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>April 2009 Edition ----

There have been quite a few developments on issues which we have been monitoring. The latest is that the liquidators of Feltex Carpets Ltd have commenced an action against five former directors of the company for about $41m. It is the same five directors as are facing criminal charges brought by the Companies Office including accounting “supremo” John Hagen. The company had seven directors at the time and why the other two seem to be getting off we have no idea.

Ms Joan Withers was not a director of Feltex at the time of the actions which have given rise to these cases but was for about a year immediately prior to that. According to the liquidators there was one issue suggesting improper conduct which went back to Ms Withers time but the liquidators have “forgiven” her for that. We say that it is not satisfactory for a director to resign after such a short tenure where death or ill health has not arisen. This is especially so when the company has been sold to a new set of shareholders during the directorship.

Ms Withers was also a director of Auckland International Airport when she joined the Feltex board about 10 days before it launched its IPO. We have expressed the view that the Securities Commission probably got her the job because there has to be a strong reason why the Commission has not taken action against the directors for the unrealistically optimistic IPO. However Ms Withers appears to have other connections with firms associated with the IPO. The Auckland Airport was subject to a partial takeover offer by a Canadian pension fund a year or two back. Possibly that would have put Ms Withers position on the line since the fund would no doubt want a few seats on the board. The bid was foiled at the last moment by relevant Cabinet Ministers exercising their veto. Why it took them so long to do so is in our opinion a scandal. Anyway the fund was up for the costs of the takeover attempt but it objected to refunding large payments made by the Airport to Credit Suisse and First NZ Capital for services in foiling the takeover. It was taking the matter to court but it was then settled privately. Well Credit Suisse has a tie-up with the previous owners of Feltex and FNZC took over the broking business of Credit Suisse and was a joint lead broker for the 2004 Feltex issue. Ms Withers has recently resigned from Fairfax NZ to spend more time with her family and dog. Website Stuff reported that she had resigned from other directorships to take the Fairfax job. Getting away from Feltex was the whole point of the exercise we rather think. Funny how she was able to manage the Airport one or perhaps she couldn’t in the end. Her boss for most of her time at Fairfax was this country’s only world cup winning rugby captain, David Kirk. He resigned from Fairfax a few months before Ms Withers and now has joined the firm Forsythe Barr which was the other lead broker for the Feltex IPO. We have more to say about this firm and its chairman in a paragraph or two.

The new Accident Compensation chairperson is John Judge, an ex partner and CEO of Ernst and Young. We have no confidence in partners or ex partners of that firm. They never seem to criticize one another. And a lot of ex partners there are. They crop up on this site all the time. The operational head of the firm is now called the Managing Partner and is Rob McLeod. It is logical that they should have a separate chairman and we believe that they did have one in Gordon Fulton but that is becoming harder to establish. Mr Fulton was audit partner responsible for Feltex Carpets. The ICANZ are supposed to be investigating him but have not come up with anything yet as far as we know. Their CEO is ex Ernst and Young as well.

We are not impressed with Mr Judges assertion that it is appropriate to apply insurance company criteria to the ACC. That was not the concept of it. We think he replaces Dr Turkington as an accountant on the ACC although there is another investment specialist and an actuary in the new line-up. Dr Turkington was on the ICANZ committee on transparency which was supposed to be looking into toughening up on accountants rules under the chairmanship or Mr Marsall of Deloites about 2002. We thought Dr Turkington was a full fledged accountant but he does not show up on the ICANZ’s accountant look-up. Perhaps he never has been on it.

Dr Turkington got on the ACC board after the probably sudden departure of Eion Edgar which we think was after the profit downgrade announcement of Feltex Carpets. Mr (his correct title might change at any time) Edgar was chairman of Forsythe Barr at the time of Feltex Carpets IPO and Forsythe Barr was one of two joint lead brokers for the Feltex issue. As well Mr Edgar was chairman of the ACC’s investment committee. ACC subscribed $9m to the Feltex issue although practically all other “institutions” left the issue alone and it was largely “mum and dad” investors who fully subscribed it. We are interested to know at what point the ACC decided to subscribe and when news of the subscription was announced or leaked out. It would be a very good marketing tool to be able to say “ACC is putting in $9m”.

Anyway it has come it our attention that Mr Edgar might be the only accountant among 75 odd highly honoured New Zealanders who are going to be eligible to have the title of Sir or Dame applied to them. Mr Edgar and his firm have donated extensively especially in Dunedin where he hails from. A large indoor sports centre there is called the Edgar Centre and if the new indoor rugby stadium goes ahead it apparently is going to have Forsythe Barr in its name. But there is no excuse for this firm and its chairman being involved in the Feltex issue. They should have been able to put two and two together like other institutions. The closer you are intending to be to an issue the more carefully you need to research the integrity of it. They knew carpet manufactures in Australasia were facing reducing tariff protection and that the Australian operation resulted from the world’s largest manufacturer getting out of there. And the history of Feltex’s market size and market share on which the profit projection was based had to be looked into.

Well Mr Edgar received his high award prior to taking up his ACC position and both events might have been part of the one deal. We doubt if he should now qualify as an accountant let alone be entitled to this special title.

Ex Prime Minister Helen Clark is getting accolades in Parliament and elsewhere over her appointment to a senior United Nations position. She has been getting jibes from opposition MPs for years that her parliamentary career would end with her appointment to such a position. It appears that somehow it was inevitable. There seems to have never been a serious female contender for the UN Secretary general job but the mindset is that some of the second tier jobs must go to females. As we understand it the long serving female Prime Ministers of Ireland and Norway both got such jobs when leadership of their country came to an end. Long serving male Prime Ministers don’t seem to be taking these jobs.

Well what has that got to do with accounting? Well Securities Commissions have a lot to do with accounting and the chairperson of the New Zealand one, Jane Diplock, has for sometime also been chairperson of the international organisation of Securities Commissions. Well Helen Clark networking probably had something to do with it but by and large this appointment probably just fell into place probably because she was the only such women chairperson and the people on these commissions are keen to honour women providing the business of their commission is not affected by it. But the NZ Securities Commission has made a wicked decision in saying that it could find nothing of significance wrong with the 2004 IPO prospectus of Feltex Carpets Ltd. Probably because of its chairperson’s international position the current government has not yet dismantled this board as it has done with most other such boards. Another problem in dismantling the Securities Commission board would seem to be what to do with Elizabeth Hickey. She previously had a term on the board of 11 years, two five year appointments plus a final year. During that time she was also chairperson of the Financial Reporting Standards Board of the Institute of Chartered Accountants. She seemed to lose both jobs at the same time. The Institute did not announce its committee until about a quarter of the way through that year and we speculate that it was to do with Ms Hickey and getting her further high status work. Then they seemed to establish a directorate job for her at the IASB in London. One Joanna Perry got the FRSB chair job and is still there and was also on the Securities Commission but went off it after an 11 year tenure because it must have been decided that 11 years was the limit. That was until Elizabeth Hickey came home and got a further 5 year appointment. We say the reason is that both major political parties have promised her a high profile job for life for her role in giving the 1990 Bank of New Zealand annual accounts an unqualified audit report when by no means should they have had one. Ms Hickey was Senior Technical Partner for Ernst and Young at that time and was assigned to assist with that bank audit as regulars to this site well know. This is accounting at its worst.

We wish to have our say on the proposed cycleway. We say if done at all it needs to be done properly. We say it needs to be two lanes in each direction with a one meter high barrier down the centre and safety/security barriers about 1.2 meters high on each side. Motor cycles are a danger and have to be kept out. Width would be about 3.5 meters. cables will run along the centre barrier for lighting and security cameras and poles need to come up from the centre barrier supporting a shelter and shade canopy. Ice protection, perhaps electric, will be needed in many places. Like the Sydney Opera house the cycleway needs to have wonder of the world status.

Construction would be by way of standardised pre-stressed concrete panels. There will be the pile unit of variable length which will expand to being about 2m wide at the top. Then two rails will fit on top of the piles, linking them, and the floor panels will go on top of the rails. The side and centre barrier panels will fit into the floor panel. Curves with camber will of course have to be provided for. The maximum gradient should not be greater than that of a railway. There must be nothing in the nature of a level crossing with and other form of transport including pedestrians, who will be banned from the cycleway. The cycleway will have to go under or over other roads tracks and obstacles. The construction type will facilitate burrowing underneath with permission when needed. Arched tunneling panels will also be used extensively. Extra strength ones will be needed on the Cook Strait tunnel section. This section might have to be one way and shared with power cables and the railways. Perhaps three hours for cycling in one direction and then an hour for the tunnel to clear out and for some trains to go through (in the same direction), then three hours for cycling in the other direction. Cyclist would be able to plan in advance to avoid a disruption to their journey at this tunnel mouth. Tunneling is a skill that the country well needs and a start should be made at both ends immediately. Inflammable liquids would have to be banned from the tunnel and there no doubt be other safely rules. The length would be a little less than the Chunnel and would break no records.

There will to be small breakdown bays every few hundred meters on the cycleway. There could be exits and entries there for use by locals who have a key to get though say 30cm wide gates. Then every 20k or so there will be a manned service centre generally with a variety of accommodation, vantage points for viewing the countryside, exits onto the roading system or other cycleways, cycle repair and maintenance facilities, information on the area etc. Exits to and entries from these centres will be similar to a motorway but more controlled.

As for the route we think urban areas should be avoided because although they have need for cycleways for getting their local populations to work, school etc, extra capacity would need to be provided and the extra obstacles would increase the costs greatly and make for considerable planning delays. Towns and cities can do what they can to provide and publicise deviations from the national cycleway so that their place can be visited. In some cases it might be better to offer storage of bicycles and transport to the town by other means.

The country is perhaps characterised by its extensive coastline and the cycleway will inevitably be close to the coast in the far north where temperatures will be best for beach activities. We think that will be adequate exposure to the coastline and for the rest of the iconic kiwi philosophy "kick it in the guts Trev” can be employed. By going up the middle proximity to all parts of the country is maximised although not proximity to all the people.

The end points of the cycleway have already been defined. The port of Bluff is most suitable and will be able to cope with several ship loads of cyclists arriving and departing each day. Bikes will be able to be bought or hired or you can bring your own but in all cases will be subject to inspection. Repairs and accessories will be available all along the route. About $1000 for say 3 weeks on the cycleway and accommodation etc will be able to be purchased in advance. Bikes will be monitored for location.

The track should be able to follow the old railway route from Bluff to about Garston. The railway land will have been sold but should be able to be reclaimed easily enough. From Garston we think a tunnel should be put through to the Nevis valley. Many adventure activities can be provided in this rather hidden valley including mountain bike trails, winter sports and gold prospecting. The track would then go through the fruit area and then to the upper Clutha. Another tunnel might be needed into the Waitaki basin. The Hakataramea valley would seem to point in the right direction although another tunnel will be needed to get out of it , then along the foothills to perhaps Hanmer or the newly purchased St James station for some bush and alpine environment then down a valley to get to near Picton. The striate tunnel (possibly called the Keyhole) would be straight on the horizontal plane but would have to have downward, level, and upward gradients. The mouths would have to be back from the coast but somewhere where the spoil can be easily disposed of. It can go under large hill while it gains depth. Somewhere east of Picton to the northeast side of Terawhiti Hill in the North Island seems likely. It needs to get north and further east from there. Over the Puffer pass and up he upper Tawarenikau valley seems good. We won't try any more detail (let’s leave something for the engineers) but around the east of the central plateau and then off to north cape seems about right.

It is a good idea and needs to be got on with.