STATUTE LAW REVISION COMMITTEE

Report on

THE TAKEOVER OFFER FOR THE UNION FIDELITY TRUSTEE COMPANY OF

AUSTRALIA LIMITED BY BURNS PHILP TRUSTEE COMPANY LIMITED

PARLIAMENT OF VICTORIA 1979

D-No. 7-13956/79-Price 40 cents:

STATUTE LAW REVISION COMMITTEE

REPORT ON

THE TAKEOVER OFFER

FOR

THE UNION FIDELITY TRUSTEE COMPANY OF AUSTRALIA LIMITED

BY

BURNS PHILP TRUSTEE COMPANY LIMITED

Parliamentary Paper D-No.7/1979.

Ordered to be printed

By Authority: F. D. Atkinson, Government Printer, Melbourne

EXTRACTED FROM THE MINUTES OF THE PROCEEDINGS OF THE

LEGISLATIVE COUNCIL

TUESDAY 29 MAY 1979

ll STATUTE LAW REVISION COMMITTEE-The Honorable A.J. Hunt moved, by leave, That the Honorables D.M. Evans, J.V.C. Guest, N.B. Reid, J.M. Walton and D.R. White*be members of the Statute Law Revision Committee, and that the said Committee have power to send for persons, papers and records.

Question-put and resolved in the affirmative.

WEDNESDAY 18 JULY 1979

17 STATUTE LAW REVISION COMMITTEE-The Honorable A.J. Hunt moved, by leave, That the Honorable Joan Coxsedge be a member of the Statute Law Revision Committee, and that the said Committee have power to send for persons, papers and records.

Question-put and resolved in the affirmative.

* The Honorable D.R. White ceased to be a Member of the Legislative Council on 14 July 1979 on expiry of his term. He was not re-appointed to the Cowmittee after being sworn in for a new term as a Member of the Legislative Council.

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EXTRACTED FROM THE VOTES AND PROCEEDINGS OF THE

LEGISLATIVE ASSEMBLY

TUESDAY 29 MAY 1979

35 STATUTE LAW REVISION COMMITTEE-Motion made, by leave, and question-That Mr Ebery, Mr Edmunds, Mr Mcinnes, Mrs Patric~ Mr Skeggs, Mr Smith {south Barwon) and Mr Wilton be Members of the Statute Law Revision Committee; and that the Committee have power to send for persons, papers and records {Mr Hamer)-put and agreed to.

TUESDAY 16 OCTOBER 1979

12 STATUTE LAW REVISION CO~~ITTEE-Motion made, by leave, and question-That Mrs Patrick be discharged from attendance on the Statute Law Revision Committee and that Mr Templeton be appointed in her stead (Mr Mac::lellan) -put and agreed to.

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REPORT

THE STATUTE LAW REVISION COMMITTEE, appointed pursuant to the provisions of the Parliamentary Committees Act 1968, has the honour to report as follows ·-

1 By letter dated 4 July 1979 the Honorable Haddon Storey, Q.C., M.L.C., Attorney-General of Victoria, requested the Committee to examine and report upon whether the Second Schedule to the Victorian Trustee Companies Act 1958 in relation to The Union-Fidelity Trustee Company of Australia Limited should be amended to enable the Burns Philp Trustee Company Limited to hold the whole of the issued capital of The Union-Fidelity Trustee Company of Australia Limited.

2 The Committee agreed to undertake this Inquiry and notified the Attorney-General by letter dated 11 July 1979.

* 3 The Committee received written submissions, which are appended to this report from the following companies :-

Burns Philp Trustee Company Limited; ) Joint The Union-Fidelity Trustee Company ))Submission of Australia Limited

The Equity Trustees Executors and Agency Company Limited;

National Trustees Executors and Agency Company of Australasia Limited;

Perpetual Trustees Australia Limited;

The Perpetual Executors and Trustees Association of Australia Limited; and

Sandhurst and Northern District Trustees Executors and Agency Company Limited.

4 The Committee commenced hearing evidence on 4 September** 1979 and appended to this Report are the Minutes of Evidence from the following witnesses who assisted the Committee during the Inquiry :-

*

Mr JP Sweeney, Chairman; )The Union-Fidelity Mr L G Williams, Director; and )Trustee Company of Mr G S Russell, General Manager)Australia Limited.

Submissions notprinted. ** Minutes of Evidence not printed.

Mr J D 0 Burns, Chairman and Managing Director of Burns Philp and Company Limited, and Chairman of Burns Philp Trustee Company Limited.

Mr R T Heiler, Finance Director of Burns Philp and Company Limited, and Director of Burns Philp Trustee Company Limited; and

Mr A H E Furze, Director and General Manager of Burns Philp Trustee Company Limited.

Sir James Tait, Q.C., Chairman; )The Equity Mr N K Baker, F.C.A., Vice-Chairman; and)Trustees Mr John Crutch, Manager )Executors and

)Agency Company )Limited.

Mr Hilton J Nicholas, O.B.E., Chairman; )National Mr Victor G Southall, Vice-Chairman; and)Trustees Mr A A Quinn, General Manager )Executors and

)Agency Company )of Australasia ) Limited.

The Honorable Sir George Reid, Q.C., former Attorney-General of Victoria.

5 The Victorian Trustee Companies Act 1958 enables a trustee company to act as executor of a will., to obtain probate and letters of administration and to act as administrator of an estate. The Act also makes liable the capital, both paid and unpaid, and the assets of a trustee company to be security for the proper administration of estates granted and also regulates the commission chargeable by the trustee companies. It places conditions concerning the shareholding, the liability of share­holdings, and the reserve liability of the trustee company and former directors of the trustee company in the event of the trustee company being wound up. The Act also regulates the accounting of estates, types of funds to be kept and other related matters.

6 The Second Schedule to the Victorian Trustee Companies Act 1958 in relation to The Union-Fidelity Trustee Company of Australia Limited reads as follows :-

"2 THE UNION-FIDELITY TRUSTEE COMPANY OF AUSTRALIA LIMITED.

No member shall hold in his own right shares of a nominal amount which is in total more than a one hundred and twenty­eighth part of the nominal amount of the issued capital of the Company.

2

The reserve liability of the Company (being that portion of the Company's share capital which is not capable of being called up except in the event of and for the purposes of the Company being wound up) shall not be less than $256,000.

In the event of the Company being would up every person who has been a director of the Company at any time within the period of two years preceding the commencement of the winding up shall be liable for the total amount remaining unpaid on every share which he has held and transferred during such two years in addition to his liability upon any share held by him at the commencement of the winding up.

Subject to the provisions of section 24 but not­withstanding any other provisions of this Act the Company may alter its share capital in any manner permitted by the Companies Act 1961 other than by reducing its share capital."

7 The Committee was advised that on 2 November 1978 Burns Philp Trustee Company Limited made an offer to the shareholders of The Union-Fidelity Trustee Company of Australia Limited to acquire the whole of the issued capital of that company subject to :-

(a) enabling legislation being made to the Second Schedule to the Victorian Trustee Companies Act 1958; and

(b) Burns Philp Trustee Company Limited receiving acceptances which total at least 115,200 ordinary shares in The Union-Fidelity Trustee Company of Australia Limited.

8 The Union-Fidelity Trustee Company of Australia Limited acts as an authorised trustee company in Victoria, New South Wales, Queensland and the Australian Capital Territory. The Company has approximately 560 shareholders and approximately 220 employees. The C0mpany's authorised capital is $1 million and the paid up capital is $352,000 divided into 128,000 shares of $5.00 each paid to $2.75 per share. The uncalled liability of $2.25 per share cannot be called up except in the event of the Company being wound up. As at 28 February 1979 total shareholders funds were $4.879 million.

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9 Burns Philp Trustee Company Limited has been an authorised trustee company in Victoria since 1969 and is a wholly owned subsidiary of Burns Philp and Company Limited, a New South Wales trading company. Burns Philp Trustee Company Limited was incorporated in New South Wales in 1938 and two years later became an authorised trustee company in that State. It is also an authorised trustee company in Papua New Guinea and Fiji. In the Australian Capital Territory a wholly owned subsidiary of Burns Philp Trustee Company Limited, namely Burns Philp Trustee Company (Canberra) Limited, is an authorised trustee company.

10 The Committee was advised that the authorised capital of Burns Philp Trustee Company Limited is $1 million, with paid up capital of $730,000 comprising 700,000 shares of $1.00 each fully paid and 300,000 of $1.00 each paid to 10 cents per share. The uncalled liability of 90 cents per share cannot be called up unless the company is wound up and there is a special reserve of $130,000 which can only be distributed in the event of a winding up.

11 The 1978 Annual Report of Burns Philp and Company Limited shows authorised capital of $50 million with paid up capital of $37,193,184 comprising 37,193,184 shares of $1.00 each. The report also shows that Burns Philp and Company Limited and Sub­sidiary Companies have total assets of $437,243 million and shareholders funds are $224,404,760. Burns Philp and Company Limited has 10,689 shareholders and the Burns Philp Group employs 11,213 people.

12 It was noted by the Committee that the parent company has many diverse activities which include hardware, glass, timber, electrical goods, motor ·vehicle and cafe-bar distribution, manufacturing, liquor wholesaling and retailing, shipping and travel agencies, hotels, finance, insurance and investments.

Arguments for the proposal

13 In their joint submission Burns Philp Trustee Company Limited and The Union-Fidelity Trustee Company of Australia Limited stated that the necessary enabling legislation referred to in paragraph 7 of this Report could be achieved by amending the first paragraph of Clause 2 of the Second Schedule to the Trustee Companies Act 1958 to provide that "No member other than Burns Philp Trustee Company Limited shall hold more than one thousand shares in his own right". It was pointed out that a similar provision already exists in Clause 9 of the said Second Schedule, in relation to Burns Philp Trustee Company

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Limited, which provides that "No member other than Burns Philp Company Limited shall hold more than one thousand shares in his own right".

14 In support of the above amendment the companies stated that 92.3 per cent of the shareholders of The Union-Fidelity Trustee Company of Australia Limited - representing in excess of the required 115,200 ordinary shares referred to in para­graph 7 of this report - desire to sell their shares to Burns Philp Trustee Company Limited.

15 Burns Philp Trustee Company Limited and The Union-Fidelity Trustee Company of Australia Limited submitted that the follow­ing advantages would result from their proposal :-

(a) the two companies would be able to offer co-ordinated and complementary trustee services throughout Victoria, New South Wales, Queensland, the Australian Capital Territory, Papua New Guinea and Fiji;

(b) uniting the strengths of the management and staff of the two companies would provide the capacity for more planning and develop­ment activities in the pursuit of improved services, efficiency and productive operation;

(c) the expertise of the Burns Philp Group in finance, merchant banking, money market operations, real estate management and development, data processing, planning and development, portfolio and investment management, mining and insurance would be readily available to the two companies;

(d) there would be no retrenchment of staff of either company; rather it would provide wider and increasing employment opportun­ities for The Union-Fidelity Trustee Company of Australia Limited personnel within the Burns Philp Group; and

(e) the two companies would be able to structure their fixed and operational costs more economically in respect of such services as data processing placing them in a stronger position to meet competition with benefits flowing to their clients.

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16 Burns Philp Trustee Company Limited gave evidence that during the past five years statutory trustee companies have diversified from traditional trustee activities. An example given was that The Trustees Executors and Agency Company Limited, according to its 1978 accounts had $52 million out of its total assets of $60 million involved in money market operations. Burns Philp Trustee Company Limited raised no objection to diversification by statutory trustee companies but objected to those companies claiming to be solely in­volved in traditional trustee activities.

Arguments aga:;nst the proposal

17 There ar• • eight trustee companies operating in Victoria. Of the remaining six, one declined to comment and five express­ed strong opposition to any amendment to the Trustee Companies Act 1958 which would enable Burns Philp Trustee Company Limited to hold the whole of the issued capital of The Union-Fidelity Trustee Company of Australia Limited.

18 The Equity Trustees Executors and Agency Company Limited submitted that the impregnable and independent statutory trustee company is at the heart of the law of trusts. People who appoint a statutory trustee company to administer their affairs rely on that special position, and the Government has, by Statute, protected trustee companies against takeovers.

19 The report of the Statute Law Revision Committee upon Certain Matters relating to Trustee Companies (Parliamentary Paper D. 18/1978) concluded :-

"37 The Committee supports the specialized role of the trustee companies in the community and believes that the interests of persons beneficially interested in property held in trust or administered or managed by statutory trustee companies are paraROunt."

20 Witnesses opposing changes to the Act submitted that the administration of estates is a personal business and should be conducted by independent statutory trustee companies which are limited in the scope of their business and, required to observe limitations with regard to ownership so as to avoid conflicts of interest and to protect testators, settlors and benificiar­ies against the transformation of an appointed executor or trustee into an entity never contemplated by the appointor. It was stressed that it is essential for a statutory trustee company to be independent to preserve the sanctity of trusts.

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21 It was further argued that the principle of limitation of shareholdings was designed to avoid the possibility of control of statutory trustee companies passing into the hands of, or coming under the influence of, parties who have a range of interests which may conflict with those of the beneficiar­ies of trusts and estates under their administration.

22 It was generally recognised by witnesses that the obligations of directors of trustee companies are, firstly to act within the principles originally established in the respective Acts of Parliament which created the trustee com­panies. Secondly, that the obligations of the directors are to the trusts, testators and beneficiaries; and thirdly, that they have obligations to the shareholders of the companies.

23 It was submitted that the trustee industry has never existed solely for the benefit of shareholders. The Committee was informed that people acquiring shares in statutory trustee companies do so knowing the statutory limitations.

24 Evidence was given that the long standing stability of the statutory trustee companies has engendered in the public confidence to entrust their estates to such a trustee company with the expectation that it would continue to manage their affairs and maintain continuity of company policy. Support for this evidence was received in correspondence from two clients of The Union-Fidelity Trustee Company of Australia Limited who objected to the proposed takeover by Burns Philp Trustee Company Limited.

25 It was submitted that difficulties could arise in regard to its wholly owned subsidiaries in the event of Burns Philp Company Limited itself being taken over. This was recognised by Burns Philp Trustee Company Limited, which by letter of 22 February 1979 to the Attorney-General for Victoria stated :-

" ... that if at any tirre Burns Philp & Company becarre a subsidiary (not necessarily wholly owned) of any other company, then at the option of the Attorney-General, the Attorney-General could order the disposal by Burns Philp & Company of its shares in Burns Philp Trustee to parties approved by the Attorney-General."

26 It was noted that in the report of the Select Committee upon the proposals contained in the Trustee Companies (New Zealand Insurance Trustee Company Limited) Bill (Parliament­ary Paper D. 1/1972) the Committee concluded :-

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"24 In the opinion of your Committee the Bill should not: be proceeded with at: this time. The proposed guarantees offered by the New Zealand Insurance Trustee Company show the willingness of that: organ­ization t:o cover the doubts raised during the inquiry and the Company is t:o be commended for these proposals, nevertheless, your Committee is of the opinion that: it: is not: desirable t:o allow a foreign controlled company not: subject: t:o the principles of limitation of share­holdings and independence of operation which have been the tradition of Victorian legislation, t:o act: as a trustee company within Victoria within the meaning of the ."rust:ee Companies Act: 1958. The basic principles of t:,Je present Trustee Companies Act 1958 should be adhered to. Limitation of shareholdings in a trustee company, even though this limitation can be avoided at the present time should be maintained."

CONCLUSIONS

27 The Union-Fidelity Trustee Company of Australia Limited and Burns Philp Trustee Company Limited were the only com­panies in a position to make a comprehensive survey of the attitudes of their clients and beneficiaries to the proposed takeover. However, no evidence of any such survey was given.

28 No suggestion was made to the Committee that The Union­Fidelity Trustee Company of Australia Limited would not remain viable as a reasonably profitable trustee company per­forming the traditional services of statutory trustee com­panies if the proposed takeover did not proceed.

29 Having regard to the history of trustee company legis­lation and the report of the Statute Law Revision Committee of 1978, the Committee took the view that those seeking change should demonstrate that an amendment to the law was justified.

30 While shareholders in The Union-Fidelity Trustee Company of Australia Limited would benefit from the proposed takeover, and employees might well find advantage in becoming part of a larger organization, the Committee considered that the interests of beneficiaries and the upholding of testators' expectations are of paramount importance.

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31 Most testators and settlors entrust their estates to a particular trustee company in the interests of their bene­ficiaries. The Committee supports the statutory protected position of trustee companies and does not consider that the evidence of possible advantages for beneficiaries put forward by witnesses supporting the takeover outweighs these consid­erations.

RECOMMENDATION

32 The Committee recommends that no amendment be made to the Second Schedule to the Trustee Companies Act 1958 in relation to The Union-Fidelity Trustee Company of Australia Limited.

Committee Room 1 November 1979.

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