Using dummy shareholders to hide their forestry investment in breach of the Overseas Investment Act cost two Singapore-based investors profits earned on their investment. Add to that, their legal and accounting costs dealing with the problem plus the opportunity cost of time which could have been spent on more profitable work.
British citizen William Mitchell lost $972,800, part of the profit generated on his 2011 investment in two Gisborne forestry lots. He has agreed to surrender a substantial chunk of any profit made on the pending sale of his remaining holdings.
German citizen Marzio Keiling lost the entire $630,500 net profit made on his 2014 investment in a North Auckland forestry block in Rodney.
They both said their separate investments used a trust-based structure on advice of lawyer Andrew Jarvis. Land Information is currently taking legal action against Mr Jarvis.
The High Court was told Mr Mitchell was made aware in 2011 that overseas investment consent was needed for his planned purchases. He relied on advice (which turned out to be incorrect) that consent is not required if the purchasing company is majority owned by New Zealand shareholders who could hold their shareholding in trust for him.
The finalised deal saw a company set up with Mr Mitchell as director and minority shareholder. A New Zealand national took an eighty per cent shareholding, held in trust for him.
Evidence was given that Mr Mitchell then lent funds to his company for its forestry purchase. It was intended full ownership of the company would pass to Mr Mitchell should a subsequent overseas investment application prove successful.
Mr Keiling replicated this process, contacting Mr Jarvis three years later saying he wanted to copy Mr Mitchell’s investment format.
As Overseas Investment Act regulator, Land Information New Zealand took legal action.
In a High Court approved settlement, it was agreed Mr Mitchell would surrender 85 per cent of his profits. A discount was allowed for his co-operation with the investigation.
In addition, he was ordered to personally pay a $82,500 penalty for proceeding with the scheme in knowledge there are strict approval procedures for purchase of sensitive land.
Mr Keiling lost his entire net profit.
Calculation of net profit included the value of emission trading scheme credits earned whilst owning the forests.
Land Information New Zealand v. Mitchell & Keiling – High Court (16.10.24)
25.017