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Wednesday, 8 June 1994
Page: 1482


Senator MICHAEL BAUME (12.45 p.m.) —When the then Treasurer, Paul Keating, paid $431,100 on 15 May 1991 for his half ownership of a piggery group, its first ever accounts since its formation in 1988 were being prepared. They were for the year to 30 June 1990; they were unaudited and signed allegedly on 20 May 1991. They were not only grossly false with a hugely overstated view of the group's financial strength but also not submitted to the Australian Securities Commission until 10 July 1992, more than two years after the balance date. Even then, it was only as a result of an Australian Securities Commission query about the group's failure to provide the annual returns required by law.

  The accounts falsely showed that, over the first two financial years of the group's existence to 30 June 1990, the three companies in the piggery group had together earned $1.3 million. The truth was that instead the group had suffered substantial losses, as indeed it has in every year of its existence. To arrive at this crooked profits figure, the company's directors—through Mr Achilles Constantinidis who signed it and submitted it to the Securities Commission—simply failed to deduct from its earnings the multimillion dollar interest bill on the group's huge borrowings. These omitted interest costs totalled almost $4 million over these first two years although this was not shown anywhere in the accounts that were available in May 1991. Presumably, Mr Paul Keating relied on these for his information. Maybe the purpose was to show how the group would perform if equity capital replaced the borrowings that had always totally funded the group.

  This certainly highlighted the devastating impact of Treasurer Keating's high interest rate policy. The profit claim of $470,824 for 1989 for the three piggery companies in the group was before that year's interest bill of $2 million, as indicated by a subsequent parent company audit of accounts. The profit in 1990 of $842,999 totally ignored a $1.8 million interest bill. So the real results were a loss of $1.5 million in 1989 and $1 million in 1990. But even this phoney trading profit had been contrived by running down the group's livestock holdings from $2.7 million opening balance in 1989 to only $1.9 million closing balance in 1990.

  The final proof that the group has never made a profit comes from one simple statistic. After five years of its existence, not one member company of the Prime Minister's former piggery group has ever paid one cent of company tax. With Mr Keating's taxation record, he no doubt would have insisted that his company paid whatever taxes were due and on time. How did the company cope with these huge losses without appearing to go broke? They simply fiddled the book entries by changing a $4.5 million debt improperly into shareholders' equity and revaluing their piggery buildings by $4 million upwards, without the benefit of a certificate from a licensed valuer and in the face of the reality of their deterioration over time.

  So by June 1990, the group as a whole including its disastrous refrigeration subsidiaries—which Mr Constantinidis appears to have bought into the group from the wreckage of the Scoufis's family's failed Olympia refrigeration group—had already lost about $3 million after accounting for intra-group write-offs. On the book value shown at that time, its liabilities considerably exceeded its assets. It was technically bankrupt. These accounts were not audited but were prepared by the respectable Sydney accounting firm of KPMG Peat Marwick on 20 May 1991. These accounts, the only ones apparently available to the Danish joint venture prospective partners at that time, appear to have done their dishonest job. Despite the KPMG Peat Marwick disclaimer as to accuracy, the Danpork director, Rene Madelaire, felt sufficiently confident about these accounts—of a company half owned by Mr Keating, the former Treasurer and likely next Prime Minister—to assert in August 1991 to the sceptical Danish pig farmer members of the cooperatives backing the Danpork project and the financial institutions putting up 80 per cent of the cash that their joint venture partner in Australia, the Brown and Hatton group, was `a financially strong' meat wholesaler and pig producer.

  This was false. They are not, and have never been, financially strong, as even the unsatisfactory audited accounts revealed. In fact, the Commonwealth Bank had become sufficiently concerned in 1989 to require the group to dispose of three Tamworth piggeries and some city properties to reduce its debt. But incredibly this bank—which was, in his own terms, `run' by the Treasurer, Mr Keating—had not at any stage required the group to meet its obligation under its mortgage documents relating to its then debt of almost $20 million to provide audited annual accounts to the bank. The fact is that this piggery group had no auditor until one was eventually appointed to the group on 3 December 1992 at the request of the Securities Commission in response to my November 1992 letter of complaint that followed six months of my demands in parliament that the group lodge with the ASC the audited accounts required by law.

  So the Prime Minister of Australia was either a conscious or a dumb, willing or unwitting, participant in a scheme aimed apparently at deceiving Danish investors. This deception was a key element in getting the Danes into bed with Brown and Hatton. Even with this phoney `financially strong' tag, a New South Wales government official warned in September 1991, just a month after Mr Madelaire said it, in an internal memo that `the Danish pig farmers who make up the ownership behind Danpork continue to be suspicious of the whole project.'

  But it was not only the farmers who had serious misgivings. Austrade's European director, Mr D. Ward, greeted the final signing of the joint venture deal in April 1992, when Paul Keating was Prime Minister, with a memo noting that Austrade's Dr Walter Roso deserved praise for the `numerous discussions with financial institutions to keep this project on the rails when it was going badly off-track'. I might add that I raised this question of Austrade's deep involvement with this matter at the Senate estimates committee, and I look forward to hearing the response.

  The need for financial support for the project by Danish financial institutions, particularly pension funds, who are providing about 80 per cent of the finance for the Danpork venture, grew even more pressing after October 1991 when Danpork's director, Mr Madelaire, got `a poor reception from financial markets in Sydney re debt financing proposals' for the project. Locals, uninfluenced by Mr Paul Keating's presence, who could read a balance sheet, would have regarded the full 1990 accounts as a total joke. If by then there were any draft 1991 figures around—they were not filed with the ASC, by the way, until December of the following year or well after the venture was locked in—they would have shown an unaudited loss for the group of $1.5 million.

  This loss was allegedly, and wrongly, offset by a $1.5 million profit planned for the associated borrowing vehicle, Rincraft Pty Ltd. But this company is not consolidated into the group and was not subject to audit, as it is owned directly by Euphron Pty Ltd and not through the Brown and Hatton group, which, as public companies until May 1991, were required by law to provide audited accounts for those years when they had public status.

  When the Brown and Hatton Group Pty Ltd audited accounts finally did emerge, they showed that, in each of the three financial years of the parent company's life to June 1991, it had suffered losses of $1.36 million, $3.15 million and $2.84 million. The refrigeration companies had amassed losses of about $2.7 million, subject to some intercompany balances. So five of the seven companies of the Brown and Hatton Group had their accounts qualified by the auditor that their liabilities exceeded their assets and they could only continue in business with the support of their bankers and their ultimate owners. And—which bank?—the Commonwealth Bank had an equitable mortgage over the group, while the ultimate owners were Messrs Keating and Constantinidis.

  But while Mr Constantinidis signed personal guarantees to the bank, along with his fellow group director, Mr Peter Christopher, as reported in the group's 1991 accounts, Mr Keating, as a half owner, was not required to do so. In any event, because he was not a director, he had no legal obligation, let alone any capacity or desire, to stand behind his collapsing piggery empire, unless he participated in decisions relating to the losses, which may have been the case as he had what appears to be a nominee on the board. But, on the face of it, the ultimate owners, Messrs Keating and Constantinidis, had no capacity to support the group in the event of the withdrawal of the bank—the Commonwealth Bank.

  Why Mr Keating's bank should leave itself so exposed to loans to Mr Keating's companies is a matter of major concern. The only apparently bright stars in the Brown and Hatton firmament were two profitable subsidiaries, Brown and Hatton Rural, which ran the piggeries, and Brown and Hatton Wholesale, which sold the pigs. Between them they had amassed almost $4 million in so-called profits by June 1991, according to the audited accounts eventually filed—as a result of my pressure—with the Australian Securities Commission. But these accounts give no indication of the real profitability of the piggeries because no payments whatsoever were made to Brown and Hatton Group Pty Ltd for the use of the piggery land and buildings which it owns. So the false impression was created that the actual pig farming operation was successful. It was not and never has been. This became evident when the group audited accounts were eventually filed—with the ASC issuing penalty notices for late lodgment.

  There is a serious impropriety emerging from companies half owned by the Prime Minister of Australia, with up to $30 million in stated assets and liabilities, and sales of more than $20 million a year—$13 million in pigs and $7 million in refrigeration—and holding themselves out to foreign investors to be financially strong, being fined for not filing annual returns and ultimately submitting returns which were palpably false, in breach of the Corporations Law and requiring major corrections. Yet this prime ministerial half owner apparently did nothing to correct the plethora of inadequate and illegal returns by his companies, even after their inadequacy and, in many instances, falsity was clearly demonstrated by me in this parliament. The response by the Prime Minister and his ministers was always that I was indulging in unsubstantiated muckraking whenever yet another set of Keating piggery accounts was revealed to be false.

  It was only after I wrote to the Australian Securities Commission in November 1992, requesting that it act on my revelations in the Senate—incredibly, the Securities Commission had done nothing on its own initiative to pursue these matters that I had been raising since June 1992—that the Prime Minister's companies were forced by the Securities Commission to comply with the Corporations Law.

  The impropriety of this failure to take any action to correct false returns, which had been demonstrated to him in parliament to be false, is inexcusable. I believe the Prime Minister should explain why his companies waited several months after their fraudulent behaviour was exposed before the accounts were corrected on the instructions of the Securities Commission. This may be in character, because we would all know that the Prime Minister did not believe that laws relating to the prompt and timely provision of tax returns should be followed. The question of living away from home allowance regulations applying to him apparently was not considered either.

  As a half owner, let alone a Prime Minister, he had at least a moral obligation to ensure his companies abided by the law. His apparent indifference to whether they did so or not raises serious questions. It is now clear just why Mr Keating's companies were breaking the Corporations Law: to have abided by it would have exposed the group to being in deep financial trouble at a time when the joint venture deal with the Danes was subject to very delicate negotiations and was going `badly off track' and when Australian financial institutions would not have a bar of it.

  For seven months of this time Mr Keating was on the back bench heavily involved in detailed negotiations over the deal. Whether his heavy involvement included knowledge of the phoney nature of these accounts and the reason his companies were breaching the Corporations Law, is a question that Mr Keating must now answer. (Time expired)

Sitting suspended from 1.00 to 2.00 p.m.