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Tower policyholders have their say

A number of Tower policyholders tell the High Court in Wellington what they think of the company's demutualisation proposals.G

Tuesday, December 8th 1998, 12:00AM

by Philip Macalister

Tower Corporation finished presenting its proposed demutualisation plans to the High Court in Wellington yesterday and it may know by the end of the week whether it can present the plans to its policyholders.
Tower’s proposal to give shares to its non-participating policyholders is just like Mobil giving shares to people coming in to buy petrol, Tower policyholder Robin Bell says.
Bell was one of a handful of policyholders who aired their views on Tower's demutualisation in the High Court at Wellington.

Bell, a lawyer from Napier, has held Tower policies for 25 years and has both participating and non-participating policies with the organisation. However, he is against Tower’s plan to issue partly-paid shares to non-participating policyholders (which will water down the value of shares issued to Tower’s ‘parent members’), saying that these people were really the customers of Tower and the actual owners were participating policyholders.
"This issue is pivotal to the whole proposal," Bell said, "as it’s the manner in which the proposal seeks to reconcile the interests of participating policyholders on the one hand and policyholders of subsidiary companies on the other."
He argued that issuing partly-paid shares was in defiance of the Tower Corporation Act 1990 and cited various sections to support his point. However, while Justice Wild agreed that one particular provision in the Act referring to full payment for shares was indeed ‘a troubling one’, he went on to ask Bell whether he accepted that there was nothing in those sections to expressly preclude the issue of partly paid shares.
Justice Wild also asked Bell to consider the difference between Tower’s surplus funds and its economic value (the value placed on Tower by the market). "Do you accept that customers now and in the future to a substantial extent are responsible for the difference between the surplus and the economic value?"
However, Bell replied that, in his role as a non-participating policyholder, "I would argue that I have already received full value for those policies and shouldn’t expect any more."
Meanwhile, another policyholder took a different tack and argued that that his original contract with Tower had been breached, the demutualisation proposal should be amended to recognise that it contained contractual breaches and that there should be remedies set out for those breaches.
Maxwell John Shierlaw, a Lower Hutt chartered accountant, said he had held a Tower superannuation contract since 1989 and one of the major selling points at the time had been Tower’s mutual status. However, he said the demutualisation would reduce the value accruing to policyholders and this affected him as his funds were effectively locked into Tower through the terms of his superannuation scheme.
Shierlaw wanted the option for policyholders such as himself to be able to withdraw the balance of their funds without penalty.
"Had I been advised in any way that there was the remotest possibility that Tower would be demutualised, I would never have taken out that policy - and I still hold that view today."
Shierlaw said the fact that the Tower Corporation Act 1990 allowed for demutualisation didn’t alter the fact that the contract taken out the year before between him and Tower had been breached. However, Justice Wild suggested that Tower could argue it would be to Shierlaw’s advantage to continue with them in the dual capacity of policyholder and shareholder.
Submissions of the plan finished yesterday and a decision may be made before the end of the week.
The proposals in a nutshell
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