Water Wheel directors 'blind'

Directors of Water Wheel Holdings were "flying blind" before the stockfeed and grain company collapsed, with only "very cursory and simplistic" accounts provided to the board for much of 1999, the Victorian Supreme Court heard yesterday.

Creditors were "screaming" for payment by October 1999, and more than 15 suppliers had refused to deal unless the group paid cash on delivery.

Yet some time in 1999, Water Wheel took more than $1.6 million of wheat and paddy rice from storage facilities operated by the New South Wales Grains Board and Derrick & Son. It did not tell the suppliers or pay for the goods, the court heard.

Water Wheel's action was only discovered in December 1999 when the grains board, frustrated by Water Wheel's failure to pay overdue debts, made a stocktake of the grain board's wheat holdings at Bridgewater. It found its silos empty.

The court heard that one week later Water Wheel financial officer David Wilson revealed that $866,000 of rice was taken from Derrick & Son's storage facilities at Mitiamo some time before August 1999.

The Australian Securities and Investments Commission is prosecuting a civil action against Water Wheel directors John Elliott, Bernard Plymin and William Harrison, alleging they allowed Water Wheel to trade when it was insolvent.

ASIC wants them fined, banned from managing companies, and ordered to pay compensation to creditors.

Justice Philip Mandie yesterday threw out an application by Mr Plymin to delay the trial.

Separately, he told Michael Wyles, for Mr Elliott, that he would not hear his application to stop the trial until he quit a similar action in the Federal Court. Mr Wyles claims ASIC abused its power by holding mandatory investigations for a civil trial.

In his opening address yesterday, Neil Young, QC, for ASIC, outlined repeated efforts by the grains board to get Water Wheel to pay at least $3 million, much of this due since January 1999.

Payment schedules were agreed, trading limits set, and the company was put on a cash-on-delivery basis. But still Water Wheel failed to pay.

The court heard that during a meeting on November 3, Mr Elliott told Peter Jeffries, a senior manager at the grains board: "Don't worry, you will get 100 per cent of your money."

Mr Young said Water Wheel directors made presentations to suppliers that suggested Geoffrey Hughes Exports, a customer, had agreed to provide a $3.3 million letter of credit to pay suppliers. But Geoffrey Hughes employees will testify that no such agreement was made; the idea was raised and dismissed.

The court heard Ken Gallagher, a farmer from Maldon in central Victoria, stormed into Water Wheel's office in Bridgewater in November 1999 and refused to leave until he received a cheque for supplying grain. He waited three hours.

Telstra barred all long-distance calls from Water Wheel's offices on November 30 because bills were not paid.

The court viewed a letter from the grains board that sought personal guarantees from directors of up to $500,000 each. In the margin, a handwritten note, believed to be scrawled by Water Wheel director Kenneth Carnie, read "NOT me".