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December 2006 Edition ---- to page back through Previous Editions click here

update re Feltex click here or read on down.

Well another year rolls on to an end. Or drags probably if one is the victim of bad accounting. Last year we wrote a pantomime so that accountants could suitably mark the year's closing. But all the indoor rehearsals and performances that would have gone on will not have made the most of the start of the NZ summer and all the daylight which has been saved.

So this year end we thought we will try and arrange a raft of outdoor activities to allow accountants to review the year as well as let their hair down a little.

First we thought we might arrange an evening cycle tour with Gartz and the boys. Nothing to strenuous, just up around Capital Hill and the like so perhaps Michael can point out a few of his old haunts where perhaps he has hidden his bag the odd time. Shredding can be so boring. We expect that he has a good comfortable job with a quasi government organisation these days so might feel comfortable talking about old times. Just stay in the peloton and let the regular chaps do the fancy stuff on the bends. Following the work-out the master accounting stunt man, who we assume is still the Group Financial Controller for Telecom, might open up his garage for us and after we have had a few we could engage in a bit document swapping perhaps. If each takes the most controversial document in their office that they can gain access to that should suffice. Of course no accountant would bring along any private material, but there will probably be a few non-accounts there and their contributions could spice things up somewhat. Nobody should be able to remember what goes on in too much detail. Its quite OK to receive classified documents in such circumstances according to the State Services Commissioner. The PM, though, tended to express a rather strong contrary opinion so perhaps some care is needed. We think she thought that the SSC was stretching credibility just a little. As far as we know the NZICA is not concerned about this matter either. They do have hearings and tick members off these days. But Mr Garty would seem to have immunity to all that.

According to Mr Garty, as reported in the media, he is just a typical sort of Telecom employee who solders up telephones or whatever and he couldn't really make much of the document he was landed with so decided to take it to work to see what his more able bosses thought about it.

Our idea of how things came about is that some time before the "leak" the Prime Minister had discussed some company matters in public and had consequently got quite a big telling off for her commercial naivety and failure to take effects on the stock market into account, which to her credit she somewhat acknowledged. Then when the Government decided to make Telecom share the local loop she no doubt vowed to make sure this announcement was made properly. But we suspect that her advisers on how to do it properly and avoid a price fall all suddenly went on bereavement leave or the like and could not be contacted. So in somewhat desperation they contacted Peter Garty. From their point of view he had done a wonderful job back in 1990 when he allowed the Bank of New Zealand share price to remain quite stable right through that year until after the election when the Bank was bailed out a second time. True they lost the election badly but it could have been worse with the current leadership losing their seats from where they might not have recovered. Gartz was unable to hold the Telecom share price stable but he but together this neat little "hire a scapegoat" package to stop the Government being accused of muffing another announcement. This paragraph is just our opinion and we lack a little in absolute proof.

Mr Garty's 1990 exploits, although indoor work (except perhaps for a trip to Australia to look at accounts secured by property and the extent to which the property values were secure) were quite extensive and have been brilliantly successful to date although we would like to think that it is not yet high noon. It revolved around the Insurance and the Notes, these being the tag names for two large parcels of long term zero coupon bonds which were each destined to have several years of earnings credited into the 1990 one. Mr Garty agreed with the insurance arrangement when it was put to him (and says he has done so all along) but disallowed plans to have the Insurance "premiums" charged only in years of the Bank's choosing, without him quoting any authority or precedent. He required a similar premium payment every year presumably because it would look more like an Insurance Policy and so be more acceptable. His colleague in 1990 appears to have been concerned about what happens if and when all claimable insurance proceeds have been paid out. Normally an insurance policy comes to an end then and it would be funny if premiums continued to be paid. So after the accounts were prepared in 1990 the auditors decided that premiums had to be paid in proportion to benefits taken so they disallowed $27m of profit. But benefits taken under both the insurance and the notes were still way too high despite Mr Garty advising the Bank and recording that they were looking into them both. Then he "found" several items to offset the $27m in his work papers so there would be no need for a qualified audit report. After the accounts had been published he told the Bank about the $27m and referred to the offsetting items as "possible" offsetting items. He then somehow found that the notes had not been treated properly but "thought" that it was a case of profit understatement not the overstatement which it was and so it nicely offset the overstatement from the insurance in his "mind" and records. And within months of the accounts being distributed he advised the bank that he will treat the Insurance as an investment in future because although it is insurance it is more akin to an investment.

Well cycling might not suit everybody but next up it is a case of roll up, roll up, one and all to go on the fabulous incredible SPACETABLE. Well how exiting can you get! It creaks though and there has been a terrible crash with badly injured adventurers falling victim to the IRD's penalties regime. But that tends to be the nature of adventure we guess. But accountants will see other possibilities for this fantango. You can stay off the table and keep your feet safely on terrafirma and bag up the commissions. Then when the bag is full (or perhaps a little before) it is off for a junket tour of Sydney. How is that for a great time. Only a big 4 firm could think it up.

We thought we would see connections from this table to the taxation committee of the ICANZ but not so, good news. The former MP Anabel Young seems to be no longer with the institute either. We saw her on TV exploring icebergs. They creak a lot but are quite wholesome, near pure white. Ms Young was probably not a hollow woman, she went out with the earlier Boag regime, which was linked with Fay Richwhite as is Mr Garty. And a new accountant is about to enter parliament we see. She could be rather hollow but we hope she will soon solidify.

There seems to be a clash between the Gavigan faction and the Shareholders Assn over how to proceed with the Feltex shareholder fight back. Either party could be a decoy fighter. Is it better for a director or directors to be taking the action or a liquidator? It depends who holds the office perhaps. And how much cash they have access to comes into it. Its a pity to see cash used fighting each other. Perhaps the Assn could explain the advantages a liquidator has more clearly.

We thought we would give an update and our view of the Feltex saga as at 20 December. Well the Shareholders Assn won the day and a Mr Vague has been appointed liquidator. The Assn speaks well of him but we think he tends to be living up to his name a little. There are certain recovery actions available which limit a liquidator to going back no more than two years and he seemed keen to get the appointment quickly so use of this could be maximised. But he has not talked of going back further in any respect. Just how he would be paid to attempt recoveries from the vendors and others is also unclear. That was the strength of the Gavigan case. He seemed to be able to raise funds. But that is where another complication has arisen. The ANZ bank seems to have taken possession of most everything but is not yet satisfied that it has yet got its just desserts. It still has its suction pump running in the sump so if a shareholder or anybody puts money in for a fighting fund the ANZ will say "thank you very much".

We think it is probably time ANZ called a day to its recovery action and showed some public spirit by allowing shareholders some recovery action from the vendor and other parties associated with the Initial Public Offer. ANZ has been blasting us with "call in and have a chat sometime" type advertising in order to get its customer satisfaction rating under control. Showing some consideration for Feltex Shareholders would be a gesture of wide community appeal which is likely to lift those ratings. If in still thinks it is owed money it could pool in with other parties in taking legal action. Perhaps it thinks that it too could be culpable. Certainly it seemed to be rather slow in voicing any disquiet.

What we would like to see is a study the company's sales analysis for this decade. Where sales are shown to have fallen away there needs to be a thorough investigation into the genuineness of the sales from which the falling away has taken place. It rather too easy for a vendor to secretly subsidise these sales without involving the company to be sold.

Please Contact Us if you are a shareholder who agrees that such an investigation should be a priority. There are provisions in the Act allowing shareholders to get information. Commercial sensitivity should not apply now.

The Securities Commission of course claims to have investigated everything to do with the Feltex collapse and found nothing untoward. But the Commission is becoming recognised as being one big joke. It is a direct Government appointed membership which wishes to keep itself that way. It looks after the Government's short term interests by continuing to say that everything in the market is A OK. The only exception it sees is an incredible number of people who apparently subscribe to scam investments in remote crime ridden countries. Of course when such people are approached they do not say "I was just paying my illicit drugs bill so that more supplies can come in", they rather say "I was just taking advantage of this very good investment with a great rate of return - oh heck don't tell me - I am still sure the proceeds will turn up soon". The Securities Commission does not see the need to declare members conflicts of interests like any other organisation. There is no need for public scrutiny of such great individuals. It works by quorums apparently, then everybody takes responsibility for the findings of the quorum. Members with conflicts of interest are never on the relevant quorum by definition it seems and of course members are always keen to dob in fellow members so that they can expect similar treatment of themselves. We think the Commission's theme tune is "It was just one of those things".

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