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The Pamphlet Collection of Sir Robert Stout: Volume 74

Mr Ramsay's Evidence

Mr Ramsay's Evidence.

Keith Ramsay was then called, and stated in reply to Mr Haggitt that the question of the rise in the price of oats since the agreement was entered into with Mr Reid and Mr Smith had been threshed out on several occasions by the liquidators. He was satisfied that notwithstanding the rise in the price of oats that they were getting a good bargain. He would not wish to withdraw from the bargain. If oats had fallen, he would not think it honourable if the purchasers had backed out of their agreement. He thought that the cost of liquidation would be £10,000. The interest item alone would be 6 per cent.

Mr Young asked how Mr Ramsay estimated the expenses of the liquidation to be £10,000?

Witness replied that he based his estimate on 10 per cent, on the amount liquidated.

Mr Young: On the assets ?

Witness : Yes, on the assets.

You could get in a lot of these debts in the shape of oats within a week or two ?—Yes; we could get in a considerable sum in a few weeks.

In reply to further questions, Witness said that most of the stock had been in hand for years. He thought it could be realised in six months. Then there were some properties to realise, and he fancied that it would take over two years to complete the liquidation.

Mr Young : Why will it take so long?

Witness: The indebtedness has been running on for four or five or six seasons, and if farmers are hurried up they would be forced into liquidation themselves.

Mr Vigors said, in reply to Mr Haggitt, that the liquidators had considered the question of the rise in the price of oats, and he considered it was a good thing to sell.

Mr Ward gave it as his opinion that the rise in oats was entirely attributable to the fact that there were no large speculators this year, and farmers were holding themselves. It was an inevitable result, if they had to sell, that oats would come down.

Mr Young then put in the following affidavit by Mr Braund.

"I, Victor Maurice Braund, of the City of Wellington, accountant, make oath and say:

"1. That the J G. Ward Farmers' Association of New Zealand was formed in November 1892 for the purpose of acquiring the goodwill of certain businesses carried on by the Hon. J. G. Ward.

"2. That in consideration of the sale of the said businesses the said Hon. J. G. Ward was allotted 3000 fully paid-up shares of £5 each in the said association.

"3. That I have carefully analysed and compared the balance sheets of the J. G. Ward Farmers' Association issued by them for the periods ending 30th June 1893. 30th June l894 and 30th June 1895, and have taken extracts therefrom.

"4. That the extracts annexed hereto and marked 'A,' 'B,' 'C,' 'D, 'E,' and "F," are correct extracts from such balance sheets and reports.

"5. The nominal capital of the association was originally £100,000, divided into 20,000 shares of £5 each. Of these 3000 were fully paid up. During the period ending 30th June 1893, 5000 of the balance of such share was subscribed for, upon which £1 per share was called up. The paid-up capital for that period, exclusive of the £15,000 paid for goodwill, was £5276 At the close of the next year (30th June 1894) 18,665 shares had been subscribed, and the paid-up capital, exclusive of the £15,000, was £12,189. At the close of the next year (29th June 1895) 12,230 shares had been subscribed, and the paid-up capital, exclusive of the £15,000, was £12,450, leaving 4939 shares unsubscribed. During the last-mentioned year the nominal capital was increased page 25 to £250,000 by the creation of 30,000 new shares, also £5 each, although the increase in the subscribed capital was only £846, still leaving 4719 shares of the original issue unsubscribed, and in that year the association issued debentures to the amount of £40,000, which I am informed and verily believe were underwritten and are now held by the Bank of New Zealand.

"6. That exhibits 'A' and 'B' show a comparison of the details of the liabilities and assets of the association, taken from the said balance sheets. Exhibits 'C' and 'D' show the details of the profit and loss accounts taken from the same.

"7. Exhibit 'E' shows the apportionment of the alleged profits for those years, and exhibit 'E' is a statement showing a percentage of the gross profits and percentage of the working expenses in relation to the total assets in the said balance sheets.

"8 That exhibit 'A' shows that in the balance sheet of the 29th June 1895 there are no items corresponding with the items 'Drafts against shipments' and 'Bills under discount,' appearing in the two previous balance sheets and in the last one at £51,645 9s 11d and £35,917 1s 10d respectively. That it is highly improbable that such items did not exist, and if they did exist it follows as a principle of accountancy that the amounts must have been deducted from items of the assets. That such a course would be misleading and most irregular and improper, and would amount to a falsification of the balance sheet, inasmuch as the omission to show such items amongst the liabilities on the debit side of the balance sheet would signify a concealment of a contingent liability of the association.

"9. That this inference is supported by a comparison of the total assets shown in the balance sheets ending 30th June 1894 and 29th June 1895 at £166,846 16s 4d and £87,255 19s 61 respectively, indicating an apparent falling off of nearly 50 per cent, in volume of business for the year 1895; whilst reference to exhibit 'B' will show that the gross profits were £14,067 and £12,372, equal to 8½ and 14 per cent. of the total assets respectively. This increased profit is inconsistent with the reports of the directors annexed to the balance sheets of 1894 (which stated : 'A steady increase in the value of business has taken place'), the report of 1895 (which stated : 'The year just closed has been one of general depression. The depression has been felt by the association'), and is also consistent with the reduction of the dividend and bonuses paid to shareholders and others or such year.

"10. Exhibit 'A' shows that the direct indebtedness of the said association to the Colonial Bank of New Zealand in 1893 was £26.278 0s 7d, in 1894 was £26.584 8s 10d, and on the 29th June 1895 was only £1185 4s 1d.

"11. That I am informed and believe that the figures £1185 4s 1d did not represent the true direct indebtedness on that date, but that the said indebtedness was £26,185 4s 1d, and that a draft for £25,000 was negotiated on or about the 30th day of June 1895 by the Colonial Bank and placed to the credit of the currency account of the said association, and also that the said draft was never remitted, but was cancelled and the transaction written back after the balance was struck; and this information is supported by the figures of the balance sheets, which show a reduction in the direct indebtedness of about £25,000 at the close of the year 1895 as compared with both the previous years.

"12. That exhibit 'B' shows that dividends and bonuses have been paid at high rates for the said three periods, but the item representing goodwill (£15,000) has only been reduced by £2000 written off in the last year. That it is usual and proper to write off goodwill altogether out of profits within about five years, or sooner if profits will admit.

"13. That during the three years the dividends receivable by the said J. G. Ward at the rates declared would amount in 1893 to £1500, in 1894 to £1500, and in 1895 to £1050, besides which the said J G. Ward was employed as managing director.

"14. That in the report of the 29th June 1895 the directors allege that due provision has been made for bad debts; that profits were good, admitting of allocations to goodwill account and payment of substantial dividends and bonuses, and the directors recommended the unissued portion of the debentures of the association 'to their shareholders and clients as offering a first-class investment.'

"15. That the balance sheet of the 29th of June 1895 shows the association to be in a flourishing condition and their auditors' certificate vouches that it is 'fully and fairly drawn up and properly exhibits a true and correct statement of the affairs of the association.'

"16. That I am aware that at the time that this balance sheet was prepared negotiations were pending for the purchase by the Bank of New Zealand of the business of the Colonial Bank of New Zealand, and I am further informed and believe that Mr W. B. Vigers, one of the liquidators of the said bank, and late inspector of the said bank, assisted in the preparation of the said balance sheet and was cognisant of the whole surroundings.

"17. That the said Hon. J. G. Ward, as Colonial Treasurer, was in charge of the bill which passed both Houses of Parliament authorising the purchase of the business of the Colonial Bank of New Zealand by the Bank of New Zealand.

"18. That a term of the purchase was that £55,000 should be written off a list known as the 'C' list.

"19. That it has been publicly stated without denial that the 'C' list contained the accounts of the said association, and the said sum was written off such accounts, whereby its liabilities to the said bank has already been reduced by £55,000.

"20. That I am an equitable shareholder in the said bank, and I am of opinion that there are many matters in connection with the con- page 26 duct of the business and the balance sheets of the said association which require a searching investigation, and that no advantage can possibly be gained by the shareholders of the Colonial Bank by a compromise which obviates the winding-up of the said association in a regular manner."

Profit and Loss Account. Dr.
1893. 1894. 1895.
Salaries and wages £2033 14 11 £5329 3 8 £4886 18 5
Advertising, books, &c. 264 14 7 623 0 0 559 10 11
Rent and expenses 1026 13 4 2284 3 3 2446 11 5
Preliminary expenses 154 17 3
Interest 134 5 2
Directors & auditors 118 6 0 185 5 4 263 7 8
Profit to 30th June 1895 4414 19 1
Bal. profit and loss 7777 19 8 6516 17 3
Profit and Loss Account Cr.
1893. 1894. 1895.
7 Mos.
Profit on m'chn'dise £2566 19 9 £5916 15 3 £5541 8 8
Agencies 2716 3 1
Commission & storage 2639 7 6 7379 9 1 6217 15 0
Discounts &c 214 0 0 771 9 0 613 10 5
Profit & loss account 4414 19 1 7777 19 8
From which has been deducted :
R'serve fund 1000 0 0 1000 0 0
Dividends & bonuses 1583 0 6 5219 4 7
Goodwill—U.F.A Co. 1278 3 6

Dividend Refund Bonus on Bonus on eg on of Purchase Salaries & Puid-up Charges of Merchandise and Capital. on Sales. Wages. 18P3 10% 20% 21% 5% 1894 10% 25% 21% 5% 1895 7% 10% 3 % 3% 1 Year. Total Profits. Gross Profits. Percentage Per Annum. Percentage of Working Expenses to Assets. 1893 £ 67,220 £ 8,156 (7 months) 16% 7½% 1894 166,846 14,067 8½% 5 % 1895 87,255 12,372 14% 9½% 1893 1894 1895 Margin of profit percentage over expenses percentage Margin of profit. say 9% 3½% say 5%

The following are the details referred to in the affidavit:—

Advances against produc* Hills receivable ... Current accounts ... Book debts...... Stocks of goods ... Plant, Ac....... Goodwill account ... Goodwill paid (United Farm Agency) ... Shares in S. yard ... Cash in hand 1893. £74,929 17 4 £49,502 17 2 13,002 3 7 5,348 6 2 17,08R 5 7 1,678 10 1 37,477 5 11 10,372 5 0 25,665 4 2 2,042 3 9 15,000 0 0 1,278 2 6 46 12 6 35 4 11 1893. 1894. 1895. Capital (nominal) ... £00,000 0 0 £100,000 0 0 £250,000 0 0 Subscribed 40,450 0 0 75,305 0 76,150 0 0 Paid-up (excluding £15,000) 5,276 10 0 12,189 0 0 18,450 10 0 Vendors' fully paid shares... 15,000 0 0 15,000 0 0 15.000 0 0 Drafts against shhipment* Bills under discount 34296 0 1 51.643 9 11 Nil. 12,859 16 0 33,917 1 10 JW. Debentures 40,000 0 0 Curreut accounts ... 4.251 12 7 9,094 17 5 10,103 8 2 Sundry creditors 1,562 8 3 Deposits Colonial Bank of N.Z. 300 0 0 26,278 6 7 Bank account 26,584 8 10 1,185 4 1 Drafts accepted 9,636 2 2 Reserve fuod 1,000 0 0 2,000 0 0 Unclaimed dividends 3 16 6 Profit and loss 4,414 19 1 7,777 19 8 6,516 17 3 1894. 1895. 34,450 9 9 6,830 7 5 10,456 17 0 17,840 2 8 2,638 5 2 15,000 0 0 47 17 6

page 27

Mr Young addressed the court, citing numerous authorities to show the principles laid down as applicable to the determination of such matters as that before the court. He should, he said, rely upon these authorities in contending that there were circumstances surrounding this matter, which he would go into when the court again sat, which would justify his Honor in withholding his sanction to the scheme proposed, which there could be no was then an attempt at compromise.

The following affidavit by Mr Braund was then read by Mr Young:—
"I, Victor Maurice Braund, of the City of Wellington, accountant, make oath and say :
1.That I have perused a copy of the affidavit of William Richard Cook, sworn and field herein, and the balance sheet thereto attached.
2.That I have made a hurried analysis thereof, and the same is attached hereto and marked 'A.'
3.That I believe that such analysis contains a true account of the position of affairs as shown in the said balance sheet.
4.That as a result of such analysis it appears that in consideration of Messrs Reid and Smith's promise to pay £62,750 the agreement proposes to release the association from the indeficiency of £48,456 16s 4d, in addition to the sum of £55,000 now admitted to have already been written off, and the debtor (the Hon. J. G. Ward) from his liability, upon guarantees and otherwise, of £87,490, and also to release the Hokonui Railway and Coal Company and Messrs Thompson and Hayes and Dr Hanan's estate from their respective liabilities of £4900.
5.That in view of the position disclosed by the said balance sheet, I see no pecuniary advantage, apart from all other considerations, in the proposed sale, but I am of opinion that, upon the facts disclosed alone, the interests of the shareholders of the said bank would be better served if the said association, the said Hokonui Railway and Coal Company were liquidated in the usual manner, and the liquidators were to exhaust their remedy against the said J. G. Ward and other debtors or guarantors."
Analysis of Balance Sheet of March 20, 1896.
[unclear: Debt] to bank £92,179 9 2
[unclear: Debt] sundry creditors 20,617 18 0
£112,797 7 2
Assets (per contra) £64,340 10 10
Deficiency 48,456 16 4
£112,797 7 2
[unclear: Colonial] Bank's proportion of deficiency, say £40,000 0 0
Sundry creditors' deficiency 8,466 0 0
£48,466 0 0
[unclear: Debt] to bank as above £92,179 9 2
Less proportion of deficiency as above 40,000 0 0
£52,179 9 2
Bank's proportion of uncalled capital, say 6,765 0 0
£58,944 9 2
Consideration for purchase 62,750 0 0
£3,805 10 10
Against which the bank will sell to Smith and Reid Ward's guarantee for £87,490, which he can meet up to 4,250 0 0
Leaving a balance in favour of Messrs Smith and Reid, on their own showing, of £444 9 2

At 5.15 p.m. the court was adjourned until 11 o'clock this (Saturday) morning.

The case was continued on Saturday morning.