WINDING UP.

Auckland Star, Volume LXIX, Issue 285, 2 December 1938, Page 10

WINDING UP.

TOBACCO FIRM.

SHAREHOLDERS' MOVE.

LOSSES FOLLOW MERGER. PROMISE BY GOVERNMENT. A decision to mpke an application to the Supreme Court for an order to have Loyal Ltd., tobacco manufacturers, of Auckland, wound up was made at a meeting of ttharclmlders of the company held in .Auckland this morning. Dr. Dudley Chambers, liquidator, who had convened the meeting, presided.

During the discussion the affairs of the company wince its incorporation in 1031 were explained by Mr. S. p. Briggs, of Christchurch, secretary of a shareholder*' committee, who had carried out nil investigation on behalf of shareholders who were opposed to a voluntary winding tip.

Mr. Brings i<l the shareholders' committee had made many applications to the Government for assistance in securing a thorough investigation, but had been informed bv the Hon. W. Xanh that without special legislation the Government had no powers under which to take action. However. .Mr. Xash bad stated that the shareholder* should proceed to t lie Court. He had suggested that they obtain a compulsory winding up order, Ihen the (government would supply a qualified lawyer and an accountant to make an investigation. Liquidator'! Statement. When the meeting opened Mr. Briggs asked for a statement relating to the liquidation.

Mr. Chambers stated that the Loyal Company, at the time when the liquidation was undertaken. wa« being conducted by the Consolidated Tobacco Company, Limited, and was operated iri the premises of Amalgamated Tobacco Manufacturer*, Limited, in Auckland. It was anticipated that the duties of the liquidator would be to collect outstanding calls on the shares of Loyal, Limited, and to pay off any shareholders not paid by the Consolidated Tobacco Company, which had taken over their assets and liabilities. It *0011 became apparent that the Consolidated Tobacco Company was having a difficult time, and in view of the position the management wore asked to curtail expenditure. An effort was accordingly made to reduce the cost of travelling salesmen. Consolidated Company's Losses. Efforts were made by Mr. Chambers to ascertain the exact financial position, he said, and when, he finally succeeded it wan disclosed that heavy losses had been experienced. About twelve rtionths after the commencement of the liquidation a receiver was appointed by the bankers of the Consolidated Tobacco Company, and as there appeared to be littlo prospect of a siicce*wful reconstruction, it was expected that a winding up would result. This was eventually brought about by means of Court proceedings.

'"There is no possibility of any money coming from the Consolidated Company for tlie lie lie Ht of shareholders in Loyal. Ltd.. ' continued Mr. Chambers. "The liabilities to ordinary creditors are so enormous that oven if liability for the payment of com mission under a deben tiire were set aside there would be no prospect of any money remaining for Loyal, Ltd., shareholders."

The liabilities of the Consolidated Company to unsecured creditors were stated to be £27e>44, to secured creditors £13,983, under bills discounted £•2(12, and under debentures £37,182 —a total of about £HO,OOO. The majority "f tljo creditors had received 14/ in the £, and that included the final sum 11 ft*y were likely to receive. "Disastrous Result." T represent 7<M) individual shareholders, whose total holdings exceed 7"» per cent of the shares of Loyal. Ltd." said Mr. "On their behalf I have investigated the tacts relating to the formation. flotation and merger with the Amalgamated and Consolidated Companies."'

Ihe C 100,000 which constituted the share capital of Loyal, Ltd.. has been Inst, he continued.

The promoters and directors who founded this company were not pessimist*," said Mr. Brigjjs. They forecast an annual dividend of 100 per cent as being within the bounds of possibility.

and stated that tho sharoluilders could confidently expect .">0 per cent on their investment. Ihe first balance-sheet showed a loss of £1321. In the next 1.1 mint lis a profit of £3211, sufficient to pay l."> per cent on the original capital, «as reenrded. hut in my opinion no real profit was over made, for in that year stocks at £11.447 wore sot down at an inflated value. By April, 1933, the capital lisd ri*on to £31.530, and the profit was given in the halance-sheet as £4087.

••Tlipre were some unusual entries in that balance-sheet. Blonds and formulas were set down at £21).0(H). and on the other side there was an entry of £ 10.fKM) at* the balance unpaid on account of 1 he-o.

Capital Raited to £100,000. Mr. Briggs said thit no reference to the purchase of blends and formulas had lieen made in any previous balancesheet. In September. 1034. he went oil Investment Sales, Ltd., applied for and were allotted £IU.(HH) in the share capital of Loyal, Ltd. A power of attorney was given.to Mr. A. W. (iibitou to enable him to deal in ally way he thought tit with those 10,IHH) shares. Mr. (iibson was managing director of N'.Z. Investment Trust. Uv having control over these UUMHt shares he was able to i-xercise considerable influence ove.r the company.

In March. 1035, a proposal to increase the capital of Loyal. Ltd., was brought forward, statrtl Mr. Briggs. This was to Ho done by the issue of 7'UHK) ordinary sharps of £1 each. Immediately afterwards it was proposed that the company should be merged with the Amalgamated Tobacco Company.

Promotion Expenses. An important clause in the agreement for • lie merger provided that Mr. (jibson should receive £18..">00 as his commission for promoting it. he said. It was then necessary to raise £17.000 additional capital to meet, this liability. The balance-sheet at the time showed that Loyal. Ltd., handed over assets totalling £10<>.8<>4, and the Consolidated Company accepted liability for £41,103 formerly due by Loyal. Loyal thrn went into voluntary liquidation.

The resolution to have the company wound up bv Court order was carried by a substantial majority.