Forestlands founder Kearns reaped fees, returns from 18 related investment vehicles

Thursday 23rd March 2017

The Motueka-based founder of the Forestlands investment companies set up a group that generated fees and other returns for his family trust and other entities including a share of subscribed capital raised and guaranteed returns from sales of timber and land, Companies Office documents show.

The Financial Markets Authority is looking into Forestlands after preventing the distribution to investors of more than $18 million generated from asset sales. Those funds have instead been parked in a trust account pending the FMA's deliberations. The market watchdog said it acted on a number of complaints from Forestlands investors about the group.

Companies Office record show there are 18 of the forestry investment companies, each given a number up to Forestlands (No 20) Ltd, along with related entities Forestlands Marketing Ltd and Forestlands NZ Ltd. Funds to be raised were typically about $2.5 million apiece through the issue of non-voting Class B forestry shares, although the amounts varied.

The numbered companies were incorporated from the late 1990s through until September 2011 (No 20) and have similar features, based on their prospectuses, including the appointment of Rowan Kearns as managing director of each for a 10-year term. They also provide for 10 percent of the issued capital to go to Forestlands Marketing, along with 10 percent of income from any carbon credit of carbon emission trading scheme and 10 percent of the net harvest from the sale of timber and proceeds of any sale of the underlying land.

Forestlands Marketing is owned by Rowan and Sharon Kearns who live near Motueka. The prospectuses also provide for administration fees to be paid to Forestlands NZ, also owned by the Kearns. The outside investors typically subscribed for Class B non-voting shares, which entitled them to any dividends and other distributions and any surplus assets after winding up.

Voting securities in each company (the Class A shares) were held by the trustees of the Kearns Family Trust and weren't entitled to distributions. Rowan Kearns would subscribe to a third class of securities, Class C redeemable preference shares, in the event capital raising targets weren't met. The Class C shares were entitled to a preferential dividend plus the return of the subscription price on winding up.

Last month Forestlands told its shareholders it was finalising payment details after selling its forests with a view to making distributions in March and April of this year. A later update on March 15 said it was “working through the individual valuations of the respective Forestlands Companies” with the net proceeds held in trust until that was completed, and that it had been in contact with the regulator “regarding the sale and won’t be making any distribution to shareholders until we complete the above task, or without the agreement of the FMA”.

The market watchdog said it had issues with the accuracy of that March 15 statement and stressed that it was published without the FMA’s knowledge.

Forestlands owned 1,934 hectares of forest land through a group of companies on the east coast of the North Island and in the south-west of the South Island, according to its website.

BusinessDesk.co.nz

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