1992_12_december_pigs

The piggery group half owned by the Keating family has begun to make corrections to earlier reports lodged with the Australian Securities Commission.

A search last week revealed that a return of Euphron Pty Ltd, half owned by the Keatings, has been amended. The Keatings’ half share in Euphron is held through 100 shares owned by Mr Keating himself and 10,000 shares owned by the Keating family company, Pleuron Pty Ltd, which they have owned since December, 1989.

The original 1991 annual return of Euphron said that when the Keatings bought their half share they had paid $43,100. The search last week revealed that that has now been amended to $430,100.

Other returns of group companies reveal that the value of the original shareholding had jumped from $430,100 to $4.2 million within six weeks.

This has been asserted by the Opposition in a series of questions, assertions and debating points over the past month in the Parliament.

The assertion is backed up by accounts lodged with the Australian Securities Commission.

Documents lodged at the commission show that Mr Keating and his family company Pleuron Pty Ltd together own half of the shares of a company called Euphron Pty Ltd. The other half is owned by Achilles Constantinidis and his family company. Euphron in turn owns Brown and Hatton Group Pty Ltd.

Brown and Hatton Group is in an $80 million joint venture with the Danish Danpork company to produce pork at Brown and Hatton’s Parkville piggery in the Upper Hunter area of NSW, according to the Opposition.

The Opposition has asserted that: Brown and Hatton Group pressed for permission to be given for the importation of live pigs; that Mr Keating had discussions with his Danish joint venture partner, Ole Jacobsson, in April, 1992; that at the time, Mr Jacobsson (who is chairman of the board of Danpork) was part of a Danish delegation including its Minister for Agriculture, Lauritis Toeraes, which was having discussions with the Minister for Primary Industries, Simon Crean.

Further, the Opposition asserts that the company returns of Brown and Hatton Group were in breach of companies law and misleading.

The Brown and Hatton companies were originally jointly owned by the former Minister for Tourism, John Brown, and Vincent Francis Hatton.

After a restructure, the Keating and Constantinidis families became equal owners Brown and Hatton Group on May 15, 1991, three weeks before Mr Keating first challenged for the leadership. After the restructure, Mr Brown and Mr Hatton no longer had any share in Brown and Hatton Group.

However, the company accounts of Brown and Hatton Group show as an intangible asset “”goodwill at cost $4,450,000” and as a non-current unsecured loan $4,450,000 owed to Brown and Hatton Pty Ltd. Brown and Hatton Pty Ltd is fully owned by John Brown.

It appears therefore that the company half owned by the Keatings owes John Brown’s company $4,450,000 for goodwill in the purchase of the piggery.

The increase in the value of the Keating family’s share is shown in the accounts of Euphron Pty Ltd and Brown and Hatton Group.

The now-corrected 1991 annual return of Euphron puts the purchase price of the Keating shares at $430,100. The same return puts the total value of shareholders’ equity in that company at $8,398,295. So the Keatings’ half share is $4.2 million.

The activities of Euphron as a company are purely as a holding company of Brown and Hatton Group. One has to turn to the accounts of that group, to see how the shareholders’ equity in Euphron comes about.

The consolidated operating profit of Brown and Hatton Group was $470,824 in 1989, $842,999 in 1990. The total shareholders’ equity was $470,829 in 1989 and $1,313,828 in 1990. The 1990 shareholders’ equity is exactly equal to the cumulated profit plus five dollars nominal share price ($470,824 plus $842,999 equals $1,313,823.00). This is exactly as one would expect.

In 1991 Brown and Hatton Group made a loss of $1,518,847, according to the accounts. However, the accounts show that shareholders’ equity jumped to $7,537,900. (See table.)

No auditor was appointed for Brown and Hatton Group’s 1991 accounts. The Opposition has told Parliament that this was a breach of the corporations law. In Parliament, Senator Michael Baume called for the Australian Securities Commission to demand that Brown and Hatton “”file proper, full audited accounts for 1991”.

Senator Baume told the Senate last month, “”At present the only documentation available for public scrutiny is an inadequate, misleading, brief exempt proprietary form of annual return.”

It revealed only key financial data. It showed a $10 million, or 50 per cent, rise to almost $30 million in total assets of Brown and Hatton Group Pty Ltd from 1990, but only a $3.7 million, or 20 per cent, increase in total liabilities to $22.2 million on the other side of the balance sheet.

This provided “”a totally unexplained $7.8 million discrepancy following an operating loss of $1.5 million during the year”.

“”This unexplained rise lifted shareholders’ equity in Mr Keating’s half-owned piggery holding company, Euphron Pty Ltd _ which consolidates the Brown and Hatton Group _ to a stated $8.4 million,” Senator Baume said. “”This inexplicable rise is despite the fact that the group’s directors certified in May, 1991, within six weeks of the end of the financial year, that nothing likely to affect significantly the group’s state of affairs had arisen since June, 1990.

“”So what happened from mid-May, 1991, when Mr Keating acquired his half interest, magically to increase the net worth of this group?”

The Opposition’s concern therefore is threefold: the increase in the value of Mr Keating’s share-holding; the Danish element; and the state of the returns of the company that Mr Keating is half owner.

Mr Keating is not a director of Euphron or Brown and Hatton and is not in any way responsible for their accounting obligations to the Australian Securities Commission. The Danes have since abandoned their interest in importing live pigs into Australia. Mr Keating has said his joint venture will use local stock, has not be the subject of any ministerial talks nor involved in contact with the Australian Quarantine and Inspection Service.

The assertions by the Opposition about the companies have been restricted to the Senate where Mr Keating cannot respond, except one speech in the House by the deputy leader of the National Party, Bruce Lloyd, during a debate on legislation affecting piggeries, once again, when Mr Keating was not able to respond.

However, answers in the Senate from the Government side have generally not gone to the substance of Senator Baume’s assertions, but have said they should be asked in the House of Representatives. The Leader of the Government in the Senate, John Button, said in answer to one question: “”I am not going to answer these questions, why should I bother?”

Mr Lloyd told Parliament of his concerns about government interference in the pig industry. He cited a letter from the Australian Quarantine and Inspection Service to the Pork Council of Australia dated June 3, 1992.

“”It said The Danes first raised the possibility for access for live pigs in the mid-1980s. This request was not formally followed up until 1990 when it re-emerged as an issue at Prime Ministerial level in the context of proposals for a joint venture between Danish and Australian pig-breeding and processing interests. Having regard to Government-to-Government discussions over the years and in particular recent Minister-to-Minister discussions it will be necessary to give some priority to the long-standing request.”

On July 21 the AQIS had written a correcting letter saying it was incorrect so say the matter had be raised at Prime Ministerial level.

However, it had not denied there had been minister-to-minister discussions. And pig imports had suddenly risen to the top of the pile within AQIS.

The Pig Improvement Company, one of the leading pig breeding companies; the Pork Producers’ Council; the WA Pig Producers’ Association and the NSW Farmers’ Association all opposed live pig imports. The only pressure for pig imports “”appears to have been from Brown and Hatton”.

Senator Boswell told the Senate that, though Senator Button had told the Senate there had been no ministerial talks on the import of live pigs and pig genetic material, there was a cablegram from a Brisbane Department of Primary Industry officer which had referred to higher priority being given to the import of Danish genetic material because of the joint venture being forged between 1991 and 1992, and a ministerial recall note stating that Minister Crean had told the Danish Agriculture Minister that he had been pleased with the progress of the pork joint venture.

The industry had sought imports of genetic material from the UK and Ireland, but had been refused.

On at least six occasions, AQIS officers had written important documents stating that events had occurred, in the most definite terms, on which months later they were corrected.

In Senator Boswell’s opinion there had been unsatisfactory explanations for at least two of these when the officers concerned had been asked about it at estimates committees.

Senator Baume has said Mr Keating’s main response to his assertions “”has been by way of personal pressure on editors _ including telephone calls to their homes _ and to journalists not to print my evidence and to blackguard me as a purveyor of unsubstantiated muck”. One journalist had falsely asserted on radio that “”I had produced not one shred of evidence”.

The Opposition states the accounts of Brown and Hatton Group are defective in several ways. It read a legal-accounting report on them in the Senate. The report said they had over-stated net tangible assets by $23 million. The accounts had stated profit was after tax, but later that no provision for tax was necessary because interest on $11.5 million loan funds from Rincraft Pty Ltd (a wholly owned subsidiary of Euphron that raised the funds from the Commonwealth Bank) would exceed any income generated.

Either the net profit should have been reduced by the interest or provision for tax should have been made. Neither was done. Either way, the net tangible assets would have been reduced, but this was not shown on the accounts.

Further, the accounts put the debt to Rincraft as a “”non-current loan”, but Rincraft’s liability to the bank was current. As Rincraft was a related company those short term liabilities should have been recorded as such by Brown and Hatton Group.

The report listed half a dozen breaches of ASC reporting requirements by Brown and Hatton and related companies. Reports were late or not complete.

It said the shareholders’ equity in Olympia Refrigeration (a wholly owned subsidiary of Brown and Hatton Group) were listed in 1990 as $167,582; it should have been minus $476,289.

Senator Alston concluded: “”My colleagues in the Senate have brought together the pieces of a mosaic which constitute a very serious case to be answered.

“”It is one thing for a Prime Minister to have a set of passive investments in blue chip stocks or to establish a blind trust for family interests; it is another thing altogether to be actively involved in an inherently speculative exercise requiring government approval, to fail to file up-to-date and relevant information on its corporate activities, and to achieve what, on its face, would appear to be an investment success beyond the wildest dreams of every corporate entrepreneur.”

Mr Keating’s advice to the Registrar of Members’ Interests on June 7, 1991, said “”The interests acquired by both Pleuron Pty Ltd and me in Euphron Pty Ltd do not constitute a controlling interest in that company., nor do I or any member of my family hold a directorship of that company.”

Senator Alston said: “”This statement is misleading to the point of dishonesty.”

It was technically true that Mr Keating’s interest is not a controlling interest, but he had 50 per cent of the voting shares. “”If he did not have a controlling interest then neither does Constantinidis or anyone else,” he said.

Though Mr Keating was not a director of Euphron, his representative, Mr Coudounaris, was.

Senator Alston said, “”These matters can no longer be ignored.”