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The Pamphlet Collection of Sir Robert Stout: Volume 75

Second Day—friday, July 10

page 20

Second Day—friday, July 10.

The case was resumed on Friday morning.

Mr Solomon handed in the lists of drafts promised on the previous night, these being the drafts referred to by him and proposed to be inquired into. He supposed that the otherside would require some little time to inquire into them, and would not be prepared to go into them now.

Mr Chapman said that they did not know anything about these drafts. Were they included in those specifically mentioned in the liquidator's report?

Mr Solomon did not know whether they were or were not; he had not looked into then himself. He proposed to deal with each of these drafts, and to include them under one of the three heads to which be had referred last night. He bad prepared a list of the drafts so clarified, and would be glad to show it to Mr Chapman.

Mr Chapman: Are they in their classified Order?

Mr Solomon: No. The three classes of draft he proposed to deal with were these: Class A were cases where the association, expecting to be able to draw on the bank or firm, had anticipated that drawing by drawing on the Monday (the bank's balancing day), not expecting that draft to be used at all, and then got that bill retired and substituted by the proper bill later on. Class B were those cases in which agents having reported to the head office sales of goods, instead of waiting till the goods were shipped and drawing Against shipping documents in the ordinary way, direct to the customers, the association had immediately drawn on the agent for an approximate amount, not intending to use that draft at all, and had subsequently withdrawn the draft, and drawn on the customers in the proper way. The third class of cases ("C") were those in which tie association had drawn upon persons apparently without any authority whatever, never intending that the draft should be used, and retiring it before it was presented. (The learned counsel then read a list of the items, some 20, of which explanation were required, specifying the glasses in which they were deemed to be, and intimated that any assistance that was necessary would be given by the official liquidator, all books and documents being in court) Mr Solomon (continuing) said: There is one other question I propose to put to Mr Ward. I quite see that it might be unfair to put it now, but I wish to give notice so that you may prepare an answer for it. The question is this; When at the date of the 1895 balance sheet Mr Ward was indebted to the Farmers' Association in the sum of £55,000, during the three years that that association bad been in existence he paid into it by way of salary and other emoluments a sum which we make out to be £12,000. so that in these two and a-half or three years he either lost or spent £67,000, We cannot make out where it has gone to, and we want Mr Ward to explain it. We can only account for £43,000 cut of the £67,000, and want Mr Ward to explain to us what has become of page 21 that money. Of course, It would be unfair to expect an answer without careful consideration,

Mr Chapman asked if he understood that his friend was now going to examine the witness as to the drafts mentioned by the liquidator in his report.

Mr Solomon replied that it was his Intention to examine only on the list of drafts supplied by him that morning, but if Mr Chapman wished him to examine on those mentioned in the report as well, to give Mr Ward an opportunity of explaining, he would do so with pleasure. Referring to Mr Birch's letter of the 20th June, counsel said he wished witness to explain this sentence "The Ward Farmers' balance on the 30th, and Mr Ward proposes drawing his cheque for £40,000 on that day, and lending the amount to the Farmers' Association." Could witness say whether Mr Birch was aware that witness owed the Farmers' association that amount of money and more at that date, or whether he thought that this transition was a loan by witness and not a reduction of his account?—Witness said, in answer to the first question, that he was not aware of what Mr Birch know. In reply to the second, he said he had no communication with Mr Birch on the matter.

Joseph George Ward, who had given evidence on the previous day, further examined, said: As managing director he was not often brought into contact with Mr Birch He saw him very little indeed. The bank knew that he had an account with the association, So far as witness knew it was not a fact that throughout the whole existence of the Farmers' Association the amount of its indebtedness to the bank was concealed from the public and the shareholders, They were made aware of the state of the indebtedness by the balance sheet.

Mr Solomon: Does the real state of the overdraft at any time appear in any balance sheet?—It depends entirely on the way in which the payment before balance is regarded.

But do you contend, if you owe the Colonial Bank on the 28th June the sum of £47,000, and you know that you will owe it on the 2nd July the same £47,000, and the balance sheet is manipulated in the meantime, that the balance sheet truly states the overdraft as £21,000?—If an amount was due after the balance, and if it was paid off with the knowledge of the bank, and if it is a proper payment, then it must be correct.

Mr Solomon asked whether there was anything of any sort published in connection with this company by which the shareholders or the public could know that, with the exception of those couple of days in 1894 and 1895, the overdraft was what it was?

Witness replied that it was similar to what was done with other companies under similar conditions.

Mr Sulomon said that that reply did not meet his question, and he must ask for an answer.

His Honor: Other companies have nothing whatever to do with it. You should answer Mr Solomon's question.

Mr Solomon: I ask if anything was published in connection with this company at any time during its existence from which the shareholders or the public could gather that with the exception of a couple of days in 1894 and 1895—indeed, in 1893 and 1894—the overdraft to the bank was what it wan?

Witness: There was nothing but the balance sheet and the report.

And that did not show it?—It showed the position as I have indicated.

But it did not show the position of the overdraft, with the exception of a couple of days?—That is so.

His Honor: It did not show the true relation with the bank.

Mr Solomon: That is so. (To witness) Did the directors know the true condition of your account with the bank?

Witness; I answered that yesterday.

Well, please answer to-day?—I must gift you the same answer as yesterday.

What is it?—I have no knowledge whether they did or not.

Further examined, witness said that le signed the balance sheets as correct, He approval was the last thing done in connection with each balance sheet.

Mr Solomon called witness's attention to the item in the bank account representing £26,514 to be the balance of the overdraft of the 30th June, 1894, and counsel asked whether Mr Ward personally placed anything before the directors to lead them to believe before that balance sheet was passed that that item was anything except the ordinary overdraft to the bank.

Witness said that he was not in Invercargill from the 18th June to the 29th October, so that in the interval he could not have seen the directors. He did not remember instructing anyone to tell them, and he did not tell then when he went to Invercargill, hut he subjected to Mr Solomon's imputation that he concealed the information in his breast. His colleagues on the board could have got the information.

Mr Solomon: Who from?

Witness: The officials of the association.

Who besides yourself and Mr Fisher knew of it? Did the secretary know?—I could not say.

You say it could have been got from the officers of the association. Who are the officers? There is the manager, and the secretary, and the directors. Are there any others?—Those are the head officials.

So that if the directors ever wanted knowledge they must have got it from you or the secretary?—My answer is that the directors could have had the fullest knowledge If they had inquired or if it was thought they required detailed information. As a matter of fact details are furnished when the balance sheet is made up.

Witness further said that he did not withheld information from the directors. So far as he was concerned the matter was just this: that there was a payment of £21,000 to pay off hit account before the balance, and that information was available to anybody so far as he was concerned.

Mr Solomon: The question I asked is, Can you tell me one individual to whom you told this?—I have no knowledge of telling this to anyone.

Witness (continuing) said he had no knowledge of haring told thin to anyone. He repeated that so far as he knew throughout the existence of the Ward Farmers' Association there had been no system for the purpose or concealing the true state of affairs from the shareholders and from the public.

Mr Solomon:One question arises out of yesterday's examination. I called your attention to the fact that £18,000 bad been taken out of Brook's account to be paid to your credit, and £6000 from Connell's account to be paid to your credit on the balancing day in 1895. Did you know those entries were redebited immediately after balance?—1 did not know.

Do you know now?—I know from what has been reported. That is one question on which the officers concerned should be asked; I do not know anything about it.

Continuing, witness said that in 1893 a J. G. Ward grain account was opened, which represented transactions in grain by the association. The instruction a were that the association were to enter on no speculations which would involve a loss. It was true that all profits were to go to the association and all losses were to be he me by himself. His recollection of the matter was that the directors clearly understood the position of affairs, although there may not be any reference to it in the minutes, On the balance day the grain account showed a debit of £6617, and that sum was paid by him (witness). He did not know at this time that he was a were then of this debit in the grain account. He could not tell whether he had taken upon his own shoulders an; other losses in connection with the grain account. He did not know of any other losses, hut if he had been told of them at the time he certainly would know.

Mr Solomon: Do you know how many losses you took over?

Witness: I know there was a debit of £55,000 standing to me.

You cannot tell me whether any other losses in grain were debited to you I have already answered that.

When you took those losses over in the year 1895 and they were debited to your account?—I cannot tell that. Whatever was drawn was shown in the books.

Give me an answer?—On June 29, 1894, an amount of £6997 7s 7d to grain account appears here (referring to ledger) as transferred to produce account, folio 161. I see under the head of "J. G. Ward grain account" there is a transfer someone has filled in there: "Produce account, 161," in lead pencil. I do not think that produce account is an entry made by the Ward Farmers' Association at all.

Do you really think that is not carried forward to produce account?—If the item is than I shall be glad to refer to it.

In the balance sheet of 1894 that account would stand to your debit; the J. G. Ward grain account is debited to that extent?—No; that is not so. In the book on June 29, 1894, the amount is £6997 7s 7d.

What was your position in June, 1894—that is, 1895?—There was a balance of £6617 6s 1d.

That is a debit balance?—Yes.

Show me the produce account for 1895 I want to draw your attention to the evident given before the court before. Speaking of the account, Mr Young asked you: "What position did you take up with regard to that account and with regard to shipments? "In reply to that you said: "I took over the looses. I was advised to do this, and I agreed to take over the losses." How can it be, if those losses are yours originally, that in 1895 you took them over, that you were advised to do so, and agreed to do it?—I cannot specifically deal with the actual words you read, but I undertook to provide for those losses.

How do you explain that?—I cannot explain printed reports. . . . So far as I understand the losses would be debited by me, and this amount of £7000 was charged to me and paid for by me.

Show me this item carried forward—"Produce account" (referring to the account as stated in the books). If this was provided for, will you explain to me how it is carried forward to the association account, and not to your own account?—I say I paid that account. It is perfectly useless to ask me about details in the books. I say I paid that account.

If that was your debt to the association was it a proper thing to include it in that account?—I cannot tell you that, All 1 know is that I paid it.

That item is the association's account, is it not?—It is entered so in the general journal so far as I can see.

I ask you to turn to that produce account That was the account of the association's dealings in grain, was it not?—Yes; I understand so.

An account with which you personally had nothing to do?—That is so, so far as I know.

In reply to further questions, witness said he could not explain how it was that the losses were carried forward to the association account and not to his own account. He, however, paid the account. He could not tell whether on the debit side of the produce account appeared the stock purchased for that account by the association. It depended altogether on what the produce account was. He can is only give an opinion, and so far as he was concerned he was there to give facts. Those responsible for keeping the books must give the information desired. It was not the fact that the Bluff store account from 1894 to 1895 showed outgoings £1309 18s 3d, and earning only 10s 8d. That was quite absurd The debit of wages was transferred to some other account, but he could net tell what. Again he said that those responsible for keeping the books must give the details; he could not do so, According to the books now shown it appeared that the expenditure on the Bluff store account that year was £1309 18s 3d, and the receipts 10s 8d, but he knew that that was not so. It was not the fact that there had been a loss on that store account that year. The detailed explanations of the items must be given by those responsible for the bookkeeping. As to the £6217 15s, he was virtually asked to giro answers respecting an account which must be carried forward and focussed somewhere else.

Mr Solomon: Cannot you see that the result of carrying that £1000 from the debit of the produce account towards that account, makes it appear an if there were assets in the year to the extent of £1000, whereas there were no assets?—I should not say that, but I should say at once that that is probably the worst possible construction that could be put upon it.

What is the meaning of carrying that sum of £1000 out of that account to the debit of profit and loss?—My reply is that the information must be given by those who kept the books, Everybody who knows anything of bookkeeping most recognise that there may be an account under a particular head of a Ledger which requires to be divided up and charged or credited to other accounts, and it is only those who are responsible for the details who know what account is fairly and equitably entitled to its respective amount. You are picking out an item in a particular account of which I know nothing, and then you ask me if a certain thing should not have been done?

Witness continued; Whether or not the result of the entry would be to swell the assets would depend entirely upon whether or not it was the proper thing to distribute the £1000 in the way the accountants had done, and that was information be could not give. The £1500 debited to Mr Ward in balance 1st of July, 1895 as rent, appeared in the book produced as reversed. He did not remember anything about it.

Mr Solomon: Does not that mean that you were entitled to receive from the association [unclear: y]way of tent and salary a sum of money with which you had previously been credited every year, and which you were credited with every year by the association?—Where has it been credited?

You were entitled to receive from the association certain salaries and rents which you [unclear: wre] credited with year by year?—Which I ought to have been credited with.

Witness continued: He saw by the [unclear: boks] that he was credited with £1500 for rent [unclear: ad] salary. He was credited with that sum on [unclear: he] 29th June, just before the balance, and on [unclear: te] same day he was debited with a similar sum, but he could not say that the two items refered to the same amount. Whoever was responsible for the entry would explain it. Witness id not know about it, and he could not undertake to explain a matter about which he know nothing.

Mr Solomon; It means, does it not, that you are credited with money that you are entiled to receive? Here is your own salary, £50; rent of Gore stores, £250; and rent of Invercargill stores, £750;—£1500 in all. Is there any reason why you should be debited with that again?—I see there is an entry of £1500 reversed, and an entry of £1500, salery and teat received, and I do not know that they are the same.

My point is this, Mr Ward: Whatever els it means, it shows on the one baud that on received £1500 and on the other that you pid £1500, whether it is the same or not.

His Honor: The books appear to show that.

Mr Solomon: Now, Mr Ward, I will ask on to look at that sum of £1500 in the joural. It is carried forward to the debit of the gods account?—I cannot tell you, because I do not know.

Is not this the net result; If you had not been debited with the £1500 the profit: of he Ward Parmers' Association for that year world have been £1500 less than it was after you were debited with it?—I cannot help you that. It depends on what the entries are for, as I cannot explain the entries to you, because I do not know what they are for.

Is it not clear that your salary and rent were forgone by you that year, and that the amount is put in as a profit for the year?—I have already said that as I do not know the detits, and as I do not know why the entries were made, I cannot give you an explanation.

Cannot you say what the effect is?—Goe-rally speaking. I should say that if an account is debited with £1500 and credited with he same amount, and if the person who ough to have got the amount did not get it, something page 24 else gets the credit of It; but I do not know that that is done here.

You cannot say that the result of the debit is that the association made as a profit £1500 more than it would have made if the entry had not been put in the books?—That is a statement made by you.

But is it not correct?—I do not sayit is correct, because I do not know. As a matter of fact, that year was a good one. The profits on merchandise were £5541 8s 8d, on commit too and storage £6217 15s, and on discount and interest £612 10a 5d, and the net profit was £6516 5s 3d. Even if your assumption was right—which I do not admit—and you take away the £1500 it would still leave £5000.

Mr Solomon asked whether it was not a fact that this was only shown as a profit by taking credit for the items "Profit on merchandise" and "Produce sold" and treating them as an asset, whereas they were not an assets.

Witness said that that was an assumption which the records of the association did not bear out. He bad already said that he did not know, with respect to the £1500, whether the position was as Mr Solomon had indicated, but as a matter of fact the detailed goods account was available. There were in his possession detailed statements of every account in the association's business as focussed in the balance sheet, and they would show that the position was not as indicated in the liquidator's report, He (witness) would have been willing to hand that information to the liquidator if asked for it. Probably many of the incorrect statements in that report were owing to the faulty information supplied to the liquidator. He (witness) and others had been practically charged with all sorts of things in connection with this matter, and he thought he should have an opportunity of dealing in detail with the liquidator's report. On the questions asked he had not been able to gat out the facts.

His Honor said that of course Mr Ward would have an opportunity of contradicting anything he took exception to in the report.

Mr Solomon asked how the item "£5541 profit on goods" in that year was made up.

Witness replied that if details were wanted it meant going through the records of 12 months' work and taking out the items, and he could not do that.

Mr Solomon asked whether it was not inevitable that in order to arrive at a profit in the balance sheet this £1500 which was placed to the debit of the goods account must dome in as showing part of the profit.

Witness said that that brought them back to the three entries in August, concerning which he hid already said he could give no explanation. That explanation must be got from witnesses who could give it. The item of £2209 11s 5d carried forward included the item of £1500 that was carried forward in the stock account to show a profit.

Mr Solomon: Is it not inevitable that if that £1500 was not there the profit on goods for that year would have been £1500 less ?

Witness: Of course it follows that if there is £1500 less there would be £1500 less, but I do not agree with you that it is the £1500 you state.

We will show you where the ledger account is carried forward to the journal.—How can that make any difference? What is the use putting a question 20 times in 20 different ways? I can only tell you that I do not know anything about it. Upon the details in the books, of which I know nothing, I can give you no information.

Can you or can you not say that, by reason of the £1500 charged against you, the gross profits of the goods account were increased by £1500?—In the absence of the information 1 should have about the details 1 cannot give you "yes" or "no."

What information do you want about this item?—The officers responsible for adjusting the accounts, and who are familiar with the books, ought to give you the information you want. 1 cannot.

Examination continued; Witness said that when the balance sheets were submitted to him he took no steps to verify the figures. He had every confidence in Mr Fisher, Mr Hannah, and Mr Anderson, and accepted implicitly what they placed before him, and he trusted them implicitly still. When be signed the balance sheet he had the profit and loss account before him, but no detailed infor to was in his possession. He was [unclear: a b] sura that be read the balance sheets before signing them. He had no recollection of so doing, hot in the ordinary course of events he must have read them, although he could not say positively that he had done so, At balance times he thought it was likely he would have known within in reasonable amount what was the abate of his own account.

Mr Solomon: It was about. $21,000. Did you know on the day of the 1894 balance what you owed the association?—I think it is very probable I knew within a reasonable mount.

Can you not say that you did know?—I can't say 1 did not know, and I can't say I did know.

As a matter of fact you must have known that at that time you owed over £40,000?—I cannot tell you that 1 knew the amount at that time.

You knew in 1894 that Mr Birch had made application for your account to be reduced by £40 000 for the purpose of the balance sheet?—That is so.

You must have known, then, in 1894 that your account was over £40,000?—That would be the assumption.

Now I want you to refer to the 1893 balance sheet, Take the association's drafts against shippers.—Yes.

Mr Solomon: There you charge yourself on one side, Mr Ward—and, we say, very properly,—with the amount that you owe—that has been drawn against shipments.

Witness: Yes, £32,692.

You take credit for £49,000 for the corresponding amount. You take as an asset for the money owing to you the goods assigned, and you debit yourself with a liability for the amount received. That is the proper thing to do. You see the effect, don't you, Mr Ward?—I Cannot tell you from the face of the balance sheet what was done with regard to those two items.

You know that there was a corresponding asset for the liability—that liability of £32,000. The liability meant the advances you received on goods. The assets were the goods themselves, or the book debts owing from the farmers to you for advances made on those goods. That must be so. It is obvious?—That is the inference, but I cannot say that it in so specifically.

I say that this is a perfectly proper thing to do—to put it in that way—and that you did this in 1893 and 1894 and stopped doing it in 1895. Now, the balance sheet upon which I wish to examine you most closely is the 1895 balance sheet, and I am drawing your attention to what was done in the 1893 balance sheet.—These are shown in the '93 balance sheet in this way and not in the '95 one. That is so.

The next thing is in the '93 balance sheet you show "bills under discount," £12,000 odd?—That is so.

The corresponding item against that is "bills receivable," £13,000?—Yes.

That means that you charge as a liability the amount you receive from the bank as discount for these bills, and you charge as an asset the bills themselves?—Yes; the bills discounted are set out as a liability, and those receivable are set out as an asset.

The result of that transaction is to show how many bills you have got?—It shows the number of them.

And the result of the transaction is to show the amount of advances you have got an against shipments?—Yes—that is, where it is shown so.

Of course, in each of those cases the effect is this; that on the liability side of the balance sheet you have got an actual debt which you have got to pay. In the case of the consignments you have got to pay the persons from whom you received the goods; and in the case of the bills you have to pay the bank, On the other side, you have the possible amount that the goods will realise, and the possible amount that the bills will realise?—I suppose the one is set off against the other.

Only that your debt is certain and your liability is certain, but your asset is uncertain?—That is the case in nearly every ordinary business.

That is the reason why you should set out in your balance sheet the amount of bills under discount, so that the shareholders might have an idea of the extent of 'he business you do?—It was set out in the first and second balance sheets, but not in the third.

And the drafts against shipments in the same way assume that is so.

You notice in the 1893 balance sheet, and all through, you have got; on your liability side £15,000 on paid-up shares. That you received, And as against that you have £15,000 goodwill account?—That is not so. It appears as a liability in the 1893 balance sheet, but is not carried out.

It is put on and then taken off again. Now, Mr Ward, you know—don't you?—that this is not a good item to have in a balance sheet: "Goodwill"? It shows that you have parted with your money, and all the assets you have got for it is this item; "Goodwill."—I don't see why it should not be in the balance sheet at all, I don't know anything against it.

Do you think it is a good item to have in a balance sheet?—It is a very usual thing.

I want to point this out: that in what ought to be done. The shareholders ought to know that they have parted with so many shares, which are a liability, and that what you have got for those shares is an asset which consists of goodwill. That ought to be shown in the balance sheet, ought it not?—I think it ought to be.

Witness, dealing next with the balance sheet of the Farmers' Association for 1894, said he purchased between 1893 and 1894 the business of Carswell and. Co., for which he £9004 for the stock (as per valuation) and £5000 for the goodwill, for which Carswell received 1004 fully paid-up shares in the association, Cars well and his friends agreeing to take up [unclear: 104] shares.

Was that a good purchase?—No.

As a matter of fact, it was a very bad purchase?—It was.

I think that we can fairly say that it was as the instigation of the Colonial Bank that you took the business over?—That was so.

In consequence of your indebtedness to the Colonial Bank you were practically forced to take over that business?—No, I should not like to say that. It was represented as being a good business and a parable one, with which there was a large clientele, and that the probabilities were that competition on the same lines as our own concern would be started by Carswell and Co. in the shape of a pro pre-prietary business.

Witness continued: That representation was made by Mr Watson, the bank's inspector. That £10,000 was treated as a special account. His recollection was that it was to be treated as an entirely independent account, the bank undertaking to provide separate finance for it, In the balance sheet of 1894 the special overdraft was done away with, and the bank book a bill for £9636. During the same year they purchased another business—the United Farmers Association.

Mr Solomon: Look at your balance sheet and tell me if there in any word there at all to show the shareholders the terms of the purchase of Carswell's business?—No, there is not; there was no money paid for Carswell's business.

Witness continued: No money was paid for the goodwill of Carswell's business, bet £5000 worth of shares were given. It would he best to read the agreement with Carswell and Co., and then to explain it. The agreement was as follows:—

page 26

Memorandum of agreement made and entered into this 11th day of May, 1883, between the J. G. Ward Farmers' Association of New Zealand (Limited) hereafter called the said association) of the one part, and Hugh Carawell, both for himself and the firm of H. Carswell and Co., and assigns of the other part (hereinafter called the said firm), witnesseth that it is hereby agreed by end between the said parties as follows:—1st, That on the 1st of July, 1893, the said association shall purchase and the said H. Carawell shall sell to the said association the goodwill and current business of the said firm with the transfer of all agencies where possible (which agencies the said H. Carswell undertakes to do his best to transfer) for and at the price of one thousand fully paid-up shares of are pounds each in the said association, said shares to rank in all respects equal to the ordinary shares of the said Association. 2nd. That the said association shall purchase and the said firm shall sell to the said association all stocks of the said firm, comprising seeds, manures, corn sacks, and general merchandise, including oats (the latter to be taken over at valuation at the option of the association after Mr Carswell has submitted list of prices, qualities, and quantities within three days from date hereof) for cash value of same to be agreed upon between the parties hereto; and failing such agreement as to values being arrived at a evaluator to be appointed by each party, and In the event of their disagreeing the said. association to appoint an umpire, whose decision shall be mutually binding on both parties, 3rd, That the said association agrees to take over all approved advance accounts in the books of the said firm, paying cash therefor, both as regards principal and interest due. 4th. The said association agrees, at the option of the said H. Carswell (such option to be exercised by him and his decision given on or before the 20th of day, 1893), that he be received into the service of the said association (on the same conditions as other employees of the association) at a salary of £300 per annum: and the said H, Carswell agrees that in the event of his not entering the service of the said association he will nevertheless support them with all loyalty, and elected to the position of a director to the [unclear: el] association he will act in that capacity at [unclear: t] same remuneration as shall be paid [unclear: to] ordinary director of the said association. [unclear: 5] The said H. Carswell shall not for the [unclear: space] seven years from the 1st day of July, 1893—[unclear: that] to say, until the 1st day of July, 1900,—enter [unclear: i] business in Southland either singly, [unclear: jointly] otherwise, in competition with the said [unclear: assoc] tion, except as regards a land agent, or the [unclear: fina] necessary for the sals or purchase of such [unclear: lands] connection with the said land agency, [unclear: or] regards conducting such agencies or other [unclear: ent] prises as the said association shall permit [unclear: him.] writing to do. That the said H. Carswell [unclear: sh] subscribe for himself or procure from third [unclear: party] applications for at least 100 ordinary shares [unclear: in t] said association, and will endeavour to [unclear: obu] shares for the said association from his [unclear: frien] the remuneration to Mr Carswell to be [unclear: hal] crown per allotted share so obtained [unclear: through] by him. 6th. In further consideration [unclear: for] goodwill paid to him Mr H. Carswell to [unclear: Influe] all business he can to this association, only [unclear: d] ing the currency of this agreement. The [unclear: penal] for non-performance of this agreement [unclear: to] £5000 sterling. It is farther mutually [unclear: ag] that no disclosure of the existence of this [unclear: ag] ment is to be made until the consent of Mr [unclear: J] Ward is first given.

J. G. Ward,

Managing Director

H. Carswell.

Signed on behalf of the J. G. Ward [unclear: Farme] Association of New Zealand (Limited) [unclear: in] presence of, and the common seal of same [unclear: w] affixed in the presence of J. Fisher, [unclear: Compa] Manager, Invercargill.

Signed by the said Hugh Carswell in the [unclear: presess] of A. A. Birch, bank manager, Invercargill.

There was also a further [unclear: agreement,] follows:—

Invercargill,

In connection with the attached [unclear: agreements] this day's date between Mr H. Carewell [unclear: and] J. G. Ward Farmers' Association, it is [unclear: further] agreed that the said association is to [unclear: accept] position Mr Carswell now holds under [unclear: agreem] between him and Mr William [unclear: Cruickshanks] the purchase of twine. It is understood that [unclear: th] agreement is for 12 months from date of [unclear: sa] with the option of continuing for three years. [unclear: T] foregoing is subject to Mr Cruickshanks' [unclear: conse]

J. G. Ward,

Managing Director.

H. Carswell.

Invercargill.

It Is understood, as arranged verbally [unclear: with] Watson, none of the shares paid for Mr [unclear: Carswe] business are to be put upon the market for [unclear: t] years from the 1st July, 1893, and that the [unclear: J.] Ward Association have the right to [unclear: substity] cash for such shares should they (the J.G [unclear: l] Association) prefer to do so.—Signed by [unclear: J] Ward, H. Carswell, and witnessed [unclear: by] Fishrr.

page 33

Witness continued: The agreement came [unclear: in] effect on the 1st of July. but the result was [unclear: v] different from what had been anticipated,[unclear: as] it promptly became a subject of [unclear: negotiation] page 27 ancel the 5000 shares—and, as a matter of act, he himself paid £1100 cash for the cancellation of these shares. The negotiation for the cancellation of these shares were proceeding prior to the telegram of the 20th October, 1894, and he was [unclear: usrtain] he would get the shares cancelled. The telegram was as follows:—"Telegram received from Hon. J. G. Ward, Wellington, advising that he had arranged with the Colonial Bank of New Zealand to cancel Mr Carswell's shares absolutely without consideration "What was meant by that was without cost to the company, as he had said, be had himself paid for the cancellation of the shares.

Mr Solomon: Now, I want to ask you, Mr Ward, whether you noticed yourself in the balance sheet of 1894 that the item did not appear, and whether it is, as you say, that you consented to the item not appearing because you felt satisfied that the shares would be ultimately cancelled ?

Witness: We determined that the business was other than we believed it would be, and that the cancellation of the shares was a certainty.

So far as the £5000 was concerned you determined, after consideration, I suppose, not to put the item in?—1 knew that the cancellation of the shares would take place, and the only question was what I was to pay for it.

You intentionally—it may be with a perfectly proper object and motive—omitted to put the item in?—The item was not put in because I knew we could not carry out the agreement.

I want to know where that matter was diseased and with whom—the propriety of putting in that item of £5000?—Mr Fisher and I discussed it, and we came to the conclusion that—1 do not think it was done intentionally—the business had turned out quite differently from what it had been represented, and we determined that the agreement must not be carried out.

Did it not occur to you, seeing that this was a bad purchase, whatever you might think of it, that you were purposely stating—I do not Say with a bad object—purposely concealing—again let me impress upon you that it might be perfectly justifiable—the true state of the Farmers' Association's affairs by omitting thin item?—No, I do not agree with that at all. As a matter of fact I felt determined that the shares should be cancelled,—and I undertook myself to pay for their cancellation.

Why did you not tell the shareholders that?—My answer to that in that if the whole of the details of a business are to be discussed at a shareholders' meeting no company could carry on business.

You cannot call this a detail. You parted with £5000 worth of shares for Carswell's goodwill?—Which I knew would have to be cancelled, It was merely a question of how much to pay for the cancellation, which 1 undertook to pay myself.

But anything might have happened, Mr Ward; you might have died. Why did you not tell them of the fact that you had paid away this amount of money for a business, but that it was not the business you thought it was, and that you were going to get the shares cancelled?—My answer to that is, assuming 1 had done that, it has to be remembered that the association had the greater portion of these accounts in its business, and if 1 had gone and announced publicly such a statement it is not too much to suppose that, so far as the business of the association is concerned, it would have done it considerable injury.

You purposely concealed the true state of affairs because you thought that to publish the true state of affairs would have done the association harm?—That is not so.

Is that not so?—No. I say that from the start of the business it was such that it could not be carried out, and 1 paid £1100 out of my own account to Cancel the shares.

From which account?—I paid £1100 out of my own account—there was no Farmers' Association about it, I paid £1100 cash for the cancellation of the shares.

From your own account in the Colonial Bank?—I have said, from my own account.

Which account?—My account in the Colonial Bank—my account which was supported by my ordinary securities.

Then you say you deliberately concealed——I have not said that.

You deliberately concealed the condition of the company at balancing day?—I have not said that.

The position of the company at balancing day was that it bad parted with £5000 worth of shares and had as the result the goodwill of Carswell's business?—I have told you that after the business was acquired it turned out differently from what it bad been represented, and I undertook to get a cancellation of the shares, and I paid for that; and 1 think that under the circumstances it was far and away the best thing to do.

What I want to get at is that nothing was said about the purchase of the business in any way in the balance sheet or the report the item of goodwill is kept out, and nothing it said about the purchase at all?—Pardon me. An advertisement was put in the Southland papers at my instigation. 1 cannot give the exact date. I can give you near it, and I will have the date verified, I sent this letter from Wellington to Mr Carswell on the 3rd July, 1893:—"Yours of the 26th inst., enclosing public notice, duly received, and I note contents of same 1 would suggest you leave out the words in the advertisement, 'and such other agencies as may be arranged with the above association,' 1 think if you read the advertisement again you will find page 28 it is better to leave this out. The fact of doing so, of course, does not in any way affect the arrangement made. However, it is a point upon which you can please yourself. Kindly see Mr Fisher in order to fix the date for issuing the advertisement."

But again I say, Mr Ward, no mention was made by you to the shareholders or the public of the terms of the purchase of Carswells business, and the fact of putting in thin item "Bills accepted."—Before we met as shareholders again that arrangement bad been terminated, because the shares had been cancelled and paid for. The arrangement was to take effect from the 23rd July, 1893, and as a matter of fact after that date I paid £1100 for the cancellation of the 5000 shares, and when we met the shareholders next time these shares did not exist.

In 1894?—When we met our shareholders between 30th June, 1894, and 1895.

Mr Solomon: When you met your shareholders in 1894 those shares did exist.

Mr Chapman: No; that is not so. The shares were cancelled on the 20th September, 1894. and the meeting was on the 27th October, 1894; so that Mr Ward is right in saying that when he met the shareholders those shares did not exist.

Mr Solomon: But when the balance sheet was made up those shares did exist.

Mr Chapman: the date on the printed balance sheet is 12 days before the date of the meeting, and it went out sometime between that and the 27th October.

Mr Solomon: And the balance was made up to the 30th June. But there is nothing, Mr Ward, to show to your shareholders the amount of money paid for stocking this business?

Mr Cooper: There is the draft.

Witness : In a business such as this there is no necessity for such a thing as indicating to shareholders what the amount of any purchase of that kind is.

Mr Solomon: When you purchased a business that turned out badly, it was the proper thing, was it not, to tell the shareholders how much money you had parted with?—As a matter of fact, the business was of the same class on which we were already engaged, and there was nothing unusual about it. Before that the association had bought a business worth several thousand pounds, and such a fact was never mentioned to the shareholders.

At anyrate, then, the fact is that go intimation of any sort was conveyed to the shareholders of the nature of the purchase?

His Honor: the shareholders knew that there had been a purchase, and if they bad wanted information they could have asked for it. The only suggestion of concealment that I can see is the omission in the balance sheet to put in the shares which they had given for the goodwill, but they do not take credit for the goodwill among their assets, and Mr Ward [unclear: as] that at the time the balance sheet was put [unclear: fo] ward be bad made up his mind, and had [unclear: pm] tically arranged, that the shares would be [unclear: ex] celled. There does not seem to be very [unclear: [unclear: as]] in it.

Mr Chapman: If they had been enters there should be some undefined claim again Carswell on the other side.

Mr Solomon: That may be so. Your [unclear: hon] it is of course, as much my business to get [unclear: a] explanation which exculpates Mr Ward as[unclear: a] get one which inculpates him.

His Honor: Quite so.

Mr Solomon: Now, Mr Ward, in this balance sheet you still adopt the plan of chargin amongst your liabilities bills under discount as as assets bills receivable?—Yes.

Did you take any steps to inquire before the balance sheet was issued bow many bills had [unclear: be] passed to the past due bill account—had [unclear: be] dishonoured?—No. My answer is that I [unclear: d] with the balance sheet as it was placed before me.

Quite so. Did you make any inquiries [unclear: ab] it?—In a business such as that there would [unclear: h] from time to time past due bills going [unclear: a] probably every month, and if the management the association, when a past due bill—a farmer bill particularly—was held as a past due bill had chosen to send for the man and get a [unclear: red] tion the past due bills would largely [unclear: diminis] and the position of the past due bills when the got into our hands—long before the association was put into liquidation—wav not only [unclear: as] abnormal one but an unusual one, for the reason that the bank at a particular stage refused to accept any renewals.

But is it not a proper thing to take out [unclear: d] the amount of bills receivable the past [unclear: to]bills? There is a direct liability on those, [unclear: is] there not?—It depends on the circumstances.

But they cease, so far as the bank is concerned?—If the Farmers' Association [unclear: held] £5000 of past due debts on behalf of client who had security in the hands of the association in the shape of goods—say, grain to be sold,-it is not at all unusual for a renewal of a past due bill for the full amount to he given. If the management knew they were good marks it would not become a liability.

Supposing they had not security?—And sup posing they had, if the mark was a good one what of it?

It amounts to this then; that you took out on the liability side of your balance sheet the direct debt you must pay to the bank, and you treat on the other side these dishonoured bills as so many sovereigns, and put one against the other?—In the balance sheet?

Yes,—I have never seen it done.

I ask you, is that not the effect?—I reply again that it depends on the circumstances If you bad, I repeat, a number of past doe bills, page 29 even without security, in respect to which the drawers were good, it is no reason why they should be treated as you suggest.

His Honor: Are you referring to the balance sheet of 1894?

Mr Salomon: Yes.

His Honor: I the bills under discount Amount to £33,000 odd. They would be a liability under one head or Another.

Mr Solomon: I say that the shareholders are led to believe that they are bills under discount, whereas, as a matter of fact, they are dishonoured bills. Our point is that in 1894 the association held £2000 of dishonoured bills, which appeared as current bills, and in 1895 £10,000, which appeared in the same way.—Witness: I have conferred with Mr Anderson, the accountant of the association, and I understand that a past due bill is regarded by the banks as a bill under discount.

It is treated by you as a bill under discount in your balance sheet?—So far as I understand, that is so, but I am assured that that is done by the banks.

That may be so, but I want an explanation from you of this matter It is a fact, Mr Ward, whether the practice is right or wrong, that these dishonoured bills—£2000 in the year 1894—are not shown to the shareholders?

His Honor: Not shown separately?

Mr Solomon: Not shown at all.

His Honor: They are included in bills under discount.

Witness: Mr Solomon said they were dishonoured, and I entirely disagree with him in that. They are not dishonoured.

Mr Solomon: Not if they are past due bills?—Some of them, if looked at, would be found to be given specifically against produce to come in it a particular date; and if the produce bad not come to hand the farmer would have been seen on the matter and the bill renewed.

And if renewed, it would not be a past due bill?—Pardon me, Mr Solomon; the question was on the point of dishonour.

I am speaking about bills which were past due, and therefore must be dishonoured?And my reply is that, as his Honor baa stated, past due bills are regarded as bills under discount.

In your balance sheet?—If there are many there, that is so.

His Honor; A bill would be dishonoured if the association was under an obligation to renew it and did not do so.

Mr Solomon: Then it would not be past due.

His Honor said be understood the practice to be that bills were drawn against produce, and in some cases the produce was not sold, so that the bills were practically dishonoured.

Mr Solomon asked where witness's account appeared in the assets—under what heading?He referred to the money Mr Ward owed the association. He was still speaking of the 1894 balance sheet?

Witness said that in the detailed statement furnished to him it appeared as "J. G. Ward's business account £8368 5s 11d," and "J. G. grain account £6617." That was the detailed list of book-debts due to the association at that date.

Examined further witness said that he could not say without looking at the papers what was the average amount of the association's ordinary current account—the account, mostly farmers' accounts, probably owing to the association. He could not answer without looking at the papers; but, referring to the papers, he found that in 1894 it amounted to £52,000 in round numbers, apportioned in the books of the association an "advances £41700," and "book debts £10 300 "—round numbers in both cases. That Included witnesses's own account, and also £1982 4s 2d due by the Hokonui Railway and Coal Company. This Last item would, he thought, he included in the advances the list he was looking at was a list of current accounts. He could not tell whether there was any List of the £30,000 owing. The amounts were set forth in the list he was speaking of, and he gave the totals as they appeared. There was no detail of the £36,000 owed, or of the £10,000, The heads that made up the figures were given, but there was no detail. The statement from which he was quoting was in Mr Anderson's writing. He came back from England to the Colony in July, 1895, and it was very shortly After that that Mr Fisher came to Wellington to see him. He did not know how long after his arrival it was, but it was either in July or August. He thought it was on the occasion of Mr Fisher's first visit that he told him (witness) that he was afraid losses Amounting to ££20,000 or £25,000 would have to be provided for.

Mr Solomon: Did Mr Fibber tell you that that loss was the result of that year's operations of the association?—I do not know what he did say. I understood that it was the result of depreciation in the values of produce and that the losses had accrued by debits on grain, purchases, and the general depreciation of business.

Do 1 understand you to say that the business was from £20,000 to £25,000 worse off than it was the year before?—The balance sheet the year before anticipated no losses at all.

He gave you to understand the losses had accrued in the interval?—I should not like to say that. It may have been as the result of an examination extending over a few years.

He told you that the losses not ascertained before were from £20,000 to £25,000, and would have to be provided for to put the association straight?—Yes.

And I think you have said that as a result of that you thought it necessary to tell the bank to make an investigation?—What I did page 30 was to report to the general manager of the bank, and I suggested that someone should be sent down to look into the position of the business.

Examination continued: If the losses had not exceeded £25,000 he would not have looked upon it as serious. He realised that the whole position of affairs was serious. As a matter of fact, he knew now that what he should have done was to retire from all his other positions and devote himself to his own business affairs. He believed at the time that he could take liability for £25,000 upon himself. He did not then know there was to be a permanent liability of £55,000. He knew that there were 3000 people attached to the business, and that they could have provided for the whole amount within a reasonable time.

Mr Solomon: Your position was £7000 worse in 1895 than it was in 1894. At that time you owed the association £47,000, and with the £7000 on the grain account you only owed it £54,000 in 1895?—It is a very easy matter to look back upon it now, but the year before that he did not know that his debit was going to remain or accrue into losses at all. I believed that there were things passing through that account which would come to my credit. I did not know that a permanent debt of £40,000 bad arisen upon my shoulders.

Mr Solomon: You knew in 1894 that you owed the association £47,000.

Witness: But I did not know that it was going to be converted into practically what it was afterwards—a fixed debt.

What of that £47,000 was not a fixed debt?—As a matter of fact, the details of that £47,000 I was not familiar with.

Do you not know that that £47,000 included sales in grain?—I have told you I did not know what it included.

Your position, I take it from you, is that although you knew you owed the association £47,000, you did not know it was your own debt?—I did not say that there was not a debt. You are twisting it. 1 did not say that, and you have no business to say it.

What did you say?—I said that I did not know the year preceding what the amount which was at my debit was, but it turned out finally to be turned into a fixed debt. I was not familiar with the details of that account. I say that, and that there were fluctuating items in it—grain operations and shipping items—which 1 thought would have reduced the amount materially. As it turned out, 1 was mistaken.

You did not know your own petition?—I knew my own position outside of that account.

What position was there outside of that account?—That was not the whole of my indebtedness, and it was not the whole of my responsibility. I had an amount of £16,000 against 16,000 of Nelson's shares, and [unclear: £25,0] against 25,000 Ocean Beach shared.

It was a trade fluctuating account?—Yes, was a trade account on the books of the [unclear: ws] Farmers' Association.

You knew when you left New Zealand [unclear: th] the association owed the Colonial Bank [unclear: or] £40,000?—Whatever the debit was at that [unclear: it] I knew.

You knew that £40,000 was proposed to drawn in reduction of your overdraft at [unclear: t] 1894 balance. Therefore it must have been [unclear: w] £40,000?—You are talking about my person account.

I am speaking of the overdraft of the [unclear: ass] tion at the bank.—I cannot tell you what [unclear: th] was. If you will tell me I will try and sun you.

It was £43,000 so far m I can get it. [unclear: wa]was it shown in the balance sheet at? £26,000 and £35,000.

£61,000?—Yes, the two items, £61,000.

And your indebtedness to the association 1894 was £43,000, Now, when you came to the colony, Mr Ward, Mr Fisher told [unclear: j] that losses to the extent of £20,000 or [unclear: £30,0] had been made. In the first place 1 want know how it is under those circumstances [unclear: a]allowed a balance sheet to be issued shown a profit of £5000 or £6000, and says nothing about this loss?—Because profits [unclear: wa]made.

What about the losses?—I have told [unclear: y] already I had undertaken to provide for the losses. If losses were made from £20,000 £25,000, I undertook the responsibility of the It turned out to be £55,000, and I understood though without intending it, to provide for this

You provided for them by the bank [unclear: which] them out?—I provided for them in a perfect bona fide way. The £55,000 was paid so far the association was concerned.

In the balance sheet of 1895 appears [unclear: th] item as a liability: "Bank account," [unclear: £11] You saw that, I suppose Yes.

Knowing, as you did, when you left [unclear: ne] Zealand in 1894, that the overdraft at [unclear: t] Colonial Bank was £60,000, how could [unclear: y] possibly allow a balance sheet to go out at [unclear: th] time which showed that the overdraft was [unclear: of] £1100? Did you not know, Mr Ward, [unclear: th] that would not be correct?—Well, I dealt [unclear: wt] that balance sheet as it was placed before [unclear: in] I knew that this did occur. I knew the the £30,000 had been provided for, and the the bank had taken a draft upon John [unclear: Con] and Co., of London. When I knew that I [unclear: gr] instructions that the draft was not to [unclear: w] forward.

Witness continued: There had been [unclear: £40,0] worth of debentures issued in the intern In addition there was a draft for £30,000 [unclear: a] Connell and Co., which he stopped from [unclear: go] forward and from being paid by the association page 31 He believed that that balance sheet, as placed before him, was right.

Do I understand you to say that you were led to the conclusion that that £1185 was the true amount of your indebtedness to the back, without giving credit for the £30,000 draft?—1 have already said, in addition to the debentures, because I could not give you a right answer otherwise.

Do you think that that shows the correct debit balance with the bank, when the bank took credit amongst other things for this £30,000 draft?—I know that I gave instruction that it was not to come back to the association.

What do you mean by saying: "It was not to come back to the association?"—It was to be repaid by the association by way of overdraft, 1 know that, in the first instance, when I found that the draft was not drawn in terms of the latter of credit 1 stopped that draft from going forward. In addition to that, I told Mr Fisher that that draft was not to be repaid by the association.

According to the balance sheet, it is plain that the draft having been pat to the credit of the association it must also go as a debit to the person on whom it is draws. Is not that no?—yes.

Why does that not appear in this balance sheet?—But that went out of the balance sheet.

But it did not?—Yea it did, What T state, and 1 do so distinctly, is that when 1 knew of this draft of £30,000 on Connell and Co. I stopped it from going forward. In addition, I declined to allow it to come back to the association, which is true; consequently it had no right to appear there.

What made you think, knowing that the bank overdraft was over £60,000 in 1894, that it could get as low down as £1185 in 1895?—I have already told you that £40,000 worth of debentures were issued. That brings it back to £20,000, does it not?

Don't you know that the £40,000 worth of debentures appears as a special item?—But that reduced the overdraft of £60,000 by £40,000.

Even then, where did you think the £20,000 had gone to?—If you ware to ask me this question: If I consider that £1180 is the right amount to appear in the balance sheet? then 1 say that I did so consider at the time, because 1 knew that the overdraft had at the time been reduced amongst other things by £70,000 odd.

That is by the £40,000 of debentures and the £30,000 draft?—Which was retired afterwards.

Do you not know that the £30,000 draft must appear as a debit, but does not so appear?—I knew that it did not appear, but I don't think it ought to so appear. I say that the asset and liability both disappeared from the balance sheet.

But they don't, for you take credit for the £30,000 in your overdraft?—I understood that the asset disappeared. As a matter of fact, the £30,000 was supposed to be against grain. I contend that both the asset and liability went out.

But does it not follow that if you want to take out the £30,000 as a debt you must raise your bank overdraft by £30,000?—If you had an overdraft for £30,000 and the bank bought a foreign bill from you for £30,000, your overdraft would go down by that amount.

Then it amounts to this: You owed the bank, if you are right, £31,000. I asked you how you signed this balance sheet, which showed your indebtedness to the bank to be only £1100, and you reply that you did so because you know that £30,000 had been paid into the bank?—I knew that £30,000 had been taken completely out of the bank under the letter of credit of Connell and Co. As a matter of fact, that draft for £30,000 never went against the Farmers' Association.

But it went in as a paper item?—it did not go in as a paper item. It went out in the first instance as a British bill. In the ordinary course of business it would have come forward and been paid by the people at the other end, but I stopped it.

Do you not know now that the two entries ought to have been simultaneous—crediting the bank with the amount and debiting Connell and Co; then, when your draft wan not presented, these; two items should have both disappeared, and the overdraft would have gone up again by £30,000?—But I stopped that; consequently it could not have gone up again. I stopped the draft being repaid by the association.

You did not get the £30,000 from it, so that the position of affairs remained exactly as before?—That is not so. The bank purchased the draft for £30,000, but it was held over, and did not go forward.

But it was placed to your credit, although held over?—Quite so. But I did not know it then. On my return to the colony 1 did two things: I stopped the bill from going forward, and I declined allowing it being repaid by the association. I did that because Mr Fisher told me in the interval that he expected to make losses of between £20,000 and £25,000. I told the hank manager so at the same time I should have to provide for losses of between £20,000 and £25,000, and I say it was covered by that £30,000.

Now I ask you again, Mr Ward: You were told that things had gone bad, and that you would probably have to take over a liability on your shoulders, How could you possibly sign this balance sheet for 1895, which shows that the total amount of the assets due to this company, outside of bills receivable and stocks— page 32 the total amount of debts owing to the association—was £44,000?—I understood it was £87,000.

Excluding stocks and bills receivable, the whole amount of the debts owing to the association—that is, advances against produce and current accounts—in that balance sheet is £44,000, How could you possibly sign such a balance sheet when you knew that you yourself owed the association more than that amount?—I did not know it.

You did not know that you owed more than £47,000?—I did not know it, and that is true, I say I did not know what you are now stating.

Did you think that item was correct and that the total amount of debts due to the association was £44,000?—When?

When the balance sheet was signed F—You were speaking just now of the year previous.

You knew in 1894 that you owed the association £47,000, did you not?—I did not know I owed the association £47,000, When you put the question before you stated the amount at £43,000 or £44,000, and I said I probably owed that amount at the time, I said I believed that part of the debt was fluctuating, and from time to time would probably be reduced and wiped out, but I did not thick that it was a permanent debt which was likely to be put on my shoulders. I did not know that a debt of £55,000 was going to be put on my shoulders.

I ask you this, Mr Ward: You did know in 1894 what your indebtedness was is the books Of the association?—I would know what the debit at my account was.

You knew that things had net gone well in the meantime, that losses had been sustained. I ask you, Mr Ward, did you honestly believe that the total amount owing to the association in 1895 was £44,000?—I believed the statements that were placed before me.

You made no inquiries?—Pardon me. It was Stated to me that losses of £20,000 to £25,000 had been made, I requested the bank to send some one to make an investigation and they did so. The result of that investigation was to place against me a debit of £55,000. I took up that debit and I bona the responsibility of It. I believed that in doing that I would save the association, and it would have saved it—

You knew that in 1894, on the eve of the balance sheet, the items or £21,000 and £35,000 took place. Did it never occur to you a transaction similar to that might have taken place?—As a matter of fact the debts went up in one year from £21,000 to £35,000. There was no reason in a business of this kind why the account should not have gone down another £25,000 in the next 12 months.

When you saw this amount of debts, "Current debts, £20,000" and "Advances against produce, £34,000," did you not say to Mr Fisher, "I must owe the association as [unclear: r] as that myself "P—As a matter of [unclear: fact] accepted the statement as planed before [unclear: me] I believed it to be right.

Did you read the balance sheet before [unclear: y] signed it?—I have very little doubt I [unclear: did] knew that a change In the system of [unclear: shown] the discounts had taken place, and I knew [unclear: th] £40,000 of debts had been provided [unclear: for,] that made a tremendous difference, I [unclear: did] know that the amount of £55,000 was [unclear: stand] at my debit, and I believed that the [unclear: docume] before me were right.

You knew that on this side of the [unclear: bala] sheet you must owe a very large amount [unclear: to] association—that it was a certainty that [unclear: y] must owe a very large amount P—I knew [unclear: th] there was a debit against me undoubtedly.

You knew that it was a very large one?[unclear: d] have answered already, and I cannot alter [unclear: it] I will not alter it, that I did not [unclear: know] amount that was standing at my debit at [unclear: t] time.

His Honor: Mr Ward had this balance [unclear: sh] furnished to him. I understand there [unclear: were] number of papers attached to it. Do [unclear: th] papers show anything? You produce [unclear: s] papers which Mr Fisher brought to [unclear: yon] Ward, with this balance sheet?—Witness: [unclear: T] position was, that the balance sheet and [unclear: pr] and loss account were brought to me. [unclear: T] whole of the detail statements were the [unclear: wo] ing up of the association, and they were [unclear: attact] to the balance sheet on the return of the [unclear: doc] ments

Mr Solomon: When you came back to I [unclear: ne] cargill, before you met the shareholders, did [unclear: yo] not examine and see the condition of [unclear: yo] own account?—Witness: No, I did [unclear: not] arrived in Invercargill in the morning or [unclear: aft] noon; J met the shareholders next morning, [unclear: a] left on the same afternoon. I admit now [unclear: that] was probably trying to do too much. I [unclear: had] the time on my hands to do so.

Do you not know now that this balance [unclear: sh] does not put at all before the shareholder? [unclear: th] position of the company?—I know now [unclear: that] the bills under discount and British bills [unclear: h] been treated in the balance shett as in the [unclear: t] previous ones it does not do so. I was not [unclear: the] at the time that the system was [unclear: altered] was altered by the manager of the [unclear: association] on the representation or accountants with [unclear: who] he was familiar. He believed it was a [unclear: rig] thing to do, and I believe he has [unclear: authorities] and very good ones, too—showing that it [unclear: was] right thing.

Does the balance sheet correctly state [unclear: th] bank overdraft at the time?—As far as I [unclear: know] at the time it did.

But now?—I cannot tell you if it does [unclear: not]

Do you not know that £30,000 [unclear: indebtedu] to the bank on balancing day was [unclear: redebited?] It was not redebited.

Never?—It never was redebited. I have said that before, and I am very roach surprised to find that some people try to make oat that it is go. It is very well known—and I do act know how, with a knowledge of all the circumstances, anyone can dispute it—that it was paid by a £30,000 cheque when the association was in credit to the extent of £55,000, or something like that. It was paid and lifted when the association was in credit, and the warrant which covered it was returned to me.

I see what you mean: It was paid as part of that £55,000?—That is not what you said. You said it was redebited to the association. Now you say you see what I mean. I mean what I said. I said that it was paid by cheque for £30,000 when the association was in credit beyond that amount. It was lifted by payment cheque when the association was in credit.

Does not that amount to precisely the name thing, although it was done in a different way?—That is the difference. The inference was that that £30,000 was redebited to the account of the Ward Farmers' Association?I say it never was.

But it was owing?—There is a great difference between redebited and owing.

What it amounts to is this, that the shareholders were led to believe that the overdraft of the bank was £1000, the fact being that the association owed the bank £1000 and you owed the bank £31,000?—I have said we did not owe the bank £31,000. I have made the explanation, whether I am right or wrong, that I believed 1 was able to undertake to make provision for the loss of the association and that £30,000 was transferred to me, and I gave the manager specific instructions that he was not to allow that to be redebited to the association. If he had allowed that to be done, the indebtedness of the association would have gone up £30,000, which as a matter of fact it never did.

It may be—I do not see it, but it seems to me, the position is clear?—The mistake I made was in taking the responsibility of the whole thing, but I took it and I have suffered for it.

You have suffered for it in a sense, but you have not paid the bill?—As a matter of fact, I think you will find that the liquidators of the Colonial Bank have taken good care to claim for the £55,000, and on that to vote against my getting my discharge from bankruptcy.

Was it not the fact that without this £55,000 you were perfectly insolvent It was not the fact.

Is it not the fact that, irrespective of that £55,000, you were altogether insolvent?—As a matter of Fact I was not; 1 do not know who suggests it. The banks between them got the Farmers' Association, I have no hesitation in saying, for personal and political reasons. If I had been allowed, I was in a position originally to have paid interest on the whole amount of money 1 owed, including the £35 000, the £35,000, the £11,000, and the £7000; and although it has been overlooked by some people, the £25,000 for the Ocean Beach shares are referred to in the liquidators' report without setting out the material fact—which ought to have been set out—that there was a guarantee of 7 per cent. against them for seven years by Nelson Bros. making them first-class security, as far as a bank is concerned; and seven years was time enough for most people to have extricated themselves from a liability of that sort. Then I got £25,000 cash for some of them within 18 months, and if I had been allowed a reasonable time I should have done it for the lot. If it comes to a question of insolvency 1 fay that to-day some of the largest financial institutions in this country, and in most other countries, if called upon to pay up their indebtedness within three months, would prove to be just as insolvent.

Very likely, and if their balance sheets were looked into they might be in the same condition. But what I want to know is is this balance sheet a true statement of your accounts?—Yes, so far as I knew at the time it was.

Witness continued: He did not know what had become of Carswell's bill for £9000. Counsel must ascertain from the manager of the association under what circumstances he treated bills under discount and why he had so treated them, He presumed it had been discounted by the bank for the association. Mr Fisher would be able to speak about it; he (witness) could not tell what had been done with it. It was very plausible to suggest that he had not asked about it, but the suggestion was disingenuous, for when one had to deal with finance to the extent of £750,000 a year. as had been the case with the Ward Farmers' Association, and with 4000 or 5000 clients, and to work from daylight to dark, it was unfair to ask if attention had not been called to a particular bill. Under such circumstances he did not think they would find any business man doing so unless he knew that there was something specially wrong. He had a special account with the bank called the "grain and railage account." If the amount that account was in debit was not shown in the balance sheet for 1895, he could not tell anything about it, because he had no knowledge of it.

Mr Solomon: Cannot you say this: In June, 1895, that account was overdrawn to the extent of £9900?—Witness: I do not know, but if you say so I will accept your statement.

I will show it to you.—If you say it is so I will accept your statement.

On the 29th June the debit was £9975 (account produced and shown to witness)?—That is so.

Do you not see now, Mr Ward, that at that time—June, 1895—there was a special debt to the bank of £9975?—That is so.

Should it not have appeared in the balance sheet ?—Yes, I think it should.

All of can say about it is that you made no inquiries and knew nothing about it, although you were the managing director of the association?—As a matter of fact, I was not here when it was done, and I know nothing about it. I believe that Mr Fisher, the manager of the association, can explain it, but I cannot explain a thing of which I know nothing.

I do not say you can, but I want to get it from you, in order to come to Mr Fisher afterwards, whether that should not have appeared. There is another amount—the accrued interest?—Before you go to that I believe this special debt does appear. It is in the documents attached to the balance sheet.

But it is not in the balance sheet. The only liabilities we have in the balance sheet are: Debentures, £40,000; amount at credit of shareholders and clients' current account, £10,000; reserve fund, £2000; profit and Ross account, £6000 The only other item in the balance sheet in which it might be included is the bank account, and the special indebtedness can not be there because the total is only £1100.—I said that in the detailed statement it does appear, bat I cannot say where or how.

Now is there any item in the liabilities of interest owing by the association?—No; for the reason that on the 12 mouths the association made a profit on discount of £610 12s 5d.

I am not speaking of profit and loss. But amongst those liabilities is there any entry of interest owing by the association?—No, there is not.

Now, look at the interest account of 1895. Assuming for the moment, as I will prove to you shortly, that there is £1800 owing at this time to the bank for accrued interest, should it not have appeared as a liability As a matter of fact, 1 think 1 am right in saying that if you take the public balance sheets of some of our largest institutions, dealing with interest on both sides, they do not show the gross interest paid and the gross interest received. They show either a debt if a loss is made or a credit if a profit is made, and, as far as I know, that is what the association did.

I am not speaking of debit and credit, or of profits and loss, but of assets and liabilities, and I want to know if there is not at balance day a sum of £1800 which should have appeared as a liability?—Do you refer to the suspense account?

Yes.—I do not think it should.

It is accrued interest due to the bank?—Witness said that for the purposes of book-keeping it was kept in a suspense account until it became due. This was precisely what was done with another item mentioned in the liquidator's report with reference to an [unclear: aco] of £184 between Calcutta and New Zealand[unclear: .]

Can you suggest any way in which [unclear: th] balance sheet can be called a true and [unclear: a] rect balance sheet when an item of [unclear: £90] overdraft to the bank on special account [unclear: do] not appear?—I can only say, so far as It informed by those who are responsible, and it are still to come before you, that it is provide for.

But it is not shown as a liability?—I [unclear: a] only tell you what I am told.

I have now brought certain facts to [unclear: yo]notice, and I put it to you In this way: [unclear: j] matter whether it is provided for or not, if does not appear it could only be provided [unclear: a] by some cross entry ? It mast either appear a liability or be a cross entry?—I should [unclear: a] that is so. For all I know to the court it may be dealt with in the same way as [unclear: t] interest you have referred to. If a legitims contra account was set off against it the [unclear: ba] alone might be provided for.

What contra account might there be? cannot tell you, as I do not know.

Now, after going through the balance she do you say that the balance sheet is a true [unclear: t] correct statement of the affairs of the association?—So far as my knowledge goes it is.

But after what I have brought to your not do you say it is?—Well, 1 will just ask you question, Mr Solomon.—(Laughter.)

Mr Solomon: Never mind about that, 1 Ward, I am asking you questions. 1 think [unclear: y] will admit I hate had quite enough to do [unclear: a] the last two days without answering question

Witness: I will give you a poser.

Mr Solomon: I daresay you will, Mr [unclear: w] But answer my question now: Can you a after what has been brought under your note that the 1895 balance sheet is a true and corn statement at that day of the affairs of they association?

Witness: I believe it is. Now I will ask [unclear: a] a question, Mr Solomon.

Mr Solomon: Well, tit for tat is fair [unclear: pa] After asking you so many questions it is a fair that you should ask me one, and I'll it if I can.

Witness: Can you tell me how it is that [unclear: I] liquidator of the Ward Farmers' Association has left out £3000 cash and 9000 sacks of a andtreated the omission in exactly the [unclear: w] way as you try to make out I have done? [unclear: C] you tell me how that is?

Mr Solomon: No, I cannot. I cannot better than fallow your lead and reply, I must ask Mr Fisher.—(Laughter.)

Mr Solomon intimated at this stage [unclear: a] p.m.) that he bad expected to have been ablecarry through until the close of the day [unclear: ac] Mr Ward by means of the drafts, but he [unclear: at] not expect his friends on the other side to on with those now; but be would be [unclear: prep] page 35 to go on with the subject in the morning if his friends were ready.

Mr Chapman replied that he did not know how long the necessary investigation would take, but it was extremely unlikely that they would be ready in the morning.

Mr Solomon said he wished Mr Ward to remember that he wanted an answer when Mr Ward was prepared to give it to his question as to what bad become of the £67,000.

Mr Ward said he was only too glad to answer the question, because he did not like it to go forth to the world as an imputation that he had net accounted for £24,000. He had understood the liquidator to say that he made no imputation against any person, connected with the Ward Farmers' Association having received any personel benefit.

Mr Cook: No, I do not.

Mr Solomon; We do not for a moment suggest any dishonesty on your part by the question. It would be a very improper thing to do, and I, on behalf of the liquidator, have no intention whatever of doing it; but the liquidator has not been able to make out how that item of £60,000 is accounted for, and he is compelled to ask you, as managing director of the company, to do it.

His Honor consented to sit the following morning at 10.30, and

The court rose at 3 50 p.m.