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Tuesday, 29 May 1973
Page: 2753


Mr OLDMEADOW (Holt) - In speaking to the Supply and Appropriation Bills 1 wish to bring before the House a matter that is of great concern to me and, I believe, to the public of Australia, and that is the alarming duplication of facilities which occurs at present in our community and of course the resultant waste of public moneys. I refer particularly to the facilities within our schools which too often are not accessible to the community. Probably the reason that I am so aware of this problem is that 1 spent a great number, of years in the Victorian State Education Department. Like many others in this place, I was fortunate enough to be a member of a municipal council, and now I am involved in politics at the Federal level. So at all 3 levels I have seen the inter-reaction of what is going on. To be more explicit, I am personally shocked to know that many facilities lie idle night by night in our schools.

Let us look at some of these. School halls in Victoria are something for which parents have had to raise money to which the Government has added a grant. Frequently the amount of money that has been raised by the parents has been from 330,000 to $32,000. What do we see when the hall is finally established? We find that it is used sparingly between the hours of 9 a.m. and 4 p.m. and lies idle for all the rest of the week. One could speak of libraries. Again the same sort of story is evident. Subsidies and grants are made by the Government but money is also collected from parents in one form or another. We have the school ovals and the various site works around the school. Frequently one can only be disturbed to walk around during the weekend and note that these are not being utilised as they should be. I know that this is not universally true. I was encouraged yesterday in a tour of Canberra schools to speak to the principals and ask them this question: To what extent is the community able to use the facilities - the halls, the ovals and so on? I was delighted to hear their answer that in some cases these facilities were in use almost every night. This is the way it should be. But too often when an application for the use of the facilities is made the granting of the use of the facilities is at the discretion of the school council, the school committee or the principal. At this point the whole matter can be blocked. The gates can be locked, the libraries closed and no use whatsoever made of facilities which, I submit, belong to the community and not to any small group of people who happen to be in control of them at the time.

I can give a classical example in this regard from my own experience when I was teaching in an area which was most certainly not a wealthy area. We faced a problem there of development of the site works. The problem was that after wet weather the grounds were thrown out of order for some 3 months. The local council purchased ground alongside and proceeded to develop several ovals. I submit that it would surely have been much more prudent for the local council to develop the site works at the first stage. There should have been & spirit of co-operation abroad between local and state governments that would have enabled an agreement to be worked out whereby these facilities could have been used on the weekends by the community and through the week, 9 till 4, by the school children. I believe that these matters are pertinent to this Parliament, particularly at a time when we are considering appropriation and supply, especially since we as a government have committed ourselves to an increased flow of money to the local community. We know that there are the 3 levels of government, Federal, State and local. There is a vital inter-relationship between the three, particularly in the matter of finance.

I submit that there is a great need for increased co-operation, co-ordination and rationalisation of what goes on at the 3 levels at present. I believe that John Citizen is entitled to a better go than he is getting at present. He has to pay his rates at the local level, he has to pay State taxes, he pays income tax and he has his hand in his pocket for his local school, even if it is a government school. I believe he is entitled to see that his money is well spent and not spent in such a way that there is a duplication of facilities already provided in the community. I believe that no country can afford to go on duplicating services in the way that we have been doing over the last 50 years.

I put forward for consideration several proposals which I submit would lead to a saving of public moneys and in the long run would enable the provision of better community facilities. The first point I bring forward is the erection of new schools. I think at the State levels there must be a rethinking of the matter of design of schools which are being planned at present. The design must take into account the needs of the local community. Schools must be designed in such a way that the facilities that can be utilised by the community are separated so that people will not have to wander all over the schools. Facilities like libraries, meeting rooms, assembly halls, changing facilities and all these sorts of things should be .in a lockup area where separate staff could be responsible for them.

If thought is given to planning in this way the day when we see facilities like swimming pools in government schools can como to pass. As we are going, with the wastage that goes on, I believe these plans are just dreams for the future. Secondly, I submit that in our country towns, particularly the small country towns, there is a need for co-operation between all levels of government in the development of community centres - call them community leisure centres or what you will. I have seen initial plans drawn up of such centres. The ones I have seen have no relationship to my electorate. They relate to the township of Heywood. I WaS impressed wim the fact that in these plans it was envisaged that facilities for the total community would be built on school property. Gymnasiums, changing rooms, a small theatre, a small library, a canteen, and all saenger pf (bingo which ore not present within the le$al community would be provided.

Money for the provision of suan facilities should bo spent but esse. mb b tao tutiorial approach. It requires co-operation at all levels, from the local council to the State and right through to the Federal level. I believe the Victorian Government has indicated that it would give some consideration to provision of -special staff for all schools with such facilities. If this type of joint venture is ever to have any hope of getting off the ground it requires the backing of die Federal Government. In this connection I am encouraged to know that the Minister for Tourism and Recreation (Mr Stewart) at this time is examining proposals such as the ones that I have mentioned.

I think another area in which we must look carefully to the money that we are spending is that of Commonwealth libraries. The importance of the library in the community is an accepted fact. When the Commonwealth spends well over $100,000 for a Commonwealth library in a school we must encourage in every way possible the use of this facility not only from 9 until 4 but at night as well. This, of course, brings up problems in relation to staff and so on. But these are simple administrative problems which I believe can be overcome. I have not spoken of the older areas where the established facilities are Already provided. I believe that in these cases it is a matter of co-operation between local government, and the schools. In many cases unfortunately it will require almost reeducation before people see things in a rational manner.

In conclusion, I wish to quote from a report prepared by Mr Jack Clarke, a Melbourne architect. He prepared a report on the subject of community leisure centres. I point but that Mr Clarke studied community leisure centres in the United Kingdom and other European countries. He makes this point, which I believe is pertinent to Australia. He said:

Part of the answer would appear to lie in arranging for school facilities to be made available to the community in a complementary relationship to those which are community sponsored.

In terms of land usage and capital investment this is a common-sense solution and would at least ensure a better spread of facility however thin this may be den compared with what is provided In men socially concerned countries.

There is no doubt that tq continue on in tfes present way will lead to much wasted time, money and effort.

I support the Bills before the House.

MsSTALEY (Chisholm) (2.54>- This being an appropriation dsb ato, I take tha opportunity presented by the discussion of a Bill which appropriates money to the many purposes of government to discuss the Gar.retty companies scandal, which should concern all governments in Australia. This is a scandal- unique in the sorry history of Australian company failures. It .is a tragedy which, although smaller than many of the others, is more bitter and unhappy for its innocent victims than almost all of them put together. It concerns the failure of Melbourne's so-called Garretty group of companies during the latter part of 1971. The collapse involved a number of private companies, but also took with it the savings of public investors who subscribed money to a mutual fund called Dividend Fund Incorporated. Dividend Fund was created as a company with unlimited liability, a characteristic which was aimed at allowing its directors to issue or redeem shares from day to day as the company went along. It is also a characteristic which meant that when Dividend Fund went broke, when its debts exceeded its assets, the shareholders were faced with the problem of meeting the deficiency. Such shareholders were generally not closely linked to the company or its directors, and were in most cases merely innocent, often elderly, investors who wanted a safe repository for their savings. They come from all over Australia and from overseas......

Having lost their life-savings' of a few hundred or a few thousand dollars, some of these innocent people are now threatened with court action if they do not contribute amounts like 8500, $2,000 or 84,500 towards the debts of the company. Despite' the obvious responsibilities which the directors of the company and its managers would 'have to such investors, they abused the trust, they engaged in dubious investment activities, they siphoned money to other private companies, they set up a round robin of company' financing and in the final analysis they simply gambled with the money in the riskiest of investments during the mining boom of a few years ago. The obvious culpability of such mismanagement, however, has been transferred to the innocent investors now facing financial ruin. As I intend to explain in the time given to me, these investors ase not only facing finan-ckd ruin but their ruin will to come extent help save the fortunes associated with tfes management of the Fund. . . >. 1 will explain how the innocent investors are being asked to pay up for the deficiency of Dividend Fund Incorporated while some clever company manoeuvres may save some shareholders associated with the management of the company from paying a single cent. These privileged investors at the eleventh hour before the Dividend Fund collapse escaped their liability by transferring their holdings to a $2 company which cannot hope to meet any demands on it. And worse still, the same privileged investors in. their capacity as investors in another part of the Garretty group, actually stand to receive some of the money taken from the innocent investors. This tragic and sordid story I will now try to outline.

Dividend Fund was one of the important public companies which acted as a fund raising front for the corporate empire of Dr Michael Duhan Garretty, a geologist who developed a fascination for the stock market. Dr Garretty abandoned his geological pursuits to seek inspiration in share price charts. Charts, as honourable members will know, are sometimes regarded as an important guide to share market performance.

Dr Garrettywas able to convince many investors that he and his charts had the answer to share market fluctuations. The instrument of his persuasion was the so-called 'Trendex' investment service. 'Trendex,' published weekly, gave a resume of 'market action', together with predictions about further share market trends and about the movements of individual share prices. Because Trendex' emphasised its successess, and because so many Australians seek a means of investing their capital safely, it attracted a following. Not content with just telling investors what to do with their money, Dr Garretty decided to do it for them.

During the early 1960s he formulated a plan for managing the savings of public investors. This involved the formation of 3 mutual funds, which are little more than investment trusts designed to pool the savings of many people into a sing'e portfolio. The idea is that the larger, single portforio can be professionally administered at the lowest cost; and that professional management of the portfolio produces the best results. The mutual funds were called Increment Fund, which was designed to provide mainly capital benefits; Dividend Fund, to provide mainly income benefits; and

Balanced Fund, to provide a balance of income and capital benefits. The corporate structure of the mutual funds is interesting. Unlike normal companies which are formed principally to restrict capital investment to a fixed amount, mutual funds are designed to allow flexible capital structures. They allow the managers to issue more shares as they go along and to redeem shares if shareholders want to get out. The price for share issues and redemptions are fixed by calculating the whole net value of the company concerned and assessing the actual asset value of each share. Since it is normal practice for mutual funds to invest in shares which are quoted on the stock exchanges, the value of the overall listed securities can be assessed easily from day to day, and the actual prices for share issues or redemptions worked out accordingly.

Despite Dr Garretty's sophisticated investment management techniques, and the help of his own 'Trendex' advisory service, the 3 mutual funds had little success. Their performance in the first half of the 1960s was not particularly impressive, and the volume of actual private savings with which they were entrusted was relatively small. But with the great share boom that gripped Australian stock exchanges in the late 1960s - the nickel boom - great public interest was focussed on the share market. The boom gave Dr Garretty's companies some success in the market initially, and this success was translated into a flood of public subscriptions for shares in his various funds. Dr Garretty was helped in the task of raising public money by mutual fund salesmen in Melbourne, who for a commission directed many small investors towards Dr Garretty. One such salesman, Anthony G. Pryer, was recently fined in court in Melbourne for failing to provide his victims with a prospectus. He gave them a hard sell, an application form and then sent their cheques to Dr Garretty.

None of the innocent shareholders to whom I have spoken were advised that they would be liable for the debts of the company. And the prospectus itself failed to spell this out. One prospectus merely described the company as an 'unlimited public company' in the context of a paragraph outlining the advantages of the company. Mr Pryer talked established clients out of investments like Broken Hill Proprietary Co. Ltd and trusts like Australian Fixed Trusts into what he described as 'something better'. Thanks to Mr Pryer and other salesmen, net public subscriptions to Dividend Fund totalled more than $150,000 in the 1969 financial year and nearly $300,000 in the 1970 financial year. Yet notwithstanding this effective, misleading sales effort, Dividend Fund failed to keep pace with the general financial boom. It ended the 1969 financial year with assets worth nearly $8,000 less than the funds subscribed by investors. And in the 1970 financial year, the shortfall was even greater, with assets of Dividend Fund Incorporated worth nearly $160,000 less than the amounts subscribed by public investors. So much for professional management. I seek the leave of the House to incorporate in Hansard 2 tables setting out the financial affairs of the company.


Mr SPEAKER -Is leave granted? There being no objection, leave is granted. (The documents read as follows) -

 

 

All the Garretty funds' bad results continued during the 1971 financial year, and things got so bad that the company stopped paying dividends and eventually had to refuse to redeem shares of investors who had had enough. Shortly afterwards Dividend Fund and the whole Garretty group collapsed in a flood of headlines and with more than 15 companies being placed in liquidation - total losses approaching $3m - and Dr Garretty going bankrupt personally with a deficiency of $179,000. This grandiose corporate empire which was going to make everybody rich was less than a damp squib. It was a sort of corporate submarine. When the Garretty paperwork hits the fan, as it were, all sort, of facts begin to emerge.

It is now clear that the Dividend Fund had not really been investing much in stock exchange securities after all. It had done so until the end of the 1968 financial year but by the end of fiscal 1969, the proportion of the company's funds in listed investments was down to 80 per cent. By the end of 1970 vear it was down to 46 per cent. And by the time the liquidator got to the sinking skip. Dividend Fund Incorporated had 2.3 per cert - less than one-fortieth of its assets - invested in shares listed on stock exchanges.

Think of it. The company had been raising hundreds of thousands of dollars of public money to invest in the stock exchange, and by the time of its collapse 2.3 per cent of its assets had reached the market directly. A lot of it, of course, reached the market and was lost in the market through the Garretty round robin. Where had the money been invested? The vast bulk of it had been sunk into other private Garretty companies, and through them into share market speculation. Using a syphon shaped like a cheque book, Dr Gar.retty and his professional fellow managers had arranged for Dividend Fund to lend nearly $640,000 to four other Garretty companies. In the liquidation, one which got $288,000 was expected eventually to repay 20c in the dollar to Dividend Fund. Another which got $143,000 was expected eventually to pay back 10c in the dollar.

But the most dazzling result of all came from another company which received $188,000 from Dividend Fund, and which was expected to be able to repay 4c in the dollar. Even - some of the investments which Dividend Fund made in normal shares were curious, to say the least. This enterprising little company, which was looking for income return on its investments, bought Poseidon shares at $95. Poseidon shares are now worth less than $10 and have yet to pay a dividend. It bought shares in other Garretty companies. And it even bought shares in a highly speculative exploration company - 'Barewa Oil and Mining No Liability - whose promoter vanished after the stock exchanges refused to list the shares and just before an official government investigation was launched into the company's affairs. Dividend Fund seems to have wavered m its prospectus' promise to invest in the stock exchange and seek income producing investments. Dividend Funds 1969 annual report notes Broken Hill Pty Co. Ltd, Hamersley Holdings and Mount Isa Mines as 'among the more important holdings of DFl' without pointing out that at that time it held only 410 shares in BHP, 80 in Hamersley Holdings and 520 in Mount Isa Mines.

Of course stock exchange investments go down in value as well as up, and the Garretty directors must have thought it better to have fixed investments like advances to their own companies than nasty old stocks and shares. The Garretty directors also found it better and cosier to lure shareholders funds with their own dubious valuations of non-listed investments, including some in their- own companies. Never mind the hapless public investors who had trusted Dividend Fund with their money.

One of the strange features of mutual funds is that they have unlimited liability. Unlike normal companies which restrict the liability of shareholders to the face value of their shares, in unlimited liability companies the shareholders are liable for all debts of the company. This would have been all right if Dividend Fund did not owe any money. But in the round robin of cheques which bounced around the Garretty empire, Dividend Fund had borrowed money. While it was investing all those loans in other Garretty companies, it was also borrowing from yet another Garretty company, and this time mainly one of the other mutual funds - Increment Fund. Increment Fund loaned nearly $120,000 of its public money to Dividend Fund. And when Dividend Fund collapsed, it still owed this money and had to pay it back. Worse still, the shareholders who had lost everything are faced with the demand to pay it back. Let me reiterate. The money comes in from the public; it is lost by the bizarre management ideas of the Garretty group; and because of the unlimited liability of the Dividend Fund structure, the same public investors who subscribed the money now have to put more money into the company to meet debts which Dividend Fund ran up.

Now let us turn to what I shall call the Hopewell caper, which is named after a little company called R. Theo Hopewell Investments Pty Ltd. Hopewell is a $2 company with limited liability. Shortly before Dividend Fund collapsed several shareholdings - amounting to around 100,000 shares - were transferred from private individuals to the Hopewell company. This automatically transferred the liability of the individuals to meet Dividend Fund's debts to that company. And since Hopewell had only $2 paid-up capital it provided a buffer against the calls which must be made on Dividend ' Fund shareholders. Who were the shareholders who so cleverly transferred their investments to Hopewell, and who presumably miss out on liability? Tks records indicate that they were closely associated or related to a Melbourne business man, Mr Alan Prebble By aeon. Mr Dyason was a director with Dr Garretty «s2 the Garretty company which managed Dividend

Fund. Again I seek leave to have an outline of this matter incorporated in Hansard.


Mr SPEAKER - Is leave granted? There being no objection, leave is granted. (The document read as follows) -

The Hopewell Caper Connections

Just before Dividend Fund Incorporated is placed In liquidation, R. Theo Hopewell Investments Pty Ltd becomes holder of 104,534 shares.

These include two major holdings: 44,559 in name of Miss F. L. Kelson 50,000 in name of Mrs G. N. Billings, and two smaller 8,975, Mrs G. B. Stevens. 1,000, Mrs E. F. Dyason.

Kelson and Billings are partners with the Dividend Fund Management Co. Director, A. P. Dyason, in a mortgage held over R. Theo Hopewell Investments Pty Ltd.

Stevens and Dyason are also partners in the mortgage partnership, and are linked with Dyason by marriage (in one case) and in other companies.

Billings is a foundation Director and shareholder in the Dyason family company, Dyason Investments Pty Ltd, which is also in liquidation. Mrs Billings is believed related to Mr Dyason directly.

Kelson, Billings, Stevens and the Dyason family (including two family investment companies, Dyason Investments Pty Ltd and Kunyung Investments Pty Ltd) are shareholders in Increment Fund Incorporated, with total holdings direct and indirect of at least 262,000 shares.

Therefore: Kelson, Billings, Stevens and Dyason Interests use R. Theo Hopewell to avoid unlimited liability obligations in Dividend Fund. But as Increment Fund shareholders they will benefit when Dividend Fund repays debt to Increment Fund.







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