The $228 million collapse of the King Bros bus company is unfolding as an HIH-style saga of greed, incompetence and toothless watchdogs. Audit time was party-time at King Bros. When the company’s mid-year financial returns were due to be checked last winter returns which allegedly contained more than $200 million in false entries the company did not turn to one of Sydney’s well-known auditors.
Instead, the company’s accountant, Vincent Evans, told the Supreme Court the other day, it went looking for an old Kempsey pal of Evans’s named David Pitt and tracked him down in sunny Fiji where he was working for Air Pacific, Fiji’s international airline.
By this stage, the bus company the largest in regional NSW, with a virtual monopoly on the coastal strip from Newcastle to Yamba was in the direst financial trouble. Tony King who, with his twin brother Peter owned the company was “in a black mood”.
King Bros was allegedly carrying $165 million of loans from directors on its books which had never been made; half its fleet of 600 buses were allegedly phantoms with false particulars created to defraud lenders; millions of dollars in company funds were allegedly siphoned off to pay for properties, a yacht, a plane, jewellery and a luxurious lifestyle for the King brothers.
Evans appeared in the Supreme Court without a lawyer and declined three times to preface his answers with the word “privilege” to protect himself from self-incrimination a tactic used by every other witness.
Yes, Evans told Jeremy Stoljar, the barrister for the company’s largest creditor, the National Australia Bank, he knew the directors’ loans did not exist because Tony King had confessed to him in May last year that the transaction was a sham.
Stoljar: A very large asset of the company had, in effect, vanished?
Evans: That’s correct.
Stoljar: As of that point the group looked like it was insolvent?
Between January 10, when he produced a draft annual return, and January 17, when he produced the final report, Evans said he added more than $200 million to the group’s assets, without sighting any documentation and claimed he did this purely on the say-so of Tony King, so that the accounts complied with the NAB’s lending protocols.
So the last line of defence was the auditor. Jaws dropped when Evans described how the King Bros accounts for 2002 were audited.
Tony and Peter King decided it was time for a holiday. So they whistled up the $1.8 million Cessna Citation jet they had bought not long before, loaded their wives and children on board, and along with Evans, took off for Nadi in Fiji.
They took over suites in the luxurious beachfront Sheraton Fiji Resort Hotel and installed David Pitt with the paperwork in a room up the corridor. There he laboured away for a couple of days with Evans assisting and Tony King popping in from time to time to make sure everything was OK before signing the accounts as true and correct.
The party then returned to Australia, and King Bros was allowed to lurch on for another nine months before it finally collapsed and died last April when the receivers were called in. Total debts had by then snowballed to $228 million, with the NAB ($147 million) and Toyota Finance ($62 million) which had both done sale-and-leaseback deals on buses the biggest creditors.
“It was so crude, it is embarrassing,” says a source familiar with the finances of the company. It is alleged that someone at King Bros simply made up the identifying numbers for buses, along with chassis numbers and VINs (vehicle identification numbers).
Tony King, 41, replies that it wasn’t him or “I can’t recall” (he has used this phrase more than 200 times during evidence), when asked about these and other serious allegations. Unlike Evans, he has prefaced his answers with “privilege”. Tony and Peter King are due to appear in court on fraud charges on July 22.
The details were then sent to an executive named Ross Warne at Daimler/Chrysler the buses were all supposed to be top-of-the-range Mercedes worth about $300,000 each where they were retyped on Daimler/Chrysler letterhead. Warne admitted in evidence his part in this, but said he had no idea the intent of the arrangement was fraud.
An invoice was then provided to the National Australia Bank as proof that the buses had been bought, and tens of millions more dollars rolled in. In one transaction alone, towards the end of 2000, 187 buses passed onto the books of the bus company.
Amazingly, no one went out and counted the buses. One man from Esanda named Feiffer did arrive in Port Macquarie one day to eyeball the buses, which resulted in Tony King “ranting and raving” and transferring his business to the NAB “whose covenants were not so tough”, according to witnesses.
Of course, Evans was not the only one who was aware for more than a year that things were seriously amiss.
Steven Hilliar, at one stage the company’s chief financial officer, gave evidence of a 10-hour meeting which finished at 3 o’clock one morning during which he said Tony King told him that the multimillion-dollar directors’ loans to the company did not exist. A few weeks later, he had asked King directly “Do the NAB have any buses?” and King had said, “No.” Hilliar then went on holiday.
Andrew Walmsley, the company’s long-serving lawyer and for a three-month period from April 2002, its chief executive also soon found out things were seriously amiss. He told the liquidator’s examination that it began with an Australian Tax Office investigation, escalated with the discovery of phantom buses and directors’ loans, and peaked when he found Hilliar falsifying the books on King’s instructions. Walmsley resigned rather than take part in what he recorded in his diary as “a potential fraud situation and other offences …” He left the company in July, with a $300,000 golden handshake.
Asked by Stoljar why he had not gone to the authorities, Walmsley said, “My duties lay with the directors [the King brothers] and they were the people I had to report to.” He said that he feared that if he had gone to the police “they would have a go at me for breach of confidentiality”.
And then, of course, there was the NSW Government, which provided 90 per cent of the firm’s revenue through the school-bus subsidy scheme, and which was supposed to be regulating the industry. Time and again, the Department of Transport was warned by the Bus and Coach Association that the King Bros business was “not sustainable and not legitimate”.
Not only did the department accept the Kings’ reassurances, they lectured the association’s chief executive, Darryl Mellish, that King Bros was setting an example the rest of the industry should emulate. The department now has a new minister, a new chief executive, and other new faces at the top.
THE juciest evidence has been of the extravagances to which the Kings treated themselves. Among the junkets was a trip to Europe to inspect buses on which they took the NAB’s local business banking executive, Barry Bird, a trip which Bird told the Herald had the approval of his superiors.
The properties, the penthouses, the 18-metre yacht Lady Suzanne, the Cessna Citation, the jewellery (including $1 million diamond rings and a diamond-studded tennis bracelet); nothing was too good for the Kings. From evidence during the hearing, about $20 million may have been taken from the company to pay for the “toys” more by Tony, whose tastes were said to be Gucci, than brother Peter who looked after the fleet and was more of a Kmart man.
They moved the 80-year-old company’s headquarters from Kempsey to the more congenial Port Macquarie, rented grand premises, and installed an executive chef to cater for daily long, boozy lunches at which bankers, bus company executives and local dignitaries were schmoozed.
A dozen executives were hired on salaries ranging from $100,000 to $300,000 a year five of them were given $250,000 Mercedes cars.
For a while Port Macquarie and district had the best bus service in Australia gleaming new air-conditioned Mercedes zooming around nearly empty night and day every half an hour. It would not have been possible without a massive subsidy from the NAB.
The receiver is now finalising bids to take over the service and within a month a new owner is expected to move in. The 400 staff, many part-time drivers whose superannuation requirements were not paid by King Bros, fear more lay-offs on top of the 40 or so “head office” staff who have been thrown onto the already-tight Port Macquarie job market.
The 70-odd other creditors will be relying on the liquidator, David Leigh, chasing down some interesting potential assets, ranging from suspect transfers of money out of the company, to professional indemnity insurance which did not cover the Kings, but may cover some of the professionals they had on board when the ship went down.
Pub: Sydney Morning Herald
Pub date: Saturday 12 July 2003
Section: News And Features
Sub section: News Review
Word count: 1557
Classification: Company/King Bros Bus Group Crime/Fraud Company/National Australia Bank Ltd
Photos: Dallas Kilponen, Peter Gleeson
Caption: Fantasy inc …
1. Tony and Peter King
2. The company’s real buses
3. One of the brothers’ extravagances, a Cessna Citation jet.