The Standard Insurance Co. began life in Dunedin in 1874 as the Standard and Marine Insurance Co. of New Zealand Ltd. It had an authorised capital of £1 million in 10 shares, but for many years only 15s. was paid up. It gained a name as a sound concern and regularly paid a good dividend, reaching 22½ per cent on paid-up capital in 1924. The firm's name was changed in 1922 and at the same time shares were split in £5 units paid up to 10s. by the capitalisation of reserves. Further splits altered the capital to one million £1 shares paid up to 10s., of which 6s. had been paid from reserves since 1956.
The report for 1959–60 showed an underwriting and investment profit of over £90,000, a drop of 5,000, but still healthy. Reserves stood at almost £590,000, with 713,000 for unexpired risks and a further £443,000 for unpaid and unadjusted risks. There was a premium income of £1 million, 70 per cent of which came from Australia or overseas, while a new seven-storey building costing £400,000 had been completed in Sydney. Shares had been sold at prices ranging from 34s. 6d. to 42s. and, generally, the 1,500 shareholders regarded the company as a sound investment. In November 1960 the directors were not so sure. Following normal insurance practice, to carry out the Sydney business of the Company the board gave a power of attorney to the manager, H. D. C. Wilson, so that policies, etc., would not have to be sent to the head office for signature. The Sydney office during 1957 guaranteed either as to solvency or as to the performance of contract a company called Production and Enterprises Pty. Ltd. The guarantees for considerable sums were reinsured. Owing to bad management this company had losses of £153,000, which were offset by borrowing under Standard guarantee. By late 1958 the Sydney office realised that it would have to face losses of £200,000, with a possible recovery of £60,000 from the plant. Some £50,000 was paid out and head office informed, with the result that instructions were given that no further financial bonds were to be issued. To avoid disclosing the total losses, Sydney decided to continue Production and Enterprises Pty. Ltd., but, owing to the burden of very high interest rates, further losses were made and the total amcunt rose to £(A.)263,000.
Production and Enterprises was one of about 30 companies in the Harp and Stuart “empire”. Legally they were not all the one group, but the two men had effective control, despite the fact that they had contributed little more than a few thousand pounds each in cash. The principal company was Harp and Stuart Credits Ltd., a public company which borrowed from the public through debentures, paying high rates of interest. Generally the group's financial activities were regarded doubtfully and strong criticism of the various companies appeared from time to time in the financial press. In a further attempt to save the situation Wilson agreed that Standard should guarantee £35,000 to be lent to another company in the group, International Shipping and Export Agency, formed to operate the s.s. Delfino, later the Woolambi, in shipping sheep to the United States. It was hoped that, from the resulting profits, sums would be paid to Production and Enterprises and so eventually reach Standard. Instead of profits there were losses which cost the company about £500,000. Wilson was compelled to issue more guarantees and, later, bonds for about £(A.)2,520,500 were issued to this company. It seems that none of these guarantees was notified to head office, Dunedin. Indeed, because of the instruction, repeated in February 1960, that no such bonds were to be issued, Wilson printed his own forms and issued the bonds without recording them in any way whatsoever or charging premiums or, indeed, without reinsuring the risks. Certain debentures and shares were, however, handed over as security for the advances, so that Standard became a shareholder in the Harp and Stuart group.
In November 1960, when the Sydney manager refused to take the sick leave he had been granted, the assistant general manager and the auditor went to Sydney. They investigated first of all some of the bonds issued in 1957 and found irregularities, as well as the fact that some of these bonds (reinsured) had been replaced without authority by unrecorded bonds which were not reinsured. During a weekend a thorough search was made of the office and carbon copies of finance guarantee bonds issued to the International Shipping and Export Agency and Harp and Stuart Credits Ltd., amounting to approximately £(A.)2,500,000, were discovered in an unused staff locker. Together with the reinsured bonds, these in all amounted to £(A.)2.9 million.
About the time of these disclosures the economic situation in Australia was far from good. Harp and Stuart Credits tried to borrow by debentures with little success, and some of the group had to default on interest payments. The first concern of the Standard directors was to see what could be done to keep the Harp and Stuart group afloat, whatever its name. So long as the group survived, there was hope of saving Standard; hence, in the first few weeks Standard was forced to advance about £(A.)1,200,000 to International Shipping and other companies in the group to meet interest payments. Indeed, at this stage the board seems to have had every expectation that Standard could survive. There were considerable resources in the Harp and Stuart group, but they were not liquid, nor were Standard's reserves, while cash was the prime need. The shareholders still had a liability of 10s. but confidence in the company would go if a call was proposed. Late in 1960 the New Zealand Insurance Co. had suggested a merger, but this had been refused. In February Standard suggested the matter be reopened, but after reconsideration this offer was in turn refused, though New Zealand Insurance did purchase the Sydney building for £(A.)505,000 cash. Other insurance companies approached would not help either. The New Zealand Government was asked to guarantee Standard's policies as sound but, after at first being favourably inclined, it decided that the cost would be too great.
Silence about the company's financial condition was broken on 9 March when it was announced that, because of abnormal claims arising indirectly out of the Australian economic situation, the interim dividend usually paid in March would not be made, even though the company had had a record premiun income. Australian curiosity was aroused, brokers became suspicious, and some policies were cancelled. On 4 April Standard filed a petition for the winding up of three companies of Harp and Stuart, stating that it was owed over £(A.)1 million. At the same time the National Insurance Co. announced that it had agreed to take over the liability for Standard policies, other than finance and performance bonds, as from 1 April. The National also purchased Standard's goodwill and agreed to employ the staff. On 13 April the directors applied to have the company wound up and after a meeting of shareholders the Chief Justice gave an order for this to be done on 24 May 1961. Evidence was given that the surplus of assets at that time was £43,000, plus uncalled capital and goodwill of £650,000. Against this there were demands of £1,363,000, a deficiency of £670,267. A week earlier an order had been made for the winding up of the company in New South Wales.
Even in 1964 the actual losses were not definite. In April 1962 the liquidator made a call of 10s. per share to meet the liability of £696,706 owing to the National as its share of the premiums when it agreed to reinsure the risks continuing after 31 March 1961. At that time there was a deficit of £1,155,473, but the last of the finance bonds were to fall due in June 1965. Nothing had been received from the Harp and Stuart group. During inquiries Standard stated that Wilson had guaranteed loans of £(A.)3,388,000 to International Shipping and nine other companies in his 10 years at Sydney, most of which had not been reinsured. Standard issued a writ against Wilson for £(A.)2 million, but Wilson filed a counter claim and later the action was discontinued with Standard paying costs.
In June 1964, however, the liquidators took proceedings against Wilson in the Sydney Equity Court. On 23 July he was found guilty of malfeasance involving nine transactions, and was ordered to pay £(A.)211,848 to the assets of the company by way of compensation. At the same time the Supreme Court ruled that the guarantee bonds signed by Wilson without authority were enforceable.
by James Oakley Wilson, D.S.C., M.COM., A.L.A., Chief Librarian, General Assembly Library, Wellington.