesterday relating to Daiken NZ Ltd’s proposed acquisition of Dongwha NZ Ltd.

It’s a standard but comprehensive list of competition checks & balances (see the link below).

Daiken lodged its application on 3 October. The commission has invited submissions by Thursday 2 November and is scheduled to make a decision on the application by 30 November. However, the decision date could be extended.

Daiken is the New Zealand subsidiary of Daiken Corp, a Japanese company specialising in the manufacture & supply of wood-based construction materials. In New Zealand, Daiken manufactures & supplies medium density fibreboard (MDF) from a plant it operates in North Canterbury.

Laminex gets supply agreement

Under a product supply agreement with Daiken, Laminex would continue to be supplied with raw MDF from the Southland plant.

Daiken said the agreement would enable Laminex to continue to compete with it and with New Zealand’s third raw MDF manufacturer, Nelson Pine Industries Ltd, in the supply of raw MDF to customers in New Zealand.

Daiken submitted that Dongwha NZ was a “fringe competitor” in the supply of raw MDF within New Zealand because it had long been primarily export focused and, setting aside its sales to Laminex, accounted for a very small proportion of sales in New Zealand.

Daiken also submitted that the proposed merger would not give rise to a material lessening of competition in the manufacture & supply of raw MDF in New Zealand because:

  • Nelson Pine is the largest competitor in the New Zealand market at present, and would continue to exert significant competitive constraint on the merged entity, including by being able to divert significant volumes destined for export to New Zealand customers if market opportunities were to arise;
  • raw MDF is sold in a global commodity market, meaning that prices to New Zealand customers are pinned to conditions in that global market, rather than by standalone competitive dynamics in the New Zealand market;
  • overseas manufacturers of raw MDF in Australia, Asia & South America could import & supply raw MDF in New Zealand if New Zealand manufacturers were to price raw MDF above global market levels;
  • substitutability of MDF for particle board placed additional competitive constraint on the supply raw MDF in New Zealand;
  • new entrants could be incentivised to enter;
  • customers are highly price conscious, push back in negotiations on price increases, and are willing to switch suppliers if they can obtain a cheaper price; and
  • the merger would not materially change the existing degree of competition in New Zealand because the product supply agreement Daiken & Laminex would enter into ancillary to the merger would ensure that Laminex has sufficient volumes to continue to compete, as market opportunities arise, with the merged entity & Nelson Pine in the sale of raw MDF in New Zealand.

The parties

Dongwha is 80% owned by Dongwha International Co Ltd (incorporated in Hong Kong, controlled by Dongwha Group of South Korea) and 20% owned by Fletcher Building Ltd subsidiary Laminex Group (NZ) Ltd. In New Zealand, Dongwha manufactures & supplies MDF from a plant it operates in Southland.

Its minority shareholder, Laminex, buys MDF from Dongwha for its own wood products business in New Zealand. Laminex also on-sells some of the MDF it purchases from Dongwha to other parties.

Dongwha bought the New Zealand business from US timber company Rayonier Wood Products LLC in 2005, and Laminex bought 20% from Dongwha in November 2007.

Link:
Commerce Commission, clearances register, Daiken-Dongwha

Attribution: Commission release & website.

Continue Reading

Lawyer gets home detention for Celestion project finance deception

Lawyer Timothy Upton Slack (55) was sentenced to 10 months’ home detention today for his role in getting finance for the Celestion apartments hotel project in 2008.

The development by Emily Projects Ltd (Leonard Ross) was close to not proceeding in the early days after the global financial crisis had started to impact, for lack of sales.

ANZ Bank NZ Ltd agreed to advance $41 million under an agreement signed in December 2008, provided Emily Projects had qualified presales on 80 of the proposed 127 apartments, all buyers unrelated to the developer & with cash deposits.

In the Auckland High Court today, Justice Kit Toogood said Mr Slack gave the bank several undertakings & personal assurances “that you knew were blatant lies”.

The judge said: “Although you said there was minimum risk to the bank, it was for the bank to decide that…. Deliberate & planned deception increases your culpability.” He said the bank was likely to reconsider its lending procedures.

Mr Slack made false representations that the preconditions had been satisfied. In fact, Justice Toogood said, “Emily Projects had in fact achieved few if any of those presales. The letters of acknowledgment were entirely false. In fact no deposits had been paid and no cash deposits were held.”

The judge said Mr Slack “had no idea the deposits & letters of acknowledgment were false”, but he went on to provide several false undertakings that his law firm held deposit funds in its account. The firm charged Emily Projects $488,000 in fees for its work.

The bank also didn’t lose out. The project, between Emily Place & the foot of Anzac Avenue in the Auckland cbd, was completed, the bank collected interest on its loan and the development finance was paid back.

Mr Slack pleaded guilty on 1 September to one representative Crimes Act charge of obtaining by deception. Justice Toogood said the maximum jail term was 7 years, but the agreed starting point in setting penalty was 4 years’ jail.

He told Mr Slack: “You were disciplined by the Law Society in 2005 for another misdemeanour. That disqualifies you from any discount for good character.”

However, the judge discounted the prospective jail term by 16% for remorse & future consequences and took the discount to 25% for an early guilty plea, plus 20% for the “moderate” degree of support he gave the Serious Fraud Office, which prosecuted.

Justice Toogood told Mr Slack: “Your complicity was essential to the deception [but] you did not devise the fraud scheme yourself.”

The judge also said Mr Slack’s humiliation & loss of income – and there is doubt that he will retain his certificate to practise as a lawyer – added to the discount, reducing the potential jail term to 22 months: “That means you are eligible for home detention.”

Justice Toogood did not explain how a longer jail term translated into a shorter period of home detention, but commented: “I regard your reactions to your disgrace that you have real insight into your offending & its causes and pose no risk of reoffending…. Imprisoning you would serve no useful purpose.”

Mr Slack was adjudicated bankrupt in 2013 and automatically discharged in April 2016.

The other 3 defendants in this case – property developer Leonard John Ross and 2 men who worked for him, company director Michael James Wehipeihana and self-employed consultant Vaughn Stephen Foster – will face trial on 5 June 2018.

Justice Toogood told Mr Slack: “I have made no findings at all about the guilt or innocence of your codefendants.”

Earlier stories:
3 September 2017: Celestion finance deal lawyer pleads guilty
12 April 2017: Remand on Celestion development fraud allegations
17 February 2017: SFO alleges fraud in Celestion development loan deal
8 May 2009: Ross’ Emily Projects starts work on ex-Blue Chip site

Attribution: Court sentencing.

Continue Reading

Celestion finance deal lawyer pleads guilty

The lawyer accused of serious fraud relating to finance for development of the Waldorf Celestion apartments hotel in 2009 pleaded guilty in the Auckland High Court on Friday to one Crimes Act charge of obtaining by deception.

Timothy Upton Slack (55) was one of 4 men charged by the Serious Fraud Office with making false statements in order to obtain a credit facility from the ANZ Bank NZ Ltd to allow Emily Projects Ltd to develop the Celestion between Anzac Avenue & Emily Place in Auckland.

The Serious Fraud Office has alleged that a loan facility of about $40 million was obtained.

Mr Slack’s name suppression was lifted, but non-publication orders relating to third parties remain in place. He faces up to 3 years’ jail. Mr Slack was adjudicated bankrupt in 2013 and automatically discharged in April 2016.

The other 3 defendants – property developer Leonard John Ross, company director Michael James Wehipeihana and self-employed consultant Vaughn Stephen Foster – will face trial on 5 June 2018.

Earlier stories:
12 April 2017: Remand on Celestion development fraud allegations
17 February 2017: SFO alleges fraud in Celestion development loan deal
9 October 2009: Apartments at centre of Blue Chip case go on market
8 May 2009: Ross’ Emily Projects starts work on ex-Blue Chip site

Attribution: SFO release, insolvency register.

Continue Reading

FMA updates non-GAAP guidance

The Financial Markets Authority released updated guidance yesterday on disclosing non-GAAP (generally accepted accounting principles) financial information.

In the listed property sector, the main issues – for decades – have been the separation of revaluations from operating earnings and whether they have been highlighted consistently.

A third issue is how visible earnings/security are in listed entities’ results – important in assessing performance where capital has been raised.

The guidance note replaces one issued in 2012 and follows a review covering the last 5 years.

Garth Standish.

The authority’s capital markets director, Garth Stanish, said in yesterday’s release: “Capital markets only work properly if investors receive accurate and timely information. That information must also be understandable and engaging to investors. It should form an accurate, clear and compelling story about how a company is performing.

“Company financial statements are a vital part of the information investors receive. However, in the financial statements of many companies you’ll find phrases like ‘underlying earnings, ‘normalised profit’ or ‘cash earnings’. Information disclosed this way can sometimes confuse more than clarify. The information can be misleading if it is presented inconsistently, is not adequately defined, or used to hide bad news.”

Links: Consultation process
Guidance note: Disclosing non-GAAP financial information

Attribution: Authority release.

Continue Reading

Vector to repay consumers after acknowledging breach

Vector has reached a settlement with the Commerce Commission for an unintended breach of its regulated price path.

The breach arose in April 2013 when Vector restructured its prices to enable residential consumers to benefit from either a low user fixed charge or standard user tariffs.

Vector chief financial officer Dan Molloy said on Friday: “While Vector was legally prevented from unilaterally switching consumers onto the optimal tariff for their usage pattern, it relied on electricity retailers to identify & proactively request Vector to switch those consumers who would benefit from a low use fixed charge tariff.

“Vector assumed that competition in the electricity retail market would ensure retailers selected the most beneficial tariffs for their customers. This did not occur. The Commerce Commission noted that this has highlighted the need for consumers to check that, if eligible, the low use tariff is being used as it could save households up to $200/year.”

Mr Molloy said Vector would return $13.9 million to Auckland electricity consumers by reducing the amount of revenue it recovers over 2 regulatory years starting in April 2018. In the 2018 financial year, Vector’s electricity revenues (& ebitda) will be $900,000 lower than they would otherwise have been, and the rest will be spread across the 2019 & 2020 financial years. The $13.9 million to be returned to consumers also includes accumulated interest of $3.8 million.

Attribution: Company release.

Continue Reading

Commission rules on Juken J-frame labelling

The Commerce Commission has made 3 determinations regarding labelling of J‐frame laminated veneer lumber manufactured by Juken NZ Ltd.

The commission said this week Juken’s J-frame lumber:

  • didn’t meet the requirements of NZS 3640
  • was incorrectly labelled as H1.2, and
  • may not have complied with AS/NZS 1604.4 because it doesn’t carry an “E” label signifying that it’s an envelope treatment.

The commission said its decision was about labelling and it made no judgment about the durability & performance characteristics of Juken’s J‐frame product or whether it was fit for purpose.

The commission added: “J‐Frame has a BRANZ appraisal and a CodeMark certificate. These are unaffected by the Commerce Commission decision. This means that J‐Frame can be used as an alternative solution where the H1.2 hazard class applies. If J‐Frame is specified in plans for a use in situations where the H1.2 hazard class applies, then a building consent authority is obliged to accept this, on the basis of the CodeMark certificate.

“If consented plans specify ‘H1.2’ and a code compliance certificate has not yet been issued, then a consent variation will be needed if the builder uses (or proposes to use) J‐frame.”

Attribution: Commission release.

Continue Reading

Updated: Commission files 29 charges against Steel & Tube over mesh

Published 7 June 2017, updated 8 June 2017:
The Commerce Commission said on Wednesday it had filed 29 charges against Steel & Tube NZ Ltd for making false & misleading representations about its steel mesh product known as SE62.

Steel & Tube responded, which appears at the foot of this article.

The commission said it had filed the charges in the Auckland District Court under the Fair Trading Act. They relate to conduct between 1 March 2012 & 6 April 2016 and were part of the commission’s wider investigation into steel mesh.

The commission said in today’s release: “The charges allege that Steel & Tube made misleading representations on their batch tags, batch test certificates, advertising collateral & website that SE62 was 500E grade steel, when it was not. The charges also allege that false & misleading representations were made by Steel & Tube that SE62 steel mesh had been independently tested & certified, when it had not. This included using the logo of an independent testing laboratory on SE62 test certificates when the product had not been tested by the laboratory.”

The commission also filed charges this year against Timber King Ltd & NZ Steel Distributor Ltd in relation to false & misleading representations about 500E steel mesh. The commission said these companies had entered guilty pleas and would be sentenced in August. The commission expects to lay charges against one other company, and is continuing its investigations into one more company.

Background

The commission began investigating after receiving a complaint on 5 August 2015 raising concerns about the validity of claims being made by 3 companies selling steel mesh in New Zealand. This complaint related to problems with a particular size of 500E mesh, which is ductile steel mesh often used in concrete slabs like house foundation slabs & driveways.

The Australia/NZ standard (AS/NZ 4671:2001) mandates various physical characteristics required of steel mesh, and the testing methods that must be applied during their production. In April & May 2016 the commission entered into enforceable undertakings with 3 companies that ensured 500E grade steel mesh could only be sold once it passed specific stringent testing.

In November 2016 the Government made changes to testing requirements, increasing the number of samples which need to be tested, clarifying how that testing is done and requiring testing be done by internationally accredited testing laboratories. The changes were fully implemented on 30 May 2017.

Steel & Tube responds

Steel & Tube said it had been co-operating with the commission throughout its investigation and was aware of the decision to file charges: “The commission’s charges against Steel & Tube in regards to compliance with the testing standard relate to the application of testing methodologies only, not the performance characteristics of the seismic mesh.

“Steel & Tube is working with the Commerce Commission to reach an appropriate resolution of the charges, however cannot comment further as the matter is before the court. Steel & Tube continues to stand behind its products and, since April 2016, all of the company’s seismic mesh has been tested externally by accredited laboratories.”

Earlier stories:
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried

Attribution: Commission release.

Continue Reading

Remand on Celestion development fraud allegations

The developer of the Waldorf Celestion apartments hotel at the foot of Anzac Avenue in Auckland, Tasman Cook Group Ltd owner Leonard Ross, and 3 associates were remanded in the Auckland District Court today until 22 June, on 4 Crimes Act counts of obtaining by deception and 2 of using forged documents, with the expectation that the case will be sent to the High Court for a jury trial.

Mr Ross (50) is living in Melbourne and was excused from appearing in court today. One of the other defendants whose name is suppressed was also excused from appearing.

The other 2 defendants, company director Michael Wehipeihana (45) & self-employed consultant Vaughn Foster (54), appeared in court and were remanded on bail.

The charges arose in relation to allegedly making false statements & using forged documents to obtain a credit facility from ANZ Bank NZ Ltd to allow the project company, Emily Projects Ltd, to develop the Waldorf Celestion, which opened in 2009. It’s alleged that a loan facility of about $40 million was obtained.

Emily Projects, 88% owned by Mr Ross, went into voluntary liquidation on 22 December 2011. Original liquidator Chris Horton was replaced in 2014 by Tim Downes & Greg Sherriff (Grant Thornton), who said in their final report in 2015 they’d recovered $610,244 of assets. 2 unsecured creditors claimed $671,000 and 53 investor claims totalled $2,890,951.

The one distribution to unsecured creditors was 11.8c in the dollar for a total $420,310.

The whole project was controversial because Mr Ross, who’d developed property for Mark Bryers’ Blue Chip NZ Ltd, acquired the Celestion site at mortgagee sale from a lender to Blue Chip.

A Blue Chip company bought the 1081m² site between Anzac Ave & Emily Place, on the eastern fringe of the cbd, for $4 million in 2004 and it was transferred in 2006 for $10.9 million to another of Mr Bryers’ companies.

Under Blue Chip, the development was known as the Emily and it was to have had 149 units. 85 were sold and investors paid an estimated $11.2 million in deposits.

Emily Projects bought the property after it was put up for mortgagee sale in 2008 by the NZ Guardian Trust Co Ltd, owed $4.475 million. The purchase price covered the Guardian Trust debt and Guardian Trust stayed in behind ANZ Banking Group Ltd as second mortgagee on the new project.

Earlier stories:
17 February 2017: SFO alleges fraud in Celestion development loan deal
9 October 2009: Apartments at centre of Blue Chip case go on market
8 May 2009: Ross’ Emily Projects starts work on ex-Blue Chip site

Attribution: Court hearing.

Continue Reading

Manawatu decision lifts price-fixing penalties to $17.95 million

The Commerce Commission’s court action against Manawatu real estate agents involved in a national price-fixing agreement has been completed.

Property Brokers Ltd and its director, Tim Mordaunt, were ordered to pay penalties totalling $1.5 million in a judgment issued on Monday following a High Court hearing in March.

The commission filed proceedings in the Auckland High Court in December 2015 for alleged price-fixing & anti-competitive behaviour by 13 national & regional real estate agencies, a company owned by a number of national real estate agencies and 3 individuals. The commission also issued warnings to an additional 8 agencies for their role in the conduct.

The proceedings related to alleged conduct in 2013 & 2014 by the national head offices of 5 major real estate companies, and separately by agencies in Hamilton & Manawatu. The alleged conduct occurred in response to Trade Me’s change from a monthly subscription fee to a per-listing fee for properties advertised for sale on its website.

The commission has now concluded its Manawatu & national proceedings and has agreed settlements with Hamilton-based Success Realty Ltd & Lugton’s Ltd. Court-imposed penalties to date total $17.925 million.

Settlements have not been agreed with Monarch Real Estate Ltd (trading in Hamilton under the Harcourts banner), Online Realty Ltd (trading under the Ray White banner), Lodge Real Estate Ltd and 2 individuals in the Hamilton proceedings. These proceedings remain before the court.

The commission filed proceedings in Palmerston North in December 2015 alleging Property Brokers Ltd, Manawatu (1994) Ltd & Unique Realty Ltd breached the Commerce Act by agreeing with each other, and other Manawatu agencies, that they would each pass on to vendors the full cost of advertising a property on the Trade Me website. The commission filed proceedings against Mr Mordaunt for his role in facilitating the agreement.

Property Brokers & Mr Mordaunt reached settlements with the commission admitting that their conduct breached the Commerce Act prohibition on price fixing. The company was ordered to pay a penalty of $1.45 million and Mr Mordaunt $50,000.

Unique Realty Ltd (Jocelyn & Max Vertongen) & Manawatu (1994) Ltd (Stephen Allen) were earlier fined $1.25 million each for their roles in the Manawatu agreement.

Justice Murray Gilbert said in his ruling released on Monday: “Price-fixing agreements fundamentally undermine the proper functioning of competitive markets and have the potential to substantially erode the benefits the public is entitled to expect from them.

“Such agreements are antithetical to the purpose of the Commerce Act, which is to promote competition in markets for the long-term benefit of consumers within New Zealand. For these reasons, participation in price-fixing agreements is regarded as serious misconduct and must be met with a penalty that is sufficient to deter other market participants from engaging in this type of conduct.”

Link:
Commerce Commission enforcement response register, including judgments

Attribution: Judgment, Commerce Commission release.

Continue Reading

ASIC takes Westpac to court alleging irresponsible lending

The Australian Securities & Investments Commission (ASIC) launched proceedings against Westpac Banking Corp on Wednesday for alleged breaches of responsible lending laws on home loans.

The federal agency is seeking civil penalties for contravening the responsible lending provisions of the National Consumer Credit Protection Act between December 2011-March 2015.

ASIC alleges the bank failed during that period to properly assess whether borrowers could meet their repayment obligations before entering into home loan contracts.

The agency alleged Westpac:

  • used a benchmark instead of the actual expenses borrowers declared in assessing their ability to repay the loan
  • approved loans where a proper assessment of a borrower’s ability to repay the loan would have shown a monthly deficit, and
  • for home loans with an interest-only period, failed to have regard to the higher repayments at the end of the interest-only period when assessing the borrowers’ ability to repay.

The National Consumer Credit Protection Act has provisions to ensure that credit providers make reasonable inquiries about a borrower’s financial situation and assess whether a loan contract will be unsuitable for the borrowers.

The first hearing for the proceedings will be on 21 March in the Federal Court in Sydney.

ASIC said the action against Westpac followed its review of interest-only home loans, in which it reviewed the responsible lending practices of 11 lenders.

Links:
Concise statement – ASIC vs Westpac
Originating application
20 August 2015: Home loans review
ASIC release, 20 August 2015: Lenders to improve standards following interest-only loan review

Attribution: ASIC release.

Continue Reading
WordPress Appliance - Powered by TurnKey Linux