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Fletcher gets miffy over Steel & Tube time to get advice, pulls what was only ever a “non-binding & indicative offer”

on Tuesday 16 October 2018 in Commerce Commission, Fletcher Building, Gainz, Regulation, Sectors, Securities – NZ, Steel & Tube 0

Fletcher Building Ltd dropped its on-the-quiet attempt to buy fellow NZX-listed company Steel & Tube Holdings Ltd yesterday, 3 hours after Steel & Tube told the exchange a revised offer still undervalued it.

Remarkably, Fletcher blamed the Steel & Tube board’s lack of support to “progress the proposal in a timely manner”.

5 weeks after Fletcher’s initial confidential approach, the Steel & Tube board decided it needed expert advice on Friday’s revised offer that would take 3-4 weeks to confirm.

Fletcher said they’d had “ample time”.

Again, as it did with its initial offer, Fletcher focused on the short-term timeframe of Steel & Tube’s share price, ignoring the turnaround process Steel & Tube has begun after a $38 million annual loss.

Fletcher initially began talks confidentially with the Steel & Tube board, and also with major shareholders in the target company, on its 10 September proposal to make a non-binding indicative offer of $1.70/share for the whole of Steel & Tube.

12 days after Steel & Tube disclosed that offer & its rejection to the market, Fletcher came again with a $1.90/share price tag plus a 5c/share dividend, with imputation credits.

This time, Steel & Tube told the market:

  1. Its advisors’ (First NZ Capital Ltd) view on Steel & Tube’s intrinsic value was between $1.95-2.36/share, excluding the company’s share of synergies, and
  2. The permitted dividend doesn’t adequately compensate shareholders for the extended timeframe realistically required to seek regulatory approvals.

The Steel & Tube board said of the new offer:

“The revised offer of $1.90/share implies an enterprise value (EV) of $341 million and is only an 8.5x multiple of our long-term sustainable earnings, assessed as 2021 financial year ebit (earnings before interest & tax) of $40 million. Comparatively, excluding the company’s share of synergies, our advisors’ valuation range is an implied EV of $346-414 million.
“However, Steel & Tube advises that in light of the revised offer the board is commissioning an independent expert report which will take 3-4 weeks, and will further consult its legal & financial advisors about the implications of the revised offer. Fletcher Building has been advised of this.”

Steel & Tube chair Susan Paterson.

Steel & Tube chair Susan Paterson said: “The revised non-binding indicative offer from Fletchers does not prevent higher value approaches from other interested parties. The board will continue to evaluate strategies & actions that deliver the best value to shareholders and is continuing to focus on executing our turn-around strategy.”

In her letter to Fletcher chair Bruce Hassall & chief executive Ross Taylor, Ms Paterson said: “While we understand you may have indications of some support from a couple of our institutional shareholders, the board needs to consider the interests of all shareholders taken as a whole, and the execution risks inherent in the revised non-binding indicative offer.

“Chapman Tripp continues to advise that the proposed acquisition would face challenging issues for clearance under the Commerce Act, due to Fletcher’s vertical presence & significant size in several steel product markets.”

The sulk

Fletcher said in its withdrawal announcement it had pulled its offer “due to lack of support from Steel & Tube’s board to progress the proposal in a timely manner.

“Steel & Tube has announced that it does not support Fletcher Building’s revised proposal, and that it would need a further 3-4 weeks to confirm this view. Fletcher Building has been engaging with Steel & Tube on a proposal for 5 weeks now, which has provided ample time for the board to seek independent valuation advice.

“During that period, Fletcher Building received support for progressing its proposal from major Steel & Tube shareholders Milford Asset Management & Harbour Asset Management.”

Analysing share price movements with a glass eye

Fletcher said its revised proposal “provided a significant premium of more than 50% to Steel & Tube’s pre-announcement 5-day volume-weighted average price”.

Fletcher Building chief executive Ross Taylor.

Fletcher chief executive Ross Taylor said: “Despite offering what we believe was a very attractive offer to Steel & Tube shareholders, our engagement with the Steel & Tube board has been unsuccessful and, as a result, we have withdrawn the acquisition proposal.

“Based on expert advice, Fletcher Building remains confident the transaction would have received Commerce Commission clearance. Steel & Tube’s market share information released on 10 October doesn’t properly take into account the material impact of direct imported products in relevant markets.”

Steel & Tube Holdings Ltd’s share price rose 11c to $1.34 in the 4 days before it revealed Fletcher Building Ltd’s intention to take it over. On 3 October, the day of the announcement, the price rose another 22c, and 3c more the next day to reach $1.59 – a 36% gain in a week.

The price had fallen to $1.15 at the end of August, tumbling from $1.83 in May & $2.06 in January.

Steel & Tube’s share price dropped to $1.48 a week ago and has since been in a 3c band around that price.

Fletcher’s share price hit a short-term peak of $6.58 on 2 October, the day before Steel & Tube revealed the confidential offer. Since then, the Fletcher price has tumbled to $6.10.

Like Steel & Tube, the Fletcher share price has been hit over the last 2 years by revelations of incompetent management & board control.

On 2 February, 12 days before Fletcher announced an extra $486 million of losses by its Building + Interiors division, accompanied by chair Sir Ralph Norris’s decision to resign, its share price hit a 4-month high of $7.61. It bottomed on 4 April at $5.53 and made it back up to $7.13 on 30 July.

The Fletcher share price had been at $10.19 in November 2016. The company had become aware of deep problems within its vertical construction business over that summer, and the price had dropped to $8.73 by 17 March 2017, the Friday before now-departed chief executive Mark Adamson made the first revelation of the extent of Fletcher’s problems.

Link:
Steel & Tube investor updates

Earlier stories:
5 October 2018: The price was moving, the confidentiality remains, and still-weak Fletcher insinuates Steel & Tube takeover “compelling”
13 September 2018: Steel & Tube bookbuild scaled
30 August 2018: Steel & Tube completes books-clearing, future already brighter
22 August 2018: Updated: A loss, but flow of red ink stops at Fletcher Building
7 August 2018: Updated: Steel & Tube seeks $80.9 million from placement & rights issue, updates guidance
1 July 2018: Fletcher Building exits Sims recycling joint venture
22 June 2018: Australia the next big focus for Fletcher, offsite construction an innovation example
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
14 February 2018: Another $486 million of losses for Fletcher Building, and Norris resigns

Attribution: Fletcher and Steel & Tube releases, websites, NZX.

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Fulton Hogan drops Huntly quarry from Stevenson purchase, Commerce Commission happy

on Tuesday 16 October 2018 in Commerce Commission, Drury, Gainz, Infrastructure, Land use, Neighbourhoods, Regulation, Roads, Sectors, South 0

The Commerce Commission has closed its investigation into roading & infrastructure construction company Fulton Hogan Ltd’s acquisition of Stevenson Group Ltd’s construction materials business, saying its concerns with the transaction have been addressed.

Fulton Hogan agreed to buy Stevenson’s construction materials business in May, intending to take full ownership of Stevenson’s 2 quarries & 4 concrete plants, transport, laboratory services and associated plant & equipment.

Fulton Hogan didn’t seek clearance under the commission’s merger regime, and the commission opened an investigation in June, primarily due to concerns the acquisition could reduce competition for the production & supply of aggregates (granular rocks, gravel or sand typically used in roading & construction) in Auckland & North Waikato. Fulton Hogan & Stevenson both own & operate quarries in Auckland & Huntly.

Commission deputy chair Sue Begg said yesterday Fulton Hogan had since agreed not to acquire Stevenson’s Huntly quarry as part of the transaction and it had now been formally excluded from the purchase.

“The decision to remove the Huntly quarry from the transaction addresses our concerns in this case. We are satisfied that Fulton Hogan’s purchase of Stevenson’s Auckland quarry assets is unlikely to substantially lessen competition, given the presence of other competitors in this market, and we have now closed our investigation.”

Stevenson’s focus has shifted to the development of its Drury quarry & land across to Auckland’s Southern Motorway, where it had 361ha of rural & quarry land rezoned in 2013 for a mix of industrial & business development.

Since then, Kiwi Property Group Ltd has bought 51ha at Drury to create a town centre, and Karaka & Drury Ltd (Charles Ma) has begun work on 2 residential developments at Drury, the first for 68ha and the second for 85ha, set to yield about 2700 homes plus a village centre.

Link:
Commerce Commission case register

Earlier stories:
15 June 2018: Commission opens investigation into Fulton Hogan’s Stevenson acquisition
31 October 2016: Work starts on 3 striking special housing area projects
24 August 2016: Work set to start after fast approval for Auranga special housing area at Drury
30 August 2013: Drury South industrial area plan change & MUL extension approved
10 September 2017: Second round for Auranga precinct confirms Drury as major growth centre

Attribution: Commission & Fulton Hogan releases.

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Updated: Commission takes Vector to court for failing to curtail power outages, and Vector says rules out of date

on Thursday 11 October 2018 in Commerce Commission, Gainz, Regulation, Sectors

Published 10 October 2018, updated 11 October 2018:
The Commerce Commission said it would file civil proceedings in the Auckland High Court on Wednesday seeking financial penalties against electricity lines company Vector Ltd for breaching its network quality standards.

Vector said it was at fault – but believed the regime “no longer reflects reality” (see its response below).

Vector serves over half a million homes & businesses in the greater Auckland region and, as a regulated business, must comply with commission regulations regarding the maximum revenue it can collect and the minimum standards of quality it must deliver. Quality is measured in the duration & frequency of power outages.

The commission said: “As part of its compliance with the regulations, Vector reported that it had breached its quality standards in both the 2015 & 2016 financial years. The commission will file proceedings under the Commerce Act alleging Vector failed to adhere to good industry practice in some aspects of its network management, which resulted in increased outages over that period.

In particular, the commission considers Vector did not meet good industry practice with regard to aspects of its:

  • overall governance of compliance with the quality standards – for example, underestimating the growing risk of non-compliance, and failing to have methods to predict & plan for the effects of increased traffic congestion
  • asset lifecycle management practices
  • approach to managing reliability, such as a consolidated & documented strategic reliability management plan, which would have helped to identify key issues & solution options
  • vegetation management (cutting trees to avoid collisions with power lines), and
  • management & supervision of arrangements with the field service providers whose crews undertake maintenance & fix faults on Vector’s network.

The commission said Vector had co-operated with its investigation and confirmed it wouldn’t contest the proceedings. It has also reported further breaches of its quality standards for 2017 & 2018 that are subject to a separate investigation.

The maximum financial penalty that can be imposed on an electricity lines business for a breach of its price-quality path is $5 million per act or omission. If the court imposes a penalty, section 87A of the Commerce Act allows the commission, or any person who has suffered loss or damage as a result of the breach, to bring a further claim for compensation against the electricity lines company within 12 months of the penalty.

Vector admits erring, but says regime “no longer reflects reality”

Vector acknowledged yesterday it was agreeing to a settlement with the Commerce Commission, following breaches of an electricity network quality standard in 2015 & 2016.

The company said details of the settlement would be heard at a penalty hearing to take place “in due course”.

The company’s chief network officer, Andre Botha, added that Vector believed the quality control regime “no longer reflects reality”.

Like other lines companies, Vector’s prices and service quality are regulated by the Commission using a price-quality path, which means Vector is required to meet certain network quality standards, relative to its own historical performance, and is limited in the amount of revenue it can earn.

Vector’s chief network officer, Andre Botha, said one of the Commerce Commission’s quality standards was the average duration in minutes of network interruptions. The commission found Vector breached this quality standard by 51 minutes in the 2015 regulatory year and 13 minutes in the 2016 regulatory year.

“Vector has noted to the commission the circumstances that it believes contributed to its breach of the service quality standards in 2015 & 2016. These conditions included increased storm frequency & other weather-related impacts, increases in Auckland’s traffic congestion, which have slowed travel times and can prevent maintenance crews from reaching network faults in a timely fashion, and Vector’s decision to prioritise safety of its people by introducing a best-practice policy to avoid working on live lines wherever possible, which can lead to extended outages.

“We understand the disruption these breaches have caused for some Aucklanders and we have been working hard on a range of measures to reduce the impact. However, we also believe the existing regime for quality control no longer reflects the reality of the changed operating environment, particularly in Auckland, and meeting these legacy quality standards will remain a significant challenge for ourselves & others in the industry.

“It is pleasing that we have been able to table these concerns with the Commerce Commission directly and we will continue to work constructively with them to determine new quality standards that will take effect on 1 April 2020 following the next regulatory reset process.”

Attribution: Commission & Vector releases.

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Steel mesh supplier Brilliance fined for misleading representations

on Monday 20 August 2018 in Commerce Commission, Court, District court, Gainz, Regulation, Sectors

Auckland District Court Judge Robert Ronayne has fined Brilliance International Ltd (Wu Guanghui & Wu Donghui, both of Dannemora, Auckland) $540,000 for making false & misleading representations relating to its steel mesh products which are used to earthquake-strengthen buildings.

Following the judge’s decision, released on Friday, class action legal specialist Adina Thorn encouraged Brilliance steel mesh customers to join a proposed class action against several companies that have supplied non-compliant steel mesh product.

Judge Ronayne sentenced Brilliance on 20 charges brought by the Commerce Commission under the Fair Trading Act. Brilliance pleaded guilty to making false & misleading representations for its 147E steel mesh product, which it marketed & sold as being earthquake grade ‘500E’ steel mesh, between 30 September 2012 & June 2016.

11 charges were for making representations on the Brilliance website that were liable to mislead the public and on product tags that its 147E steel mesh complied with the Australian/NZ Standard for reinforcing steel suitable for structural use in an earthquake zone, when it did not comply.

The other 9 charges related to false & misleading representations on Brilliance’s website that the product had been tested by independent testing laboratory SGS NZ, when it had not. The charges relate to about 35 batches of 147E steel mesh, or 56,125 sheets.

Commission says non-compliance undermines NZ Building Code & Standards

Commerce Commission chair Dr Mark Berry said in response to the judgment: “The safety & durability of New Zealand’s buildings depend on them being constructed with materials that comply with the relevant standards. False & misleading representations about building products are a priority for the commission because compliance with standards is critical to both public confidence & safety,”

Judge Ronayne said in his judgment: “It is self-evident that standards are fundamentally important. The defendants’ conduct… plainly undermined the NZ Building Code & the objectives of NZ Standards in general.

“The defendant’s conduct is highly culpable because its behaviour has left consumers in a position of uncertainty, because it cannot now be known whether all of the [steel mesh] complied. This position of uncertainty is what the free trade agreement and the standard seek to avoid.”

Steel mesh cases

The commission filed charges against a number of companies relating to false & misleading representations about 500E steel mesh. In 500E, the ‘E’ stands for earthquake and the standard specifies strength & ductility (elasticity) requirements for steel reinforcing materials. The standard also specifies the procedures (ie, sampling & testing) that must be followed to produce steel of the specified standard, including:

  • manufacturing methods that must be used by steel manufacturers
  • chemical, mechanical & dimensional requirements of mesh
  • sampling & testing of every batch of mesh
  • identification & labelling of different grades of mesh.

To be sold in New Zealand as 500E grade steel mesh, the mesh must be produced in accordance with the requirements of the standard. If mesh is produced in any other way, it cannot be described as 500E mesh. The Ministry of Business, Innovation & Employment (MBIE) is the building regulator, and sets & enforces the standards & Building Code. The commission can investigate misleading or deceptive claims about compliance with the standard.

Investigations began in 2015

The commission has carried out a series of investigations into steel mesh following a complaint in August 2015. Following its investigations:

Links:
Commerce Commission case register, Brilliance Steel decision
Steel mesh class action

Earlier stories:
27 July 2018: Lawyer says interest in class action grows as steel mesh sentence awaited
26 April 2018: First companies sentenced arising from steel mesh investigation
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
8 June 2017: Updated: Commission files 29 charges against Steel & Tube over mesh
2 November 2016: Steel mesh testing rules tightened
25 April 2016: Commission lifts ‘stop’ on Euro Corp steel mesh
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried

Attribution: Decision, commission release, Thorn release.

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Lawyer says interest in class action grows as steel mesh sentence awaited

on Friday 27 July 2018 in Commerce Commission, Court, District court, Gainz, Regulation, Sectors, Securities – NZ, Steel & Tube

Class action specialist, Auckland lawyer Adina Thorn, said yesterday Steel & Tube Holdings Ltd’s 24 guilty pleas last November relating to false & misleading representations about steel mesh had boosted interest in a proposed class action.

Steel & Tube pleaded guilty in November to 24 of 29 charges laid by the Commerce Commission relating to false & misleading representations concerning 500E earthquake-grade steel mesh. A sentencing hearing was held in the Auckland District Court in May but no sentence has been handed down yet.

Ms Thorn said: “This has led to further owners from across New Zealand signing up for a proposed steel mesh class action against Steel & Tube.

“Our registrations of interest are currently running at a high level and we expect that the sentencing itself will encourage more owners to join the proposed class action against Steel & Tube.

“The proposed action is funded, which means that while funding is in place owners will face no out-of-pocket costs, as all the legal, technical & court costs involved in a claim of this scale will be picked up by the funder in return for them receiving a share of any proceeds of success.”

Ms Thorn said the proposed class action was designed to deliver compensation for the stress & uncertainty for property owners who had ended up with non-compliant steel mesh in their homes & driveways: “The mesh is there forever. Everyone wants to know their home is compliant. Steel & Tube cannot give that assurance – we know the mesh is non-compliant. What we don’t know enough about is performance of that non-complaint mesh in an earthquake. That uncertainty is stressful & unacceptable. We are seeking for owners to be compensated for that.

“This mesh was sold between about March 2012 & April 2016 and much of it was used in the rebuilding of Canterbury following the earthquakes there. However, the mesh people were buying was supposed to be earthquake-grade, when it wasn’t.”

Link: Steel class action

Earlier stories:
23 May 2018: Review puts Steel & Tube ebit loss at $38 million
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
8 June 2017: Updated: Commission files 29 charges against Steel & Tube over mesh
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried

Attribution: Thorn release.

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Commission opens investigation into Fulton Hogan’s Stevenson acquisition

on Friday 15 June 2018 in Commerce Commission, Construction, Gainz, Infrastructure, Land use, Regulation, Sectors

The Commerce Commission has opened an investigation into Fulton Hogan Ltd’s proposed acquisition of Stevenson Group Ltd’s construction materials business.

The commission said yesterday it would consider whether the acquisition would be likely to result in a substantial lessening of competition in any relevant market in breach of section 47 of the Commerce Act. The acquisition is due to be completed by 31 July, but the parties haven’t applied for clearance for it.

Fulton Hogan is one of New Zealand’s largest roading & infrastructure construction companies. The commission said it would focus initially on the potential competitive effects of the proposed acquisition on quarry markets in Auckland & North Waikato.

It would also consider whether any competitive effects arise from Fulton Hogan’s proposed acquisition of Stevenson’s concrete plants, transport, laboratory services and associated plant & equipment.

The commission seeks input to its investigation by Friday 29 June.

The sale would leave Stevenson’s with its property development & mining operations. Its biggest property interest is the 360ha Drury South industrial park it’s begun developing.

Related stories:
7 April 2017: Kiwi Property plans new town centre next to Stevenson’s Drury development
30 August 2013: Drury South industrial area plan change & MUL extension approved

Attribution: Commission release.

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“Cynical & deliberate” repossession practices earn Allan Hawkins’ companies fines & refund orders, commission seeks banning orders

on Friday 1 June 2018 in Commerce Commission, Court, District court, Finance, Financiers, Gainz, Regulation, Sectors

2 finance companies headed by former Equiticorp boss Allan Hawkins – Budget Loans Ltd & Evolution Finance Ltd – were fined $720,000 in the Auckland District Court yesterday on 125 charges under the Fair Trading Act.Judge David Sharp also ordered the companies to pay $53,000 emotional harm reparations to 9 victims and $38,000 in refunds & credits to borrowers for repossession tactics he described as “cynical & deliberate”.

The Commerce Commission is seeking banning orders against Mr Hawkins, now 76, and his elder son, Wayne Hawkins, who was also a director at the relevant times, following this sentencing & the earlier conviction of Budget Loans on 34 charges under the Fair Trading Act in 2010.

6 years of misrepresenting repossession rights

The Commerce Commission’s general counsel for competition & consumer, Mary-Anne Borrowdale, set out the companies’ practices. She said that, over 6 years from 2009 until 2014, Budget Loans misrepresented its right to repossess goods and recover interest & costs from borrowers. It also misrepresented amounts borrowers were required to pay under attachment orders and made misrepresentations about the benefits of refinancing existing loans.

Budget bought the distressed loan books of National Finance 2000 Ltd in 2006 and Western Bay Finance Ltd in 2008, and has twice been convicted for its handling of them. After the company was fined in 2010, it undertook to return $500,000 in overcharged interest & fees to borrowers.

In 2016, Budget Loans was convicted on 106 charges but 19 charges were dismissed. The Commerce Commission successfully appealed the dismissal decision, and Budget Loans’ application for leave to appeal to the Court of Appeal was dismissed in November 2017.

Mr Hawkins founded 1980s high-flier, the Equiticorp group. After its demise in the 1987 sharemarket collapse, he & other Equiticorp executives & an advisor were tried in relation to financing arrangements behind the group’s $166 million purchase of NZ Steel Ltd from the Government in 1987. Mr Hawkins was sentenced to 6 years’ jail in 1993.

After yesterday’s court hearing, Ms Borrowdale said: “The court acknowledged today that Budget Loans attempted to create cashflow by getting Western Bay & National Finance borrowers to pay as much as possible for as long as possible. It continually added costs & interest to loans and then repossessed essential goods from borrowers without notice when they couldn’t pay, regardless of whether it was legally entitled to do so.  “The costs of the repossession were, for the most part, higher than the value of the goods and sometimes Budget Loans simply threw repossessed goods away rather than selling them. It also obtained judgments against some borrowers, but continued to add interest & costs and demanded more from borrowers than the courts had awarded, and to misrepresent its right to repossess.

“Where loans were not secured, Budget Loans sought to convince some borrowers to sign new, secured loans by telling them that they would get a discount on their loan balance. However, the amount of the discounted loan was higher than the amount the borrower was actually required to pay.

“Budget Loans’ conduct & misrepresentations kept vulnerable borrowers in a cycle of debt & repossession. It knowingly engaged in illegal repossessions of essential items from people that it knew were already living in hardship. The financial & emotional distress caused by this conduct to borrowers & their families should not be underestimated.”

83 of the charges were for misrepresentations around repossession, including where there was no valid right to repossess a secured item of property, such as a vehicle or household goods, or where there was no outstanding loan balance to be paid.

“In some cases Budget Loans stripped houses almost bare. In other cases, it repossessed items that it should have known were of low value, and dumped them. Its own loan notes include such comments as ‘someone’s great idea to undertake an illegal repo’ and ‘debtor not to know we can’t repo’.”

29 charges were for adding interest & costs to a loan balance after repossession, when that is not allowed under the Credit Repossession Act.

Ms Borrowdale said: “One borrower declared herself bankrupt when told her loan had ballooned from about $9000 to $57,000. In fact she had less than $2500 to pay at that time. 10 charges were for misrepresentations about adding interest to loans, beyond amounts in attachment orders issued by the courts. One borrower’s loan balance was $8600 following an attachment order, but it was ‘recalculated’ to nearly $56,000.”

The final 3 charges were for misrepresentations about the benefits of refinancing with Budget Loans.

Allan Hawkins is now sole director of Budget Finance & its shareholder, Cynotech Securities Ltd. He & his wife, Laurel, own 99.98% of Cynotech.

He is also sole director of Evolution Finance. Its owner, the previously NZX-listed Cynotech Holdings Ltd, went into liquidation in 2013 after close funding supporters decided they’d no longer pay its overhead & infrastructure costs.

Earlier stories:
19 April 2017: Judge told to reconsider 19 dismissed charges against Hawkins loan companies
118 July 2016: Hawkins’ finance companies guilty on loan contract enforcement
 7 December 2014: Commission files criminal charges against 2 Allan Hawkins finance companies
9 November 2013: Commission tells Allan Hawkins’ finance companies to stop repossessions
31 July 2013: Hawkins goes to McDonald Vague for Cynotech liquidation
11 July 2013: Cynotech share trading halted after backers end support
15 June 2011: Cynotech loss increases as it clears decks
12 August 2010: NZX refuses Cynotech request for waiver
11 August 2010: Cynotech suspended
4 August 2010: Cynotech talks departure, NZX talks suspension
28 July 2010: “Welcome letter” from Hawkins’ Budget Loans to National Finance borrowers came with an illegal $15 fee
16 June 2010: Cynotech slips to loss
14 April 2010: Remaining Cynotech shares to move to NZAX
20 January 2010: Hawkins renews Cynotech privatisation bid
23 December 2009: Hawkins withdraws Cynotech bid after Takeovers Panel asks questions
21 April 2008: Cynotech doubles receivables book to $60 million-plus in 4 months
9 October 2006: Allan Hawkins buys National Finance (Payless Cars) loan book

Attribution: Commission release.

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First companies sentenced arising from steel mesh investigation

on Thursday 26 April 2018 in Commerce Commission, Court, District court, Gainz, Regulation, Sectors

2 related companies, Timber King Ltd & NZ Steel Distributor Ltd, have been fined $400,950 for making false & misleading representations relating to their steel mesh products, which are used to strengthen buildings. NZ Steel Distributor imports steel from China and Timber King was the retailer.

They’re the first companies sentenced after Commerce Commission investigations into steel mesh sales, which began after the commission received a complaint from a Timber King customer in August 2015.

Auckland District Court judge Robert Ronayne heard the case in December and handed down his decision on Tuesday, fining Timber King on 5 charges and NZ Steel Distributor on 2 charges under the Fair Trading Act. The 2 companies pleaded guilty to making false, misleading & unsubstantiated representations relating to their TS10 steel mesh between June 2015 & February 2016.

From a starting point of $660,000, Judge Ronayne reduced the penalties by 10% for co-operation and 25% for early guilty pleas, and another 10% for claimed inability to pay a fine that big, although the judge was sceptical about the audit & accounting evidence provided to him.

Fake certificate

Judge Ronayne said the customer above bought 3 sheets of TS10 steel mesh from Timber King, noted the mesh had no tags and asked for a copy of the test certificate demonstrating compliance with the standard. After he received a photograph of a batch tag, the customer sought further verification of compliance. In reply, Timber King sent the customer a certificate on the letterhead of external building product testing laboratory SGS NZ Ltd.

Judge Ronayne: “As a result of further enquiries, it was revealed that the certificate was fake and had not been produced by SGS. SGS had not carried out testing of the mesh to determine compliance with the standard. Instead, the certificate had been created by an employee of Timber King using a genuine SGS test certificate that had been obtained in relation to testing of a different product and altering it so that it appeared to show that TS10 had been tested & found to comply.”

Jackie Liu is a director of both companies and, Judge Ronayne said, was for all intents & purposes the controlling mind of both companies. He owns 75% of the shares in Steel Distributor and effectively controls a 55% holding in Timber King through holding companies, Three Brothers Group Ltd & NZ Liu Family Trustees Ltd. He’s sole director of both.

Ringo Liu is also a director of both Timber King & Steel Distributor. He owns 25% of the shares in Steel Distributor and effectively controls a 45% holding in Timber King through Three Brothers.

This in a quake-prone country?

Judge Ronayne said: “It is quite obvious in New Zealand, given our history of earthquakes & the consequences of them, that there is a vital need for consumers to rely on representations as to standard compliance and, in particular, earthquake standard compliance.”

He concluded that the companies were “grossly negligent” in the steps they took to ensure that the product complied with the standard: “The creation of the fake certificate can only have been deliberately carried out in order to provide an additional false assurance of compliance with the standard.

“The use of non-compliant steel mesh, especially in the context of earthquake compliant mesh, has actual & potentially enormous consequences for consumers, for competitors and for the reputation of the building industry. Very strong specific & general deterrence is required in these circumstances.”

Mesh went into 32 homes

Timber King sold 2600 sheets of TS10 over a 9-month period, of which 614 are known to have failed both aspects of the standard and the others to have failed its testing requirements. Judge Ronayne said it appeared the 614 sheets went into the ground slabs for 31 homes and a suspended concrete floor of another home: “5 homes were considered to be high risk, 24 medium risk & 3 low risk. The 5 high risk homes were then referred to an engineer who considered one of them to be ‘of concern’. Obviously, this exercise has not been without cost.”

The judge added: “The misleading conduct appears to have been carried out with a focus to remain competitive in the market. It can therefore be assumed that this gave an unfair competitive advantage over compliant competitors.”

Background

The Commerce Commission has filed charges against a number of companies relating to false & misleading representations about 500E steel mesh. In 500E, the ‘E’ stands for earthquake, and the NZ Standard specifies strength & ductility (elasticity) requirements for steel reinforcing materials. The standard also specifies the procedures (ie, sampling & testing) that must be followed to comply including:

  • manufacturing methods that must be used by steel manufacturers
  • chemical, mechanical & dimensional requirements of mesh sampling & testing of each batch of mesh, and
  • identification & labelling of different grades of mesh.

To be sold in New Zealand as 500E grade steel mesh, the mesh must be produced in accordance with the requirements of the standard. If mesh is produced in any other way, it cannot be described as 500E mesh. The Ministry of Business, Innovation & Employment is the building regulator, and sets & enforces the standards & Building Code. The commission can investigate misleading or deceptive claims about compliance with the standard.

Other inquiries

The commission has carried out a series of investigations into steel mesh following the complaint in August 2015. Following its investigations:

  • Fletcher Steel Ltd was issued with a warning
  • United Steel Ltd & Pacific Steel (NZ) Ltd were issued with compliance advice
  • Brilliance Steel Ltd pleaded guilty to 20 charges and will be sentenced on 25 May
  • Steel & Tube Holdings Ltd pleaded guilty to 24 charges and is awaiting sentencing
  • The commission filed 59 charges against Euro Corp Ltd in December 2017.

Links:
Timber King & NZ Steel Distributor judgment
Fletcher Steel warning
United Steel & Pacific Steel compliance advice

Earlier stories:
29 November 2017: Steel & Tube owns up to mesh label & testing guilty pleas
8 June 2017: Updated: Commission files 29 charges against Steel & Tube over mesh
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried
25 April 2016: Commission lifts ‘stop’ on Euro Corp steel mesh

Attribution: Judgment, commission release.

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Steel & Tube owns up to mesh label & testing guilty pleas

on Wednesday 29 November 2017 in Commerce Commission, Gainz, Regulation, Sectors, Securities – NZ, Steel & Tube

After revelations in news outlets this morning that Steel & Tube Holdings Ltd had pleaded guilty – in August – to 24 charges of making false & misleading representations about its seismic mesh products, the company issued a statement to the NZX confirming the guilty pleas.

The company set out numerous dates concerning testing, logos & methodologies, but didn’t mention that it had gone from co-operating with the Commerce Commission to guilty pleas over 3 months ago. It will be sentenced in March.

Steel & Tube interim chief executive Mark Malpass said in today’s statement to the NZX: “On 7 June 2017, Steel & Tube confirmed that the Commerce Commission had filed charges against the company under the Fair Trading Act in relation to 500E grade seismic mesh. The charges in regards to compliance with the testing standard for seismic mesh relate to the application of testing methodologies only, not the performance characteristics of the seismic mesh.

“12 charges relate to the inadvertent use of a testing laboratories logo at the bottom of the test certificates of SE62 mesh. Steel & Tube acknowledged the mistake in March 2016 and immediately removed the logo.

“The remaining 12 charges relate to the application of testing methodologies in the applicable standard, not the performance characteristics of the mesh.

“Steel & Tube has been co-operating with the commission to reach an appropriate resolution of the charges and has entered guilty pleas to the charges.

“Steel & Tube takes quality & compliance very seriously and, since April 2016, the company has had external accredited laboratories testing seismic mesh. The company has also taken significant steps to enhance its quality & product assurance systems.

“These charges relate to historical matters that are before the courts and the company cannot comment further.”

Others too

As if to make itself look not so bad, Steel & Tube added: “The commission has previously confirmed it has filed charges against 2 other companies in relation to false & misleading representations about seismic mesh. The commission has also said previously that it expected to lay charges against one other company, and that investigations continued into another.”

Background

Steel & Tube also added some background – which, through this 2-year episode, has made the company look less bad, even good, for its proactive approach.

Mr Malpass said: “There were significant interpretational issues with the standard for testing seismic mesh. The ambiguities in the standard led to Steel & Tube calling for a Government/industry review of the testing standard and, in November last year, the clarification that Steel & Tube had sought was issued by the Ministry of Business, Innovation & Enterprise.

“Clarification of the standard gives all seismic mesh manufacturers & sellers certainty regarding how seismic mesh is to be tested to ensure it complies with the standard. It also gives building owners reassurance that all seismic mesh will now be tested in the same way.”

Earlier stories:
8 June 2017: Updated: Commission files 29 charges against Steel & Tube over mesh
8 April 2016: Steel & Tube undertakes dual mesh testing
5 March 2016: Suppliers recheck as commission questions steel mesh, ministry not worried

Attribution: Company release.

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Customers billed though their fire extinguishers weren’t serviced

on Tuesday 28 November 2017 in Commerce Commission, Gainz, Regulation, Sectors

The Commerce Commission has issued a ‘stop now’ letter to Aero Fire (NZ) Sales & Service Ltd (Mira Singh) for charging customers to service, test, refill & recharge fire extinguishers, then not providing the service.

Aero Fire operates mainly in Auckland & Hamilton. Commissioner Anna Rawlings said the company had confirmed it would comply with the commission’s requests.

Ms Rawlings said the commission’s investigation showed Aero Fire charged customers for refilling, pressure testing or recharging over 300 fire extinguishers, but the company had admitted it performed none of those services: “From information obtained, it appears that only 2 of those extinguishers were pressure tested & recharged by a third party for Aero Fire. In our view the conduct may breach the Fair Trading Act.

“Aero Fire has been asked to immediately cease making false or misleading representations relating to the servicing of fire extinguishers, including that it operates in accordance with the relevant NZ Standard, when it does not.”

The commission also asked Aero Fire to cease misleading conduct, including the punching of maintenance tags to indicate pressure testing had been done, when it had not.

Ms Rawlings said the commission was continuing its investigations.

Attribution: Commission release.

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