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Aucklanders' Legacy at Risk: Injuncting Councils

Three Auckland Councils - Manukau City, Auckland City and Papakura District Council - have today lodged an interim injunction with the High Court in Auckland to restrain immediate distribution (via the Auckland Energy Consumers Trust's dividend payout) of the capital portion of $107 million to electricity consumers connected to the Vector network. By seeking to injunct, they are hoping to defer distribution until clarification is provided by the Court as to the validity of and nature of the Trust's distribution.

"This is an interim injunction to protect a capital fund - not to stop payouts of income to customers. Income payouts should go ahead," says Mayor of Auckland Chris Fletcher.

"This is an issue about stewardship and what we ensure is left to our grandchildren. We're doing it because the integrity of a capital fund that is every Aucklander's heritage is at risk. A wrongful payout of capital would deprive all Aucklanders of a much needed fund for re-investment in infrastructure. Preservation of large lump capital sums is what Aucklanders have demanded and Auckland needs to ensure the proper, stable development of the city and security in our future.

"Councils are cohesive and determined on this point and we'll vigorously pursue every avenue to protect what rightfully belongs to future generations."

The Councils argue that some - if not all - of the proposed payout of $107 million to consumers could be proceeds from activities of a capital nature which occurred when the former Mercury Energy was restructured into a "lines" and "power" business. Around that time, money flowed to Vector from the sale of assets such as the retail customer base, electricity meters, interests in power generation stations and shares in Power New Zealand.



"It is not possible to see in the accounts of Vector what was received by the company from these sales. These transactions were not fully and openly disclosed," says Mayor Fletcher.

The Councils believe that the consumer Trust for Vector and the old Mercury Energy (the Auckland Energy Consumers Trust, which owns 100% of line company Vector's shares) may not be able to give away "capital" from asset sales under Section 64B of the Trustee Act (see attached).

"Parliament envisaged exactly this issue of distribution by Trusts of 'capital' versus 'income'," says Mayor of Papakura David Hawkins. "Recognising there was sometimes a problem in this area, they made provision for the Court to decide on the issue under Section 64B of the Trustee Act. It's a procedure that's prescribed in that Act."

To determine whether the $107 million is made up of "capital" or "income", the three Councils filed an action in the Auckland High Court. That action has yet to be heard.

"This was precisely what we're getting the Court to do - decide between 'capital' and 'income'. We need to know which part is 'the family silver'," says Mayor Fletcher.

As part of the action lodged, the Court received an undertaking from the consumer Trust not to distribute the $107 million until after 29 October. The Councils expected that the original proceedings would be concluded by that date.

"This has not been the case," says Mayor Fletcher. "Because proceedings had not concluded, we requested the Trustees to extend their undertaking. They have refused. A simple assurance that they would extend the Trust's current undertaking would have prevented this injunction. But they won't give us that. When this extension was not forthcoming, the councils needed to act fast to ensure clarification of the issue for Aucklanders - and so have injuncted. As stewards of much of the key infrastructure of Auckland, we cannot let this issue pass without determined action. Even so, neither the Court action nor the injunction prevents the Trust from distributing a dividend funded from income. The fact that they won't suggests there is an issue."

"Every year the consumer Trust has made a much welcome distribution to consumers. This has usually been by way of a credit on power bills. This year, the distribution is proposed as a cheque, and has been announced to be at least four times more than usual. Because the Trust has been so secretive, I can only assume the money's come from capital. It may have come from asset sales and transactions akin to 'the sale of the family silver'. If the family silver is to be sold, we want the money to stay on hand, intact."

"The Trust should not give away capital," says Mayor of Papakura, David Hawkins. "The Trust won't respond to our requests to clarify whether it is capital or income. When we asked them whether the distribution was made up of capital or income, they told us in writing our question was misconceived. The accounts of Vector don't make it clear, so we want to test the argument in Court - where it should rightfully be tested - because at stake is every Aucklander's right to sound investment in infrastructure. Those in Auckland well remember what can happen when infrastructure fails through lack of reinvestment."

Under the Auckland Energy Consumer Trust Deed (1993), the three injuncting Councils are the beneficiaries of the capital fund of the Trust.

"The real risk we're running is that, if the Trust has its way in 1999, there may be no large fund for reinvestment in the city available in the future. It'll have been distributed to individuals who happen to hold accounts with Vector at a certain date," says Mayor Fletcher.

"This issue is about Auckland Councils with responsibilities to fix up Auckland. We're determined not to make the mistakes of the past. This issue shows we've got to fight to make sure our city has strong services in the future. To be prudent, we need the Court to determine a ruling on a major issue for the city and to clear it up once and for all."

The Mayors have always been open to meet with the Trustees to try to resolve the differences. Mayor Sir Barry Curtis will endeavour to arrange a further meeting with the Trustees.

ends

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