No Valuation Done On $17m Hih Buy, Inquiry Told

The Age

Wednesday August 7, 2002

David Elias

Sydney

Failed insurance company HIH made no apparent attempt to value a burglar alarm business run by former Collingwood Football Club vice-president Brad Cooper before it paid him $17 million for a minority interest.

The money allowed Mr Cooper to square his debts and gave HIH a way to disengage itself from Mr Cooper's affairs.

According to long-term HIH financial adviser Colin Richardson, HIH chief executive Ray Williams was frustrated in dealings with Mr Cooper and wanted a way out.

Mr Richardson, a former director of Hambros Corporate Finance, yesterday told the HIH Royal Commission he had clashed with HIH director Rodney Adler over the HIH investment in Mr Cooper's failing home security business, HSI International.

Mr Richardson said that in July 2000, following discussions with Mr Williams, he had noted: ``Advised RRW (Williams) situation hopeless, Cooper and Adler cannot be believed. Sales poor, little chance of success."

He said: ``I had absolutely no confidence in Mr Cooper. I thought the situation was hopeless. It was a matter of letting the matter go."

Mr Adler had disagreed with Mr Richardson, and at a meeting in September had become ``somewhat agitated" with the financial adviser.

``He berated me over it and said this would result in losses for HIH," Mr Richardson said. ``He did not think my advice was proper."

He was then asked by counsel assisting, Wayne Martin, QC, whether he or HIH considered Mr Adler's role inappropriate given that he was also a shareholder in HSI.

Mr Richardson said he was concerned that Mr Adler seemed to have a conflict, and he expressed the view to HIH. They, too, were equally concerned.

But asked if he thought it appropriate that Mr Adler should have performed negotiations on HSI's behalf while a director of HIH, Mr Richardson replied: ``I think it's a moot point."

Mr Richardson told the commission HIH had sought several ways to solve its problems with Mr Cooper, who was agitating HIH for funds to reconstruct HSI's $9 million debt to Monte Carlo businessman Paul Brown.

In October 1999, HIH had decided it could try to work with the HSI group to extract value or it could take more drastic steps, but it feared the consequences of Mr Cooper not paying Mr Brown. It feared it would have a ripple effect on other assets.

The insurer had considered buying the outstanding half of FAI Finance, the financing arm of HSI, and merging it with another HIH company, FAI Home Finance. It had also considered buying 100 per cent of the burglar alarm business, Ness, for $36 million before it settled for 47 per cent at $17 million.

Mr Richardson said that, to his knowledge, no valuation of the company was ever made before it came up with the $36 million figure, and the price it settled on may have been because it was just under half of $36 million.

He added that he was not a party to the transaction where Mr Cooper bought HIH's interests in HSI for $1.4 million, which was a fraction of the ``rivers of money" that Mr Martin claims flowed from HIH to HSI.

In his own version of these events, Mr Williams said HIH wanted to prevent the FAI name being tainted by HSI, which was trading under the FAI brand.

Mr Richardson had advised him to manoeuvre FAI to acquire HSI's option over its half-share of FAI Finance to prevent HSI gaining control of the financing arm, leaving FAI with all the exposure. HIH had also sought to gain control of HSI as it did not want it to fail while it traded under the FAI brand. Otherwise there was a probability HSI customers would not repay loans.

In his witness statement tabled yesterday, Mr Williams said he authorised a $5 million advance to HSI after Mr Adler, as HSI chairman, wrote to him in April 2000 warning him about HIH's considerable monetary exposure to HSI.

HIH had then decided to buy 49 per cent of Ness to give it equity in the company rather than debt. In the next move, it sold the business to Mr Cooper.

© 2002 The Age

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