Part 5: Buying the Jacks Point land

Inquiry into property investments by Delta Utility Services Limited at Luggate and Jacks Point.

5.1
In this Part, we describe how and why Delta decided to acquire 98 land lots at Jacks Point for property development in 2009. We include Delta's consideration of risks, as well as Delta's previous dealings at Jacks Point from 2006.

5.2
We discuss:

the Jacks Point residential development and the companies involved;
Mr Coburn's interests at Jacks Point;
Delta's previous dealings with Jacks Point Limited from 2006;
how Delta assessed the opportunity to acquire land at Jacks Point;
how Delta negotiated and finalised the arrangements;
Mr Coburn's advisory role; and
Delta's communication with the holding company and the Council.

5.3
We then include some overall comments about how Delta bought the Jacks Point land.

Summary of our findings

5.4
The 2009 investment decision was made more quickly and was considerably less complex than the Luggate Park investment.

5.5
In 2006, Delta considered entering into a joint venture with Jacks Point Limited to form a construction company to develop residential subdivisions in Central Otago. Mr Coburn was a director of Jacks Point Limited at that time. Mr Coburn and Delta managed Mr Coburn's conflict of interest adequately, but, in our view, Mr Coburn's involvement in both parties to the proposed joint venture would have been problematic had the venture proceeded.

5.6
In 2009, Delta (through Newtons) purchased the land at Jacks Point as part of its growth strategy but when a similar investment at Luggate Park was not delivering the expected benefits. The directors of Delta saw Jacks Point as a quite different, and longer-term, opportunity than Luggate Park. Mr Coburn proposed the purchase to Delta. Mr Coburn was no longer a director of Jacks Point Limited when he proposed the purchase, and disclosed his other interests at Jacks Point. Companies Act requirements for disclosing interests were met. We saw no evidence that Delta bought land at Jacks Point in lieu of payment for unpaid contracting work, as some complainants alleged.

5.7
Because of the size of the investment, we consider that it would have been prudent to get an independent review of the financial projections to ensure that $8.82 million was a reasonable price to pay for the land.

5.8
As a council-controlled organisation, Newtons did not comply with some of the requirements of the Local Government Act. In our view, it was an oversight rather than intentional avoidance. Delta and the holding company gave explicit authority for the investments and transactions.

5.9
On the whole, the various conflicts of interest were disclosed and managed appropriately. However, in our view, Mr Coburn should have disclosed that he is a shareholder as well as a director of Ruboc Holdings Limited and disclosed his interest in that company earlier than he did.

5.10
There was a breach of requirements in the Companies Act about the payment of consultancy fees to Mr Coburn. The directors did not take the steps required to certify that the consultancy arrangement was fair to the company or disclose details of the arrangement in the interests register, and the parties have been unable to find a signed copy of the contract for the work. We saw no advice from Delta staff about the need to meet these Companies Act requirements, but we were surprised at this omission by experienced company directors.

The Jacks Point residential development

5.11
Jacks Point is a 1200-hectare settlement in the Wakatipu Basin, about 15 minutes' drive from Queenstown on State Highway 6, on the edge of Lake Wakatipu. It has some housing, some vacant developed lots that are for sale, a golf course and lake, and some undeveloped land. Plans for the development include more than 1300 houses, a lakeside village with accommodation, restaurants, shops, and a luxury lodge. Only a small percentage of the land available is to be built on, with about 95% of the site being open space.

5.12
The property owners not Queenstown Lakes District Council own the infrastructure facilities at Jacks Point. Property owners become members of the Jacks Point Residents and Owners Association (JPROA) and get shared ownership of communal facilities such as the road network, the water supply and wastewater systems, and amenities (including reserves, farmed open space, walkways, and a trail network). The JPROA operates like a local authority, and levies its members for the cost of maintaining and operating the communal facilities.

5.13
The development land is divided into a series of neighbourhoods. There were 680 residential lots in the initial development of Jacks Point. When Delta bought 98 lots in 2009, the other lots had already been developed and sold to various parties.

5.14
The neighbouring, undeveloped Henley Downs has capacity for about 700 lots.

Jacks Point Limited

5.15
Delta, through Newtons, purchased its lots from Jacks Point Limited, which was then the management company for the Jacks Point development.

5.16
At the time of the purchase, the directors of Jacks Point Limited were John Darby, George Kerr, and Richard Hanson.

Michael Coburn's interests at Jacks Point

5.17
Mr Coburn was a director of Delta from October 2003 to October 2012. Mr Coburn had interests at Jacks Point before and after Delta purchased land at the development. Mr Coburn and Delta needed to manage those interests throughout Delta's dealings with Jacks Point Limited.

5.18
The interests relevant⁵¹ to this report were:

Mr Coburn had an ownership interest in the Jacks Point land from 30 May 2005 to 16 October 2006, when his company Ruboc Holdings Limited bought a 15% shareholding in Jacks Point Equities Limited, which owned Jacks Point Limited,⁵² which owned land at Jacks Point;
Mr Coburn's family interests purchased 11 lots at Jacks Point in that period;⁵³
Mr Coburn was a director of Jacks Point Equities Limited from 8 July 2004 to 22 August 2008;
Mr Coburn is the sole shareholder and director of Ruboc Holdings Limited, which entered into a consultancy arrangement in 2009 with Newtons for Mr Coburn to provide project director services to Newtons for the Jacks Point contract work;
Mr Coburn was a director of Jacks Point Limited (now called Coneburn Land Holdings Limited)⁵⁴ from 6 May 2004 to 11 December 2008, and was executive director of that company from early 2005 until his resignation in December 2008;
Mr Coburn was a director of Arith Holdings Limited (the company that owned the Henley Downs land next to Jacks Point) from January 2007 to August 2008;
Mr Coburn was a committee member of the JPROA and a director of Coneburn Water Company Limited, which is a company controlled by the JPROA that owns and manages the water supply system at Jacks Point; and
Mr Coburn is a trustee of a trust that holds shares in Locations Realty Limited and Locations Realty Queenstown Limited.⁵⁵

5.19
We cover Mr Coburn's disclosures of his interests and Delta's knowledge and management of those interests throughout this Part.

Previous dealings between Delta Utility Services Limited and Jacks Point Limited

5.20
Delta had a working relationship with the company that managed the land at Jacks Point, Jacks Point Limited, from construction work it had done for the company at the Jacks Point site from 2005.⁵⁶ Delta had also had contact with Jacks Point representatives when it was promoting the Fulcrum concept to developers in 2004 and 2005.⁵⁷

5.21
Delta also did contracting work for Arith Holdings Limited in 2007 and 2008.⁵⁸

5.22
In September 2006, Delta put in a bid for work at Jacks Point in a tender to develop 249 lots over an 18-month period. The work involved earthworks, road construction, and utility installation for three of the neighbourhood areas of Jacks Point.

5.23
Jacks Point Limited ran the tender process. Mr Coburn was the Executive Director of that company at that time. In October 2006, Jacks Point Limited accepted Delta's bid for the work, but subject to Delta's agreement to transfer the balance of the term of the contract to a joint venture to be formed between Delta and Jacks Point Limited if such a joint venture were formed before the contract work had been completed.

5.24
The October 2006 letter from Jacks Point Limited, which set out the conditional acceptance of Delta's bid for the work, was signed by Mr Coburn as Executive Director of Jacks Point Limited. Mr Coburn was also a Delta director at that time. Delta managers sent a memorandum to directors about the condition sought by Jacks Point Limited, but did not send it to Mr Coburn because of "his clear conflict of interest".

5.25
We wanted to better understand these events, which raised the possibility of Mr Coburn using his knowledge of Delta's business and strategy for personal gain, because he was then a director of Jacks Point Limited and had an ownership interest in land at Jacks Point. In paragraphs 5.26 to 5.40, we set out what happened.

5.26
Delta managers had some concerns with the condition that Jacks Point Limited wanted to impose. They noted that:

the work had been tendered before discussions between Delta and Jacks Point Limited about a possible joint venture had progressed far, and they had not taken the possible joint venture into account when pricing the work and planning how to resource it; and
unless Mr Coburn was excluded from future board reports on the work, Jacks Point Limited would get knowledge of how profitable the work proved to be before deciding whether to include it in a joint venture.

5.27
Delta managers said that the condition sought by Jacks Point Limited needed clear approval from Delta's board before proceeding.

5.28
The discussions between Delta and Jacks Point Limited about a possible joint venture that Delta referred to in October 2006 had begun in mid-2006. Minutes of a Delta board meeting on 26 July 2006 refer to two joint venture opportunities being on the agenda. The minutes record that: "Mr Coburn spoke to the one he was involved with then withdrew from the meeting due to a conflict of interest."⁵⁹

5.29
The two opportunities were the Luggate joint venture (first proposed in May 2006) and a proposed joint venture with Jacks Point Limited. It appears from later documents that Mr Coburn raised the possibility of a "project management" joint venture between Delta and Jacks Point Limited at this meeting. Delta managers noted that the proposal arose during a board discussion about Delta "moving up the value chain", by investing in specific subdivision opportunities rather than working just as a contractor.⁶⁰

5.30
Delta formed its joint venture subcommittee to consider these joint venture opportunities at the 26 July 2006 meeting, with Mr Polson, Mr Liddell, and Dr Evans as members and supported by two of Delta's managers. On 2 August 2006, Delta's chief executive met Mr Coburn and Mr Darby from Jacks Point Limited. After those discussions, the chief executive told Mr Polson that Mr Coburn and Mr Darby had proposed forming a joint venture company with Delta for construction work (as opposed to previous discussions about a project management joint venture) and that:

their concept was not limited to the Wakatipu Basin or civil construction;
they believed that they could provide $100 million of construction work at Jacks Point and at the adjacent Henley Downs, which would generate $10 million of profit, and they would like to benefit from delivering the opportunity; and
Delta would get the opportunity to share $5 million of that profit by giving Jacks Point Limited equity in a construction joint-venture company that would do the work.

5.31
Delta's notes of the meeting refer to Mr Coburn:

expressing the view that the proposed joint venture would ideally involve both civil and electrical construction activity to maximise growth opportunities; and
agreeing to discuss the proposal with Mr Polson to gauge his support.

5.32
In September 2006, the Delta board agreed in principle to form a joint venture company along the lines proposed, initially restricted to non-electrical activities in the Wakatipu Basin but subject to further expansion on a basis yet to be defined.

5.33
In November 2006, Mr Polson and Mr Liddell met with Mr Coburn and Mr Darby to discuss the proposed joint venture in more detail. They discussed aligning the interests of Jacks Point Limited and Delta, first at the Jacks Point development but later elsewhere in Central Otago. They noted that infrastructure assets offered two possibilities – construction and management/maintenance, and that Queenstown Lakes District Council was open to handing these responsibilities over to others.⁶¹

5.34
Mr Coburn represented Jacks Point Limited's interests in the discussions, and Delta excluded him from advice sent to the joint venture subcommittee on the proposal. Delta worked on a shareholders agreement and constitution for the joint venture company and discussed these with Mr Coburn as a representative of Jacks Point Limited.

5.35
The proposal was that Delta would have one less share (but an option to buy one more share if it wanted to) and one less director than the other party. This is another example of Delta intentionally avoiding the accountability requirements of a council-controlled organisation that would have applied if the shareholdings and rights to appoint directors were equal.

5.36
When the Delta board discussed the proposal at a meeting on 29 November 2006, the minutes record that:

Mr Coburn advised that he had a general notice of interest noted in the interests register on all matters associated with Jacks Point and that it covered this issue.

5.37
The minutes also record that:

Mr Coburn took part in the discussion;
Mr Gilks, Mr Douglas, Mr Hudson, and Dr Evans had concerns about the proposal;
Mr Hudson suggested that Council approval should be sought, and was asked to discuss it with the chief executive of the holding company;
Delta managers said that a detailed business case was being prepared for consideration; and
the meeting agreed that the proposal would "lie on the table" until the business case could be considered.

5.38
The parties did more work on the proposal between November 2006 and January 2007. Jacks Point Limited proposed to use a new company to enter the joint venture with Delta. The directors and shareholders were to include Mr Darby, Mr Coburn, and Mr Kerr, and they would also have been appointed as directors of the proposed joint venture company to represent the Jacks Point interests. Delta engaged Deloitte to prepare the business case and financial forecasts.

5.39
Delta considered the draft business case and financial forecasts at its January 2007 board meeting. The minutes of this meeting record Mr Coburn's disclosure of interest in all matters concerning Jacks Point, and that he did not participate in the discussion of the business case. The minutes record that the joint venture subcommittee had reviewed the business case and other information and now recommended that the joint venture not proceed in the form proposed. Rather, the joint venture subcommittee recommended that Delta and Jacks Point Limited work together on a project basis instead. This was agreed.

5.40
Because Delta did not agree to the proposed joint venture, Jacks Point Limited did not pursue the idea that the 2006 contract for construction work at Jacks Point could be transferred to a joint venture between the parties.

Payments to Delta from Jacks Point Limited for work at Jacks Point

5.41
Delta told us that:

the value of the civil works by Delta for Jacks Point Limited before 2009 was about $7.4 million (plus GST);
Delta carried out about $410,000 of electrical works for Jacks Point Limited before 31 December 2008;
Delta completed additional civil works to the value of about $800,000 (plus GST) for Jacks Point Limited after 1 January 2009; and
Delta also provided electrical contracting services to Aurora Energy Limited for the electricity network at Jacks Point.

5.42
Some of the complaints to us have raised a concern that Delta purchased land at Jacks Point in lieu of payment for unpaid contracting work. We have seen no evidence of that.

How the Jacks Point opportunity arose

5.43
In January 2009, Mr Coburn suggested that Delta buy a block of land at Jacks Point for property development. He had resigned as a director of Jacks Point Limited in December 2008.

5.44
On 29 January 2009, Mr Polson contacted the joint venture subcommittee members to say:

A second issue also for discussion by our JV group. Mike Coburn has suggested we look at purchasing a block of undeveloped lots (maybe 100) at Jacks Point on a deferred payment basis with the quid pro quo that Delta would be given a contract to manage and maintain all the roading, grounds and infrastructure on a long term contract. This would provide a base work load for us in Queenstown (maybe $700,000 to $1m per annum) and we would develop the lots in smaller parcels as we needed work or the market improves. Obviously a lot of detail to be worked through but at least worth considering as part of our strategy. We would also be able to shift all our operational base to JP.

5.45
The proposal was broader than simply land purchase, and that appealed to Delta as long as it could get the sections at a good price and be confident of selling them for a profit. Delta saw it as an opportunity to get involved in a "flagship" site in the Wakatipu Basin, which was a significant part of its strategy to grow the business. It was also an opportunity to provide a base and foundation for Delta's workforce under a long-term contract.

5.46
Mr Cameron had joined Delta as chief executive in January 2009, so was responsible for advising the joint venture subcommittee and the Delta board on the Jacks Point proposal. Delta managers met with Mr Coburn and Mr Darby in February 2009 to discuss the terms of a possible deal. They then prepared advice for the joint venture subcommittee, in consultation with Mr Coburn, and reported to the subcommittee on 12 March 2009 outlining how to progress the proposal.

The market was already slowing

5.47
When the proposal was received, the Luggate development was already under way. The global financial crisis had begun to have an effect, and the market for the land at Luggate was reported to be flattening considerably.

How Delta Utilities Services Limited negotiated and finalised the arrangements

The initial proposal

5.48
The initial proposal was that Delta would purchase 98 lots of land at the Jacks Point site at a cost of $8.82 million. The lots were under the control of a bank, and this was the amount owing by the land owner. Delta understood that the bank was prepared to sell at that price to recover the amount owing.

5.49
Jacks Point Limited was acting as an intermediary between the bank and Delta. The proposal was that Jacks Point Limited would be the vendor, having made arrangements with the bank, so that Jacks Point Limited could sell the land to Delta and deliver clear title.

5.50
Delta understood at that time that Jacks Point Limited did not have an ownership interest in other land at Jacks Point but was the management company for the development, and that Mr Coburn was no longer a director of Jacks Point Limited (having recently resigned).

5.51
The land available for sale to Delta had a total land area of 9.22 hectares. It was made up of two separate and neighbouring areas, known as Neighbourhood 2B (49 lots) and Neighbourhood 3 (49 lots).

5.52
In return for purchasing the land, Delta was to receive:

development work for its workforce, the cost of which would be recovered when the plots were sold (the work was estimated at $6 million, from which Delta would also get a profit margin);
a three-year contract for asset management, landscape management for the whole of Jacks Point and, at a later stage, neighbouring Henley Downs (with an automatic right of renewal for a further three years);
a lease for a permanent depot on site; and
"preferred contractor" status for any infrastructure development at neighbouring Henley Downs when development began.

How did Delta evaluate the proposal?

5.53
After the initial briefing to the joint venture subcommittee, Delta managers worked with advisers and Mr Coburn to consider the details of the proposal and how it could work. The business case was essentially the financial projections for the gain on sale of the developed land, the broader benefits of the proposal in terms of the depot site and the access to work, and the fit with Delta's growth strategy.

5.54
Delta did not get an independent valuation to confirm that the proposed purchase price of $8.82 million was reasonable.

5.55
Delta's board was satisfied with the purchase price of the undeveloped land in the context of the wider benefits that would accrue to Delta. The board considered that getting a registered valuation was unlikely to add anything to the decision-making process.

5.56
Delta's experience with Luggate Park, where directors considered the valuation to have been optimistic and of little use, had influenced the views of managers and of board members about the benefits of getting a valuation and its relevance to the decision it needed to make. Delta decided to do its own research on land sales because it was confident that the board had access to better information and knowledge of Queenstown market values at the time.

5.57
The financial model was reasonably simple. At face value, the purchase price of $8.82 million divided by 98 lots gave a cost of $90,000 for each lot. The development costs were estimated to be $60,000 for each lot. The economic prospects were thought to be favourable as long as the lots could be sold for more than $225,000 (net) or a profit of about $75,000 for each lot.⁶² From its understanding of the Queenstown market at that time, Delta considered that the land price of $8.82 million offered a significant opportunity to profit from developing and selling the lots.

5.58
A point of difference for the Delta lots was that they would be smaller and cheaper than the lots for sale elsewhere at Jacks Point, which had an average sale price then of about $275,000. It was also intended that Delta would do the construction work on the lots then sell them back to Jacks Point Limited, which would market them.

5.59
At this early stage, it was also evident that an advantage of the proposed arrangement was that Delta would have a "flag ship" site in an area that it had targeted explicitly for growth.

5.60
On 12 March 2009, the joint venture subcommittee approved in-principle for managers negotiating with Jacks Point Limited to reach an agreement, but wanted to:

secure a longer involvement at the site by seeking a five-plus-five-year contract rather than the proposed three-plus-three-year contract; and
consult the Council on the proposed arrangement.

5.61
The joint venture subcommittee identified two particular aspects to consider further:

the degree of confidence about development costs for each lot, given that Delta would carry out this work and development costs at Luggate Park had been significantly more than forecast; and
the risk to achieving an average sale price of $225,000 (net) for each of the 98 lots during the following four years.

5.62
Delta did some more work on these matters and engaged legal advisors to consider the terms and wording of the various legal agreements.

5.63
On 24 March 2009, Delta told the chief executive of Dunedin City Treasury Limited in confidence about the proposed funding arrangements and sought confirmation that those arrangements did not breach any group funding or security arrangements.

Delta board agreed in principle to proceed

5.64
When it met in April 2009, the Delta board considered progress, noting that its joint venture subcommittee had recommended that the project proceed as quickly as possible, and that the subcommittee was working on finalising the documents and detail. Mr Coburn had helped Delta staff finalise the proposal to Delta directors and had taken part in the discussion at the Delta board meeting.

5.65
The main considerations for the Delta board included:

Although the board would need to monitor financial risks with the project, operational risks were lower because Delta could decide when to do the development work and could delay or stage this work as needed (based on market conditions and other demands on its workforce).
It was confirmed that the project would operate through Newtons.
Because managing and containing development costs was important, it was recommended that a Delta board member (Mr Coburn) be appointed as a consultant to represent Newtons in managing the delivery of the first phase of the development work for 49 lots.
The maintenance agreement was extended to a five-year agreement, with a right of renewal for a further five years.

5.66
Delta then did some work on the risk of volatility in price that might arise from "fire sales" by other owners. Delta also wanted to understand Jacks Point Limited's strategy for the rest of the project – specifically, the planned hotels, other accommodation, and the retail village. Mr Coburn got more information on these matters from Mr Darby and gave this to the joint venture subcommittee.

5.67
Although Delta did not expect to start selling sections until June 2010, it planned to sell at least 10-15 lots each year from then.

5.68
Mr Hudson said that the proposal needed to be considered by the liaison committee of the Council and the holding company, which would decide whether the approval of the full Council was required. Mr Liddell was asked to arrange a meeting with the Mayor and the chief executive to brief them on the proposal.

5.69
On 1 April 2009, the Delta board approved the proposal in principle and delegated authority to the joint venture subcommittee to enter into the required agreements. The board also resolved to get approval from the holding company. The minutes record that Mr Hudson abstained from voting but do not record why he did so.

The holding company approved the Jacks Point investment

5.70
In seeking approval from the holding company, Delta summarised its expectations of the arrangement and alignment with its overall strategic objectives. It summarised these in a document called Growth Strategy in the Wakatipu Basin, dated 3 April 2009.

5.71
Delta's main strategic objective was to increase its turnover from $86 million to $120 million in five years. Important aspects of its strategy included that:

the Wakatipu Basin was the highest growth area in the South Island and a major component in the planned revenue increase;
Delta's revenue from the region in 2009 was expected to exceed $10 million; and
to succeed, the growth strategy required a permanent base in the Wakatipu Basin, and a stable workforce with a good baseload of work in the area.

5.72
The strategy noted that the economic and other benefits of the Jacks Point opportunity were:

expected annual income of more than $1 million from providing services and maintenance to the Jacks Point township as it developed, and the chance to show how well Delta could manage the infrastructure of small towns (and so provide access to similar opportunities in other locations);
being the preferred contractor on site would provide substantial benefits when further developments took place (the income from the planned 1300 lots would be substantial and a steady workload was expected to result);
the lease of the depot would enable Delta to consolidate all of its activities in the area to one site, with annual lease savings of more than $125,000 expected, and related efficiency and employee benefits of having all staff on one site;
the development work would be done by Delta, with an expectation that about $700,000 of profit would be achieved;
access to ongoing work in developing Jacks Point would provide a sustainable base workload and an ability to smooth workloads, resulting in Delta being able to attract and retain staff with core skill sets;
Delta could manage the timing of the development of the 98 lots to ensure continuity of productive work;
the land was projected to have a sales value of $22 million in the next six years, generating a cash surplus of about $7 million during that time; and
all surpluses from the additional work and the property development would return to Dunedin.

5.73
The growth strategy summarised the four parts of the Jacks Point opportunity:

having a five-year agreement to provide all services to Jacks Point residents (including managing and maintaining water, sewerage, vegetation, and meter reading) with a five-year right of renewal at the end of the initial period;
being the preferred contractor for all future development and infrastructure work for Jacks Point, including building up to 1300 residential lots in Henley Downs during the next 10 years;
leasing a depot and work site at Jacks Point, with an option to buy a permanent depot in 18 months' time with the price locked in below the market value; and
buying consented land that could be developed into 98 residential sections in a three-year timeframe, which would provide about 88 weeks' work for Delta employees and deliver good returns on the sale of the lots.

5.74
The holding company noted that the opportunity was consistent with Delta's growth strategy. Mr Hudson, Mr Liddell, Mr McLauchlan, Mr Coburn and Dr Evans, all of whom were also Delta directors, signed the holding company resolution approving the Jacks Point investment.

Payment and funding arrangements and other agreements

5.75
In May 2009, Newtons entered into a conditional agreement to buy the 98 undeveloped but consented residential lots of land at Jacks Point from Jacks Point Limited. The agreement became unconditional on 13 July 2009.

5.76
The cost to Newtons of the Jacks Point land was $8.82 million plus GST, comprising payments of:

$500,000 on agreement;
the balance of $5 million and the GST paid a year later on 1 April 2010;⁶³ and
a final balance of $3.32 million six months after that, with interest.⁶⁴

5.77
At a board meeting in July 2009, the Newtons directors resolved to approve the development budget for Jacks Point, to apply to Dunedin City Treasury Limited for a $5 million-loan facility, and to borrow $500,000 from Delta for the deposit for Jacks Point. As with Newtons' decisions about Luggate Park, the directors made these resolutions without a statement of intent in place.

5.78
Delta agreed in August 2009 to provide the funding to Newtons for the Jacks Point investment by way of interest-bearing shareholder advances, on the same terms that Delta incurred when borrowing from Dunedin City Treasury Limited. Delta did not buy shares in Newtons, as it had for the Luggate Park investment. It was agreed that Delta would borrow the $5 million from Dunedin City Treasury Limited rather than have Newtons set up a loan facility with Dunedin City Treasury Limited.

5.79
In July 2009, Delta entered into a series of agreements with entities involved at Jacks Point and Henley Downs as part of its broader objectives for Jacks Point.

5.80
Figure 12 summarises the agreements Delta entered into about Jacks Point.

Figure 12
Agreements that Delta Utility Services Limited entered into about work at Jacks Point and Henley Downs

Parties	Delta's entitlements under the agreement
Delta and Jacks Point Limited	Preferred contractor status for future infrastructure development work at Jacks Point
Delta and Jacks Point Residents and Owners Association (JPROA)	Exclusive provider of operational, maintenance, and asset management services for communal facilities and utilities to be constructed at Jacks Point (with a term of five years and a right to renew for another five years)
Delta, Arith Holdings Limited, Jacks Point Limited, and JPROA	A license to occupy land at the Jacks Point site to establish and operate an Infrastructure works depot (and a related agreement with Henley Downs Farms Limited to identity the most suitable site)
Delta and Arith Holdings Limited (developer and owner of Henley Downs)	Preferred contractor status for future infrastructure development work at Henley Downs and provider of operational, maintenance, and asset management services for communal facilities and utilities to be constructed as part of the development at Henley Downs (with a term of five years and a right to renew for another five years)

Mr Coburn's advisory role

5.81
On 1 April 2009, in seeking approval in principle from the Delta board for the Jacks Point investment, the joint venture subcommittee noted that it intended to enter into an agreement with Mr Coburn for Mr Coburn to provide project director services to Newtons for the Jacks Point contract work.

5.82
As noted above, Mr Coburn had worked closely with Delta's staff when they prepared advice to Delta directors on the Jacks Point opportunity in early 2009. His knowledge of the Jacks Point development, from his recent role as Executive Director of Jacks Point Limited, was clearly useful to Delta managers when they prepared that advice.

5.83
We were told that Delta board policy was that directors could be paid for additional work on Delta projects for work over and above their directors' duties. The rate for additional work was $200 for each hour.

5.84
Mr Coburn proposed a fee of $75,000 for the first year of his project role at Jacks Point (and also mentioned Luggate Park), based on an average of 10 hours a week at the director rate of $200 discounted by 25%. The contract was to be with Mr Coburn's company, Ruboc Holdings Limited.

5.85
In August 2009, the Newtons board approved the project management agreement with Ruboc Holdings Limited for Mr Coburn's services for an annual fee of $60,000. This amount was based on the project management arrangements at Luggate Park with Mr Boult.

5.86
Mr Coburn told the meeting that the Jacks Point development would be a good training exercise for Delta and that this could result in a good outcome for Delta and Newtons.

5.87
At its September 2009 meeting, the Newtons board noted that the project management agreement with Mr Coburn had been agreed but not signed, and Delta managers were asked to arrange this when Mr Coburn returned from holiday.

5.88
Newtons directors were given a copy of the unsigned agreement for their 27 October 2009 board meeting, and were told that Mr Coburn was prepared to sign it in that form. The board approved the agreement for signing.

5.89
Delta's practice was to update directors at each board meeting about any agreements signed since the last meeting. We did not see this for the agreement with Ruboc Holdings Limited for Mr Coburn's services. Because neither party has been able to find a signed copy, it is not clear if the agreement was formally signed. We consider that Delta needs to better manage such matters to ensure that all agreed actions are completed.

5.90
The unsigned agreement set out the main terms:

Ruboc Holdings Limited would provide Mr Coburn's services.
Payment was to be $5,000 plus GST for each month, starting from 1 October 2009.
The fee was to be reviewed 12 months after the date of the agreement.
The agreement was to end on 30 November 2011.

5.91
Mr Coburn's main responsibilities were:

managing the development of residential sites for Newtons at Jacks Point (and any other agreed sites);
overseeing all site activities, including health and safety requirements and compliance with resource consents;
delivering the residential lots in the agreed timeframe and within budget;
providing monthly reports on progress with construction and expenditure against budget;
pre-approving all purchases and payments before Delta's chief executive authorised them; and
marketing the completed lots and providing monthly reports on sales and market conditions.

5.92
Delta gave us information about payments to Ruboc Holdings Limited from Delta and Newtons (with its more recent name, Delta Investments Limited) since 2008 (see Figure 13).

5.93
Figure 13 shows:

payments from Delta Utility Services Limited to Ruboc Holdings Limited from 2008 to 2012;
payments from Delta Investments Limited to Ruboc Holdings Limited from 2010 to 2012; and
a reconciliation between the above information and relevant annual reports, with an explanation of differences.

5.94
Mr Coburn, through Ruboc Holdings Limited, had begun charging Delta for his time spent on the Jacks Point project from January 2009 before entering into the formal consultancy arrangement. There was also a small payment of $320 to Ruboc Holdings Limited in February 2008 to reimburse Mr Coburn for mileage expenses between Dunedin and Queenstown.

Figure 13
Payments to Ruboc Holdings Limited from Delta Utility Services Limited and Delta Investments Limited since 2008

Ruboc related-party transactions
Expenditure breakdown
Financial year		Delta Utility Services Limited¹ $	Delta Investments Limited² $	Group Tota l $
2008		320	-	320
2009		15,727	-	15,727
2010		22,345	63,139	85,484
2011		11,524	49,388	60,912
2012		4,121	736	4,857
Totals		54,037	113,263	167,300
1 Payments are largely for consultancy services provided and for accompanying Delta management to meetings in Christchurch for a Delta project there. The 2010 amount includes a payment from Delta to Ruboc of $8,444 for an item of plant (toro lawnmower). 2 Payments are largely for Jacks Point management fees and associated expenditure such as mileage under the consultancy agreement between Newtons/Delta Investments Limited and Ruboc. There were a smaller number of payments for meetings about Luggate and other projects.
Annual report reconciliation
Financial year	As per Delta Group Annual Report $	Delta Utility Services Limited $	Delta Investments Limited $	Difference $
2008	-	320	-	320¹
2009	-	15,727	-	15,727¹
2010	85,484	22,345	63,139	0
2011	60,912	11,524	49,388	0
2012	24,971	4,121	736	(20,114)²
Totals		54,037	113,263
1 Transactions with Ruboc were overlooked in the annual financial statements. 2 Directors fees ($20,850) were included in the Delta Group related-party figure. Also, a minor Delta Investments Limited amount ($736) was missed on consolidation.

5.95
Delta told us that payments to Ruboc Holdings Limited of $320 (in 2008) and $15,727 (in 2009) were overlooked when it prepared its annual reports for those years. The 2008 expense claim was not significant, but the payments in 2009 should have been disclosed in related-party information. Mr Coburn had not made an interests register notification for Ruboc Holdings Limited at that time, which would have put Delta staff preparing the 2009 annual report and our auditors on notice of the need for related-party disclosures. The need to make this disclosure was realised in time for it to be included in Newtons' half-yearly statements for the six months ended 31 December 2009, which disclose payments to Ruboc Holdings Limited in the related-party information.

5.96
The payments under the contract with Ruboc Holdings Limited for consultancy services for Jacks Point are included in the Delta Investments Limited figures for 2010 and 2011. The payments were disclosed in related-party information in Delta Investments Limited's financial statements. Delta Utility Services Limited was also paying Ruboc Holdings Limited for services in those financial years. Most of those payments were for representing Delta at meetings in Christchurch for a Delta project there.

5.97
Delta's annual report for 2013 states that consultancy services and materials of $12,484 were bought from Ruboc Holdings Limited in 2012/13.⁶⁵ The annual report for Delta Investments Limited states that no consultancy services were bought from Ruboc Holdings Limited in 2013.

Communication with Dunedin City Council

5.98
Delta communicated more with the Council about Jacks Point than about Luggate Park. The communication took place while Delta was considering the investment but had not yet bought the land.

5.99
Communication about the Jacks Point investment included:

Delta preparing a short paper on Delta's investment strategy to use in briefings;
Delta director Ross Liddell briefing the Mayor (Peter Chin) and chief executive (Jim Harland);
senior council officers being present at a meeting of the holding company board on 8 April 2009, when the investment and the need to brief the Council on it were discussed;⁶⁶
the holding company board meeting with the committee for liaison with the Council on 22 April 2009 to discuss the investment; and
the holding company and Delta representatives meeting the Council about the Jacks Point investment and other holding company matters on 29 April 2009.

5.100
No formal records were kept of the briefings to the liaison committee or the Council, but we have seen a copy of the presentation used at the April 2009 Council meeting. The presentation contained information on the Jacks Point investment opportunity.

5.101
Delta issued a press statement on 6 June 2009 about entering into an agreement with Jacks Point Limited to provide estate management services at Jacks Point and noted the possibility of entering into other agreements. The press statement did not mention that Delta had acquired land for property development at Jacks Point. The Otago Daily Times reported in early July 2009 that Delta had bought 100 sections at Jacks Point for between $2 million and $3 million. Delta's chief executive declined to comment on the incorrect reporting of the purchase price for reasons of commercial sensitivity.

Our comments

Timing of the purchase

5.102
Delta, through Newtons, purchased the land at Jacks Point as part of its growth strategy but at a time when a similar investment at Luggate was not delivering the expected benefits.

5.103
We wanted to understand why Delta invested in Jacks Point considering the then state of the Luggate Park investment. The initial report to the joint venture subcommittee in March 2009 on the Jacks Point opportunity did not refer to Luggate Park. However, the strategic goal of Delta continued to be the pursuit of growth and a firmer foothold in Central Otago.

5.104
The Jacks Point deal was seen as fitting with these goals in a more attractive area for development than Luggate Park. Jacks Point was already more established and the proposal had some broader benefits. One of the Delta directors told us that Luggate Park and Jacks Point were regarded as quite different projects. The chief executive said that, given the broader benefits to Delta (such as the contracting work), Jacks Point was also seen as a longer-term proposition than Luggate Park.

Determining the price

5.105
Delta decided it did not need a valuation for Jacks Point. This decision was based on the expected outcome of Delta's financial modelling, and the fact that one of its directors, Mr Coburn, had property development experience in Queenstown and an understanding of the local market. Also, Delta directors considered that the valuation report for the Luggate land had been optimistic.

5.106
One of the complainants noted that the Jacks Point land that Delta purchased had a rating valuation at 1 July 2008 of $2.3 million. They questioned why Delta would pay $8.82 million in 2009 for land valued at $2.3 million in 2008. In July 2008, the land was undeveloped and its rating valuation would have reflected that. Delta's financial modelling showed that the price sought was reasonable and would enable it to make a profit on selling the developed sections. Delta did not consider the rating valuation for undeveloped land to be relevant.

5.107
In our view, given that this was a new activity for Delta and because sales at Luggate Park had yet to eventuate, it would have been prudent to get an independent review of the financial projections to ensure that $8.82 million was a reasonable price to pay for the land. The directors have explained why they did not seek a valuation, but we consider an external independent review would have been useful, given the amount of the investment.

Local Government Act requirements and Newtons

5.108
The directors of Newtons made decisions about the Luggate Park and Jacks Point investments, and entered into legal agreements and funding arrangements for those investments, in April 2008 and in 2009. The company did not have a statement of intent in place when those decisions were made.

5.109
The records we reviewed do not show any consideration of Newtons' status as a council-controlled organisation when the directors started making decisions.⁶⁷ The Local Government Act states that decisions by directors of council-controlled organisations must be made in accordance with the statement of intent (and, if applicable, the constitution).

5.110
Newtons did not meet all of the accountability requirements for council-controlled organisations when it was first owned by Delta, but began to do so from mid-2009 after it became more active. Newtons prepared a report for the six months ended 31 December 2009, an annual report for the year ended 30 June 2010, and its first statement of intent for the year starting 1 July 2010.

5.111
In its 2010 annual report, Newtons disclosed the fact that it had not prepared a statement of intent for the year starting 1 July 2009. Audit New Zealand issued a qualified audit report referring to that omission. Newtons (now Delta Investments Limited) has met Local Government Act accountability requirements since then.

5.112
It is unfortunate that Delta did not consider accountability requirements for Newtons sooner. In our view, this was an oversight rather than an example of Delta intentionally avoiding accountability requirements.

Managing Mr Coburn's interests

5.113
We have reviewed the interests registers of Delta, Newtons, and the holding company, and minutes of relevant meetings, to see how Mr Coburn's interests at Jacks Point were managed.

5.114
The practice of the directors in the holding company group was to make general declarations of their directorships and shareholdings in other companies. Most of the directors had many other such interests, and the Companies Act would deem them to be interested in any transactions with those other companies. It is standard practice to make general disclosures, even if it is unlikely that the company will transact with those other entities.

5.115
Directors can also make specific disclosures about their interests from time to time, for entry into the company's interests register, and can also disclose other interests not covered by Companies Act requirements that they wish their fellow directors to know about.

5.116
Figure 14 summarises Mr Coburn's interests and disclosures.

Figure 14
Michael Coburn's interests and disclosures

Mr Coburn's interests	Delta's dealings with those companies/interests during period of the interest	Disclosures/references in Delta records and annual reports
Jacks Point Limited – director from May 2004 to December 2008 and Executive Director from April 2005.	Delta carried out contracting work at Jacks Point from late 2005. Proposed joint venture discussions between Delta and Jacks Point Limited from August 2006 to January 2007.	Disclosed in Dunedin City Holdings Limited and Delta interests registers May 2004 and April 2005 respectively. Related-party disclosures of payments by Jacks Point Limited to Delta for construction work in Delta annual reports from 2006 to 2009.
Ownership interest in Jacks Point land through Ruboc Holdings Limited/Jacks Point Equities from May 2005 to October 2006, and director of Jacks Point Equities from July 2004 to August 2008.	As above.	Not disclosed in interests registers. Minutes of meetings of Delta directors in late 2006 and early 2007 record that "Mr Coburn advised that he had a general notice of interest noted in the interests register on all matters associated with Jacks Point."
Owner of nine lots at Jacks Point, member of Jacks Point Residents and Owners Association, and director of JPROA subsidiary (Coneburn Water Limited).	Mr Coburn proposed in early 2009 that Delta buy land at Jacks Point for development.	Disclosed to Delta in March/April 2009 and board advised.
Director of Arith Holdings Limited from January 2007 to August 2008.	Delta carried out contracting work for Arith Holdings Limited in the 2007 and 2008 financial years.	Disclosed at Delta Utility Services Limited board meeting in June 2007. Related-party disclosures of payments by Arith Holdings Limited to Delta for construction work in Delta's 2007 and 2008 annual reports.
Director and shareholder of Ruboc Holdings Limited from December 2002.	Consultancy arrangement for Jacks Point proposed in April 2009 and approved in August 2009.	Not disclosed in interests registers (neither Mr Coburn's interest in Ruboc nor the particulars of the consultancy arrangement). Directorship disclosed in related-party information in Newtons' 31 December 2009 half-yearly financial statements and Newtons' and Delta's annual reports from 2009/10. (Payments in 2008 and 2009 were not disclosed in annual reports.)
Director of Jack Tewa Appointer Foundation Limited.	Not significant.	Disclosed in August 2011.
Trustee of trust that holds shares in Locations Realty Limited/Locations Realty Queenstown Limited (no beneficial interest).	Possible role in marketing Jacks Point development (not just Delta land) in March 2010. Possible role in marketing Delta's Jacks Point land in July 2011.	Disclosed to Delta Investments Limited board meeting in July 2011. Interests register disclosure in August 2011. Newtons' annual report 2011/12.
Committee member of JPROA.	JPROA introduced a possible buyer for some of Delta's Jacks Point sections in August 2012.	Disclosed to Delta Investments Limited board meeting in August 2012.

5.117
As well as Mr Coburn's interests register notifications and disclosures at meetings, we noted several references in Delta documents that confirmed that Mr Coburn's interests were known to Delta:

Delta managers told the joint venture subcommittee and Delta directors in March and April 2009 that Mr Coburn had advised that he had no financial interest in Jacks Point Limited or Henley Downs other than as a beneficial owner of nine lots and as a board member of the JPROA and of Coneburn Water Limited;
Delta's searches in April 2009 of land ownership information at Jacks Point confirmed Mr Coburn's interest in nine lots through a trust; and
As part of their due diligence review of the proposed Jacks Point investment, Delta staff did a company search of Mr Coburn's interests on 3 April 2009. A report to directors on 1 July 2009 noted that Mr Coburn confirmed his earlier resignations from the boards of Arith Holdings Limited and Jacks Point Limited.⁶⁸

Companies Act disclosures

5.118
The Companies Act defines the circumstances in which a company director will be considered to be "interested" in a transaction with the company. Mr Coburn adequately disclosed his interests, being:

a director of companies and other entities relevant to Delta's dealings at Jacks Point; and
a trustee of a trust that holds shares in the Locations real estate companies that his son is involved with.

5.119
However, the Companies Act requires the disclosure of circumstances in which a person will or may receive a material benefit from a transaction. In our view, Mr Coburn should also have disclosed:

his indirect ownership interest in the Jacks Point land from May 2005 to October 2006 through his 15% shareholding in Jacks Point Equities Limited, held by his company Ruboc Holdings Limited; and
in Delta's and Newtons' interests registers, that he is the shareholder as well as the director of Ruboc Holdings Limited.

5.120
Because of his indirect shareholding in the company that had proposed the joint venture, we consider that Mr Coburn might have received a material benefit if the proposed joint venture with Delta for construction work had proceeded. In our view, Mr Coburn should have disclosed his indirect ownership interest in Jacks

Point Limited to Delta directors at the start of discussions on the proposed joint venture company between Delta and Jacks Point Limited even though:

there was only a brief period when the ownership interest applied (Mr Coburn ended his shareholding in October 2006); and
the proposed joint venture did not proceed.

5.121
Also, as Mr Coburn is the sole shareholder and director of Ruboc Holdings Limited, there is a material benefit to that company from Delta's payments for Mr Coburn's services. Mr Coburn should have disclosed that he is a shareholder as well as a director of that company and should have disclosed his interest in Ruboc Holdings Limited in the interests registers of Newtons and Delta. Mr Coburn notes that Delta paid his director's fees to Ruboc Holdings Limited since he was appointed as a director and believes that his interests in that company were always known.

Management of Mr Coburn's interests during the 2006 joint venture negotiations

5.122
We have covered in detail the 2006 discussions between Delta and Jacks Point Limited about the proposed joint venture construction company because those discussions raised concerns about Mr Coburn using knowledge gained as a director of Delta for his own gain. We wanted to see how Mr Coburn's conflict of interest (because he was involved on both sides of the proposal) was managed.

5.123
We note that the minutes of significant meetings refer to his "general notice of interest noted in the interests register on all matters associated with Jacks Point". We also note that Mr Coburn did not take part in the significant decision about whether to proceed with the proposed joint venture.

5.124
Delta managed the conflict adequately by not sending Mr Coburn some of the information sent to other directors. Mr Coburn did not take part in the joint venture subcommittee's decision-making. Had the proposed joint venture company proceeded, Delta would have faced ongoing challenges in sharing information while managing Mr Coburn's conflict of interest. It may not have been possible for Mr Coburn to continue to be a director of both Delta and Jacks Point Limited.

What Mr Coburn knew about Delta's strategy and business operations

5.125
The Companies Act provides that a director who has information in their capacity as a director, being information that would not otherwise be available to them as a director, must not disclose that information to any person or use or act on the information, except for the purposes of the company or if permitted to do so by the board.⁶⁹

5.126
A Delta manager raised a concern about Mr Coburn's possible use of Delta information at one point during the joint venture discussions, as a hypothetical instance. Again, we consider that this would have presented ongoing challenges had the joint venture proceeded and had Mr Coburn remained involved with both Jacks Point Limited and Delta. That said, we note that the arrangement was intended to benefit both companies and that the board could have authorised Mr Coburn's use of information that would not prejudice Delta.⁷⁰

Mr Coburn proposed the 2009 Jacks Point investment

5.127
Soon after resigning from his role as Executive Director of Jacks Point Limited, Mr Coburn proposed to Delta that it buy land at Jacks Point and develop it. At that time, Mr Coburn's main interest at Jacks Point was as a beneficial owner of nine sections at Jacks Point.

5.128
In our view, this interest as a land owner gave Mr Coburn an interest in the overall success of the Jacks Point property development concept and therefore in the sale and development of some of the lots by Delta. The viability of the overall Jacks Point development and planned retail village and accommodation depends on developing the land and selling lots. Delta's buying and developing its lots should contribute to the development's long-term success and appeal.

5.129
Having disclosed his interest to his fellow directors and managers, Mr Coburn took an active role in board discussions about the proposal. Because he had met the requirements of the Companies Act, there was no problem with Mr Coburn being involved in Delta's decision to invest.

Consultancy payments

5.130
Delta managers and directors saw Mr Coburn as having useful skills to contribute to the Luggate Park project as well as Jacks Point, and engaged him to help with those projects in return for payment. This was in keeping with Delta's policy at that time.

5.131
We asked Delta directors if this was an unusual arrangement, and none said it was or had a problem with it. We accept that the directors were in the best position to judge what skills they needed to help with the projects at the time, and Mr Coburn's previous role as Executive Director of Jacks Point Limited and background in property development meant he was well placed to help Delta to manage costs. Mr Coburn's involvement also reduced the work time required of Delta's staff. Delta believes it could not have got a better person to manage the project if it had gone to the market.

5.132
The board of a company may approve paying a director for work done in another capacity, but the Companies Act imposes some requirements on the board to ensure that such arrangements are transparent and appropriate.⁷¹ The Companies Act requires:

particulars of the payment to be entered in the company's interests' register; and
directors who vote in favour of the payment to sign a certificate saying that the arrangement is fair to the company and state the grounds for that opinion.

5.133
The Newtons board approved the agreement with Mr Coburn's company for signing. Even though the parties have not been able to produce a signed copy, there was an approved arrangement in place to support the payments that were made.

5.134
Newtons prepared six-monthly financial statements for the period 1 July 2009 to 31 December 2009. Those financial statements disclosed that the company had paid Ruboc Holdings Limited $29,790 for consultancy services in the six-month period from 1 July 2009 and that Mr Coburn was a director of that company. Newtons' annual reports from 2010 include Ruboc Holdings Limited in the list of directors' interests, and make further related-party disclosures of subsequent payments to Ruboc Holdings Limited under the consultancy arrangement.

5.135
However, Newtons did not meet the core requirements of the Companies Act for such arrangements in that:

the board did not enter the particulars of the arrangement in Newtons' interests register; and
the directors who voted in favour of the arrangement did not sign a certificate stating that it was fair to the company with their reasons.

5.136
These requirements are in place to ensure that payment arrangements between a company and a director for extra work are fair to the company and disclosed to shareholders. The Larsen review noted the high number of related-party transactions in the holding company group and the need to be vigilant about these because of the inter-dependence of the companies in the group.

5.137
The directors did not show this sort of vigilance. They:

did not take the extra steps required to certify that the arrangement was fair to the company;
did not disclose details of the arrangement in the interests register; and
have been unable to provide us with a signed copy of the contract for the work.

5.138
Because Delta gave this work to Mr Coburn without going to the market, it was important to meet the Companies Act requirements to ensure that the arrangement was appropriate and in the company's best interests and was disclosed in the interests register.

5.139
We did not see any advice from Delta staff about the need to meet these Companies Act requirements, but are surprised that experienced company directors omitted to meet them.

Consequences of breach

5.140
Where a company has not properly authorised a payment arrangement between the company and a director, the director to whom the payment was made is personally liable to the company for the amount of the payment except to the extent that they can prove that the payment was fair to the company at the time it was made.

5.141
The directors of Newtons who approved the arrangement are best placed to judge whether they are satisfied with Mr Coburn's services under it. There is nothing in the minutes or other records to suggest that they were not.

51: Mr Coburn is a director of Jack Tewa Foundation Appointer Limited, which appoints trustees to other entities that own infrastructure assets at Jacks Point. Mr Coburn was previously a director of Jacks Point Land Holdings Limited (from June 2004 to December 2006) and Jacks Point Land Limited (April 2006 to December 2008). Mr Coburn told us that those companies held the land for the lodge site and golf course respectively. These companies do not appear to be significant to this inquiry.

52: Jacks Point Equities Limited held shares in Jacks Point Limited from 6 September 2004 to 19 November 2010.

53: Mr Coburn told us that his family interests still own five vacant lots, that a residence has been built on one of the other lots, and that the other five lots have been sold.

54: The name change happened on 24 April 2012.

55: Mr Coburn has told us that he has no beneficial interest in the companies.

56: Delta's annual reports from 2006 to 2009 contain related-party disclosures noting that Mr Coburn was a director of Jacks Point Limited and the amount of payments from that company to Delta for contracting services.

57: We describe the Fulcrum concept in Part 3.

58: Delta's annual reports for 2007 and 2008 contain related-party disclosures noting that Mr Coburn was a director of Arith Holdings Limited and the amount of payments from that company to Delta for contracting services.

59: Because of his declared conflict, Mr Coburn would have withdrawn from the Luggate discussions.

60: We referred to this in Part 3 when describing the reasons for the Luggate investment.

61: These discussions were much like the Fulcrum concept that Delta and another partner had been pursuing with developers from 2004 as part of Delta's growth strategy.

62: After payment of any real estate agent selling fees and other expenses.

63: Delta borrowed $5 million from Dunedin City Treasury Limited to enable Newtons to meet this payment.

64: The final payment was made on 30 September 2010, being the balance of principal plus $41,841 in interest. Jacks Point Limited provided a vendor mortgage for the final payment.

65: This amount includes director's fees of $7,116. As noted in Figure 13, Delta included directors fees paid to Ruboc (for Mr Coburn) in the Delta group related-party figure in its 2012 annual report. It continued this practice in the 2013 annual report.

66: Minutes of the board meeting for 8 April 2009. The minutes record that Athol Stephens, Doug Jackson (Acting Governance Support Officer), and Jim Harland were in attendance for the item about Council and holding company matters.

67: Newtons had not met any of the accountability requirements when it was owned by Dunedin City Council, either. The company was inactive, so the Council could have exempted it from those requirements but had not done so.

68: The resignations took place in August and December 2008 respectively.

69: Section 145 of the Companies Act 1993.

70: Section 145(3) of the Companies Act 1993.

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