Onwards and upwards for Pigs Arse

Spellbinding newspaper interview with the former lion of Melbourne, business, politics and football, John Elliott ... Barry Lane does his best to fill in some gaps in the story ... The prosecution over the Elders' bonds issue ... Water Wheel's insolvent trading ... The unhappy creditors ... A peep in the rear-view mirror 

Elliott and friend: warm and cuddlyI've just caught-up with a warm and cuddly interview with John Dorman Elliott that appeared in The Weekly Review, and I wondered whether it was the same gutsy and pugnacious John Dorman Elliott I used to read about when he was chairman and chief executive of Elders and a director of Water Wheel Holdings. 

The interview was conducted by former Age journalist, Peter Wilmoth.  

Wilmoth notes that Elliott ... 

"doesn't have the money, power, influence or football club that he once did. But what John Elliott does have is a sense of perspective, a disinclination to look back with regret and a healthy philosophical approach to waking up every day and cracking into life. And that's probably worth more than the $80 million paper money he once had." 

If he has a regret, it was that he never went into parliament: 

"I would have liked to have gone in, but in my life I've never looked back, always forward. I couldn't find a seat, because the then member for Higgins wouldn't stand aside. I had the numbers then to lead the party, I know that, but if you don't have a seat." 

Not checking the rear view mirror was a feature of this chat: 

"I've had a very fortunate and pretty successful life. The only mistake I really made was being pushed by several of my directors to make a bid for Elders, which in hindsight we shouldn't have done." 

As for the 1980s:

"Towards the late '80s I was seen as the salvation of the Liberal Party. My public image was always good until I got charged by the National Crime Authority. It was a real mistake, which I didn't recognise at the time, that it's very difficult to be running a very large company and also be federal president of a political party because they get into you. I got charged ... it was all about politics." 

Elliott took them on. "And we won. That doesn't mean some mud doesn't stick. Always does." A painful chapter. "Yeah it was tough. Cost me a lot of money too. About $10 million." 

 Relationships are important: 

"I have a fantastic number of friends dating back to my school days at Carey, Melbourne University … a lot of friends in business from Henry Jones right through.  The most important thing is for the people who know you — it's all very well for the press, who don't know you at all, they form an opinion based on nothing much of the time, based on what they think you must be like … You can get up every morning and say, 'Well, I always tell the truth and I've got a high level of integrity'. That's very important." 

On June 30, 1994 Kenneth Charles Jarrett, one of Elliott's loyal lieutenants and a former finance executive and director of Elders, "rolled over" and pleaded guilty before Justice John Coldrey in the Victorian Supreme Court to a charge of failing to act honestly in the exercise of his powers as a director of Elders with intent to deceive or defraud the company. 

You can view HH's sentencing remarks here: 

Jarrett copped 18 months' imprisonment but with 12 months of that term being suspended he was required to serve only six months.

Jarrett, along with Elliott, Elders' executive director Peter Damian Scanlon and others were charged with theft, conspiracy to defraud, giving false and misleading evidence to the National Crime Authority and false accounting.

The charges arose out of the issue by Elders in 1984 of US$160m of convertible bonds and subsequent dealings in relation to those bonds.

Jarrett claimed that he and Elliott, Scanlon, Richard Weisener and Bob Cowper were beneficially entitled to a US$105m self-funding parcel of those bonds, but their interests were kept secret from Elders and everyone else. 

Jarrett said that in 1986 he, Elliott and Scanlon gave false evidence to the National Companies and Securities Commission when they denied that they had any interest in the bonds.

Jarrett further claimed that after discussing the matter with Elliott and Scanlon, he gave false evidence to the NCA on December 19, 1990 in relation to an inquiry into a secret fee (the infamous "H" fee) of about $A66m paid to Alan Robert Hawkins, which had been disguised as legitimate foreign exchange transactions.

After three or four years of preliminary proceedings, a trial commenced in the Supreme Court on January 29, 1996 before Justice Frank Vincent. 

A jury was never empanelled because over the ensuing months the defendants were successful in having the evidence supporting the prosecution case declared inadmissible.    

Two of HH's principal rulings were #9 (delivered on May 6, 1996) and #13 (delivered on August 21, 1996).

Following a reference by the DPP in 1997, the Court of Appeal was somewhat critical of HH's rulings, but it was all too late for the prosecution because Justice Vincent had directed, pursuant to s.391 of the Crimes Act, that entries of not guilty be made on the record in relation to all counts against all accused.

With the benefit of hindsight, Jarrett should have followed Rumpole's oft given advice: "never plead guilty!"

Following the Elders' fiasco Elliott threw himself back into business as a director of Water Wheel Holdings.  He was among old friends on the board, including Rupert's brother in law John Anthony (The Galloping Major) Calvert-Jones. 

A former subordinate from Elders' days, Bernard Henry Plymin, was managing director.

Water Wheel went belly up on February 16, 2000 when the board appointed an administrator.

Creditors were owed $15.9m. Shareholders got nothing.

Sometime before it went bust, ASIC took an interest in the company ultimately coming to the conclusion that the torrent of red ink in which it was drowning should have been staunched well before February 16, 2000.

Elliott: serious contraventions

ASIC took proceedings against Elliott, Plymin and the chairman, William Maxwell Harrison, seeking civil penalties and prohibition orders. 

ASIC alleged that after September 14, 1999 the company was insolvent and Elliot, Plymin and Harrison permitted it to continue trading, knowing it was insolvent.

Harrison admitted "liability" and thereafter took no further part in the case.

After a hotly contested 41-day Supreme Court trial in 2002, Justice Phillip Mandie found ASIC's case proved. 

In a judgment worthy of a nomination for the Guinness Book of records HH dissected the financial entrails of Water Wheel in minute and painstaking detail. 

He found that from early in 1999 a number of creditors were pressing for payment and the company was having difficulty with its accounts. Working capital was painfully tight.

After a board meeting on April 12, 1999, Calvert-Jones got spooked and galloped off the board on April 14.  

The ASX was told that he had resigned without explanation, but Calvert-Jones' resignation didn't sound any alarm bells for Elliott.

At a board meeting on April 19, 1999, which Elliott didn't attend, Stephen John Nankervis, the company's general manager finance and administration, tendered his resignation.

In an accompanying letter Nankervis wrote: 

"It appears that the company is unable to meet its obligations when they fall due within normal trading terms as indicated by a high and permanent proportion of creditors remaining in the 90-120 day trading terms... I have kept the Managing Director informed on ... material facts as they have unfolded on a daily basis.

These circumstances portray a very bleak view of the long-term viability of the organisation and raise concerns of the company trading while insolent [sic]. A concern that I expressed at the March 12 board meeting.

These concerns have prompted me to obtain legal clarification on what constitutes 'the ability to meet obligations when they fall due'.

Legal advice sought has confirmed that the present circumstances in which the company is trading would be viewed by the courts are [sic] trading while insolvent.

This places the management of the organization in a position of being personally liable in the event that the company was to be liquidated. No comfort can be taken from the fact that the company has directors & officers indemnity insurance. Trading while insolvent is a criminal offence and will not be covered by such a policy.

When again asked for my opinion at the board meeting held on Monday (April 12, 1999), regarding the status of the company's trading ability, I informed the board that the status had not changed, and that legal advice indicated that the company would be regarded as trading while insolvent.

This position cannot be rectified without an immediate injection of funds. I question the ability of the organisation to continue trading until the proposed AGM on June 3, 1999, where the company will be seeking approval for an equity raising." 

Imagine that being the subject of an ASX notification. 

Another director, John Gross, resigned on July 28, 1999, again without explanation.

Thereafter, the company limped on until it was put down in February 2000. 

On June 30, 2003, Justice Mandie ordered that Plymin be prohibited from being a director of a company for 10 years (reduced to seven years on appeal) and pay a pecuniary penalty of $25,000, plus compensation of $1.4 million.   

Elliott was benched for four years and ordered to pay a pecuniary penalty of $15,000 and compensation of $1.4 million. 

Of Elliott's misconduct, Mandie said: 

"In all the circumstances, Mr Elliott's contraventions were serious and represent a sustained and continuous course of inexcusable and unjustifiable neglect of important duties of a non-executive director. I do not accept Mr Myers' submission that Mr Elliott's conduct was "an isolated incident" or a "mistake". In my opinion Mr Elliott showed continuing disregard for the position of unsecured creditors given his awareness of grounds for suspecting insolvency. The appointment of administrators, as I have said, came far too late." 

He added: 

"The evidence of Mr Elliott's achievements and the favourable evidence from some highly experienced and reputable businessmen concerning Mr Elliott's performance as a company director in the past and concerning his implementation of the responsibilities of a director in relation to other companies stand in stark contrast to the circumstances disclosed by the evidence in this proceeding.

His course of conduct in relation to Water Wheel occurred recently and his evidence in this proceeding concerning that conduct, including his explanations of it and attitude towards it, did not engender any confidence in the court as to his present fitness to act as a company director. 

Nor do the references in his affidavit to what 'befell' Water Wheel or the material in his affidavit concerning his present understanding of the responsibilities of a company director redress such lack of confidence. His affidavit evidence was, to adopt language used in another case, somewhat 'formulaic and mechanical'." 

On April 7, 2004, in dismissing Elliott's appeal the Court of Appeal concluded: 

"We agree with the judge's conclusions that Elliott's contraventions over a period of five months were serious and inexcusable and showed continuing disregard for the position of creditors.

In his role as a member of the board of Water Wheel, albeit as a non-executive director, Elliott had stubbornly and tenaciously allowed Water Wheel to trade after September 14, 1999 and did nothing to protect the creditors from the inevitable insolvency of the company.

No doubt the judge was impressed by the character evidence as to Elliott's past performance, which explains why a lenient prohibition order was imposed." 

All in all, one can understand why Big Jack has "never looked back, always forward".