Part 5: Other issues

Inquiry into the West Coast Development Trust.

During our inquiry, other issues were raised. Generally, these issues were about compliance with policies and procedures for financial assistance to applicants, and whether Trust resources (staff or money) had been used to benefit certain applicants.

Specific issues raised with us were that:

  • Trust staff had assisted an applicant associated with Mr Dooley in preparing an application for funding from the Trust, at the direction of Mr Dooley and/or Mr Trousselot;
  • Trust staff had assisted with a business plan for an applicant company of which Mr Trousselot was a director;
  • Mr Trousselot had not sought necessary approvals for a change in the terms of the Trust's funding to a company for which he had been appointed a director; and
  • Mr Trousselot had departed from parameters set by the advisory body when negotiating a proposed funding arrangement with an applicant; and
  • Mr Dooley had lent money to an applicant to enable the applicant to meet a minimum capital requirement for the funding obtained, in breach of Trust policy.

We reviewed the Trust files for applicants where Mr Dooley was an adviser and where Mr Trousselot had been appointed a director, considered relevant Trust policies, and discussed the matter with Trust staff, Mr Trousselot, and Mr Dooley.

We investigated these allegations and did not find anything that caused us concern. We found that Mr Dooley and Mr Trousselot had acted with due regard to Trust policies and procedures for financial assistance to applicants. We briefly explain what we found and our conclusions in the rest of this Part.

Compliance with policies and procedures

The Trust has a Policy Manual setting out its standard policies and procedures. It outlines the process that applications should follow, and sets out financial limits and approaches. The Policy Manual is regularly reviewed by the Trust, and was being updated when we visited the Trust.

All commercial applications for funding are considered by the advisory body, which makes a recommendation to the trustees. For significant applications, Trust staff are closely involved with applicants during phases such as due diligence and negotiation of terms, both before and after the advisory body considers the application. Applications may be considered by the advisory body several times before a recommendation is made to trustees.

The terms and conditions of funding for an applicant are set out in the advisory body's recommendation to trustees. The trustees can vary these terms and conditions with the agreement of the advisory body. Although the chief executive has delegated authority to approve expenditure on some distributions, final decisions on all applications have, to date, been made by the trustees.

A number of concerns were raised with us about what Trust policies required in one situation, involving a relatively small Trust loan. This particular matter has been at the centre of much of the concern and debate over the last year, and so we deal with it in some detail.

Mr Dooley was the applicant's accountant, became its financial adviser, and later also loaned the applicant money to assist with the project being funded from the Trust. The questions raised with us related to:

  • whether a trustee should lend money to an applicant;
  • the management of the conflict of interest; and
  • whether there was a problem in relation to the Trust's policy of lending a maximum of 90% of the cost of any proposal from an applicant.

There is no Trust policy prohibiting a trustee from lending money to, or investing money with, an applicant. If trustees did so, they would need to declare a conflict of interest and step aside from decisions on that application.

Mr Dooley declared a conflict of interest and removed himself from the decision-making each time this application or file came before the trustees for a decision. The declarations did not separately identify the potential and later actual financial relationship. In some meetings he stayed in the room to provide background information to the meeting, but did not participate in the decision-making. Mr Dooley therefore managed the conflict of interest in accordance with the Trust's normal practices.1

The last question, about the interaction with the Trust's policy of lending a maximum of 90% of the cost of any proposal, was more complex. Trust policy does not prevent an applicant borrowing elsewhere to meet the remaining 10% of the cost. Information on the source of that 10% contribution may be relevant to the assessment of the application and consideration of risk, particularly in bigger loans. On this application, the papers that Trust staff prepared for the advisory body and the Trust did not focus on how the applicant could fund the required 10% contribution or that it might be funded by way of a loan, and there was no apparent focus on this aspect when risks were considered through the Trust's processes. In our view, it might have been useful for that information to have been specified, but we note again that this was a relatively small loan and that the applicant's financial position was reasonably obvious from other documentation.

With the benefit of hindsight, we think it was unfortunate that the fact of the potential and later actual loan was not apparent from the Trust's records from the outset, either through the working papers on the application or from Mr Dooley's conflict of interest declarations. While in both cases reasonable judgements may have been made about relevance or materiality, the combination of those separate judgements meant that the information was not on the record anywhere. Given the atmosphere of distrust prevailing in the Trust, that gap meant that questions were able to be raised later when the fact of the loan did come to light. Fuller disclosure through either route might have helped avoid some of those concerns arising.

Use of Trust resources to assist applicants

The Policy Manual provides that a thorough and complete evaluation of applications is to be carried out by management. This can involve a lot of early interaction between Trust staff, the applicant, and the applicant's advisers to present a comprehensive appraisal to the advisory body.

We did not find that an inappropriate or unusual level of assistance had been provided to some applicants, based on any degree of connection with staff or trustees. Further, we did not find any evidence in our file review or interviews of inappropriate involvement or direction by Mr Dooley or Mr Trousselot to Trust staff involved in certain applications.

Variations to funding arrangements

The chief executive is often involved in negotiating the terms of funding arrangements with applicants. This can take some time, and the advisory body may discuss an application several times before making a recommendation to the trustees. It is expected that Trust staff will use their commercial judgement in these matters.

From the files we reviewed, Mr Trousselot had acted appropriately in this process. We would expect any significant changes to negotiation parameters previously agreed by the advisory body to be reported back to the advisory body.

In one instance discussed with us, the basis for funding one of the companies of which Mr Trousselot was a director had been changed without being referred back to the trustees. The change was relevant to the company's tax position and was not significant to the Trust's position. The change was agreed to by the advisory body but not referred back to the trustees for approval. This oversight was noticed by our appointed auditor, and retrospective approval was later obtained. It appears that the committee of chairs had the delegated authority to approve the variation, so the matter did not need to go back to the trustees. We do not regard this issue as significant.

1: We comment on those practices in part 4.

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