Families of failed businesspeople put on notice

Friday 23rd February 2001

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Policing the business beat

What the beefed-up enforcement unit has achieved so far:

Seven cases are before the courts under the Companies Act and Securities Act involving 15 defendants and 185 charges

Ten cases are being processed under the Insolvency Act involving nine defendants and 57 charges

Charges have been laid against three individuals involved in the Reeves Moses contributory mortgage case.

Charges under the Contributory Mortgage Regulation are about to be filed in another two cases.

SHANE KEOHANE: On the bankruptcy case

By Nick Stride

Wives, family and friends who "front" for undischarged bankrupts are in the gunsights of the Companies Office's commercial cops, the unit's head warned yesterday.

Two cases are already before the courts at Auckland and Palmerston North and national enforcement unit boss Shane Keohane says several more prosecutions are being prepared.

A reinvigorated unit has identified the practice of enlisting a front to act as a director or manager of a business run by a bankrupt as one of a number of recurrent breaches of the laws it polices.

Mr Keohane has some sympathy - some of those facing charges are simply naive, he says - but they need to know it's a serious offence.

Convicted offenders face up to two years' imprisonment.

"We're not trying to make an example of anyone but we have to protect potential creditors who don't know they're dealing with a bankrupt," Mr Keohane says.

In the flesh Mr Keohane doesn't quite fit the mental image his past conjures up. A former South African cop whose brother works as a technical adviser to the Springboks, Mr Keohane is compact and urbane, detailing his present mission in quiet, controlled tones.

The message is commercial crime doesn't pay. As manager of the Insolvency and Trustee Service's national enforcement unit he has delinquent bankrupts in his gunsights but Securities Act and Companies Act offences are also on his beat.

"The perception was that not enough was being done and some people were getting away with murder," he says. "My job is to get some credibility into the marketplace, that there is a unit that will police these things."

With a team of ex-police investigators regrouped as a national unit Mr Keohane has been beavering away quietly for the past year and the results are just starting to show through.

He's been working in this area for 17 years. Born in Feilding, he left New Zealand at age five when his father went to work in South Africa.

On leaving school he did a 10-year stint in the police, eventually working in the commercial crime unit.

He came back to New Zealand seven years ago and worked as an investigator for the Ministry of Commerce and then for the Serious Fraud Office.

The new enforcement unit emerged from the restructuring of the ministry in 1996 and 1997. Investigators in Auckland, Hamilton, Wellington and Christchurch regrouped as an Auckland-based national unit supported by enforcement officers and liaison staff in the four centres and Mr Keohane was recruited to head the unit in mid-1999.

"We've had a pretty low-key build-up in the past year because you have to get investigations before the court before you get any recognition for what you've done," he says.

Reports of alleged offences are passed on from the Registrar of Companies and the Official Assignee.

The unit looks at the type and seriousness of the offence.

"There's a difference between running a business (while bankrupt) and losing tens or hundreds of thousands of dollars, and jumping on an airplane out of the country without permission."

But an undischarged bankrupt reported for a third offence would probably merit attention, even if the alleged offence was fairly minor.

Cases are also assessed on their public interest merits. "A $10,000 loss in Napier or $20,000 in Whangarei might have more of an effect than $100,000 in Auckland."

Mr Keohane says he also takes a look at the motive behind reporting the offence. "A lot of people think bankruptcy in itself is a crime."

The national unit had to start from scratch, identifying the "key offences" under each act that cropped up persistently.

"There's an enormous amount of offending that can be committed under the Companies Act. But like any legislation it's a certain number of offences that continually appear to be contravened by directors and employees."

The three most frequent offences under the Insolvency Act are managing a business while being an undischarged bankrupt, concealing assets as a bankrupt, and obtaining credit of more than the $100 limit.

The unit has to make sure one act doesn't get neglected in favour of another - a perceived lack of policing of the Securities Act, for example, has drawn criticism.

"The harsh reality is, you're never going to be able to please everyone," says Mr Keohane.

"If I had 20 investigators we'd still have to turn down some work."

Violations of the Securities Act rules on issuing prospectuses have also been identified, with issuers pleading ignorance to the "clear cut" difference between the public and expert "habitual" investors.

The unit works closely with the Serious Fraud Office but Mr Keohane says their jurisdictions are clearly demarcated.

The unit has benefited hugely from having police-trained investigators.

"The beauty of that is although some of them haven't dealt with our legislation it only takes them two or three weeks to pick it up."

"You don't have to take six months' training them on what to look for, levels of evidence, briefs of evidence, how to present a case in court."

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