A BANKRUPTCY CASE.

Press, Volume LXII, Issue 12503, 26 May 1906, Page 10

A BANKRUPTCY CASE.

PUBLIC EXAMINATION OF F. H. BRUGES. Tho public examination of F. H. Bruges, of Christ-church, solicitor, bankrupt, took place in the Supremo Court yesterday morning before his Honour, Mr Justico Donniston. Mr Rus*scll appeared for tho bankrupt, Mr Stringer for the Official Assignee, Mr Joynt for Lucy Rodger and Mr Dougall for Henry Tuck, both proved creditors. Mr Stringer stated, in reply io his Honour, that tho proceedings arose as tho result of ft resolution passed by a meeting of creditors in the estate. Mr Joynt was the first to oxamine, and at the suggestion of hie Honour tho sworn statement made by the bankrupt at a meeting of creditors on March 14th was put in. Bankrupt, in reply to Mr Joynt, stated that he had been practising as a barrister and solicitor since 1885. James Goodman was in his employ from 18S(i, and Bueliell, tho accountant, for borne ton. years. Tho general banking account mentioned in his statement was his general business account. Goodman had power to operate on tho general account, the bank honouring cheques , signed by him. The books were kept by doublo entry, so far ac ho knew. Mr Russtll eaid that he was informed by the auditor that the double entry system was not carried out, but entries uvre posted direct from the chequebook into the ledger. The books were kept veiy irregularly. Bankrupt, continuing, etated that he did not look through the book* tsysieniaticaliy. Hβ aione operated on tho trust account, and iit times ho drew ! cheques on the general account. Good- I ut«ui transacted business for some clients, of whom witness knew nothing, { and payments by them would go into tho general account. It wae to soma j extent a trust account, for tiusb moneys lroin Clients attended to by[ Goou'iua.n we nit imo the general ac- , count. Witncte leit the general ac-i ; count largdy in Gooanian a h.inos, as apart iri/m coete, it rep-teented chieily moneya haiiciled by Goodman for tho cketito for whom he acted. Goodu:aa j coiud draw what chequee he p-eaisMl, ' and witness did not Keup hinu>vlf mi formed of the state of ihe trust moneys} in the general account. His Honour eaid mat the bankrupti admit toi meet ou,pat>.e neglect iw placing the account in clerka naauis. That was just as tne state- ! meat pufc it. j Air joynt: That puts it very mildly. ' His Honour cuju that t3ie baJikxupt ' frankly admitted that he had taken noi control of c.ients uealt with by Goodman,, and that wae apparentily what -Mr Joynt wanted. •Ur Juynt: 1 want something stronger, your Honour. Bankrupt further stated that he a-nd j Goodman did not enu-.r togetner. into* speculations with money belonging to clients, and he was m)t aware that| • Uuoaaian. speculated w.'tii euch money. ' Ho liad joined with one Curlett in 1 lending money to clients. Curlett vrufi * a c.ient and dealt with Gocdman, ,©x- j' oept that witness sometimes gave hiini 1 j le-gal ativice on his bus.iiece. Ho knew( ' fliat Curlett wae a money-lender, aix."| * advanced money at high rates of in-t > <■ tweet. He knew tliat Gootlman antl ' Curlett had money transactions to*, i gether, having been a< eociated in lend* j ing money. He did not know the ex- ' t».'nt of their transactions. Goodman i received a salary of £4 10s per week, i Securities for tho loans mad© by Good- j * man land Curlett were prepared in « bankrupts office. Hβ had full confid- c eneo in Goodman until some time be- 1 fore lie left tlio office in April, 1905. I His eyes began to be opened when v McNally called at the oflace about the o end of 1901, and paid off a loan which t ho had kad from a trust, of which t witness wae trustee. Goodman gavo him a receipt, but in Januai-y or Fob- » ruary, .1005, McXally complained that a Goodman had not given him a release n from the mortgage. Gocdman had had ° no authority to interfere with, the I trust. Bankrupt then arranged that <■ Goodman should go. Only during tho ! t past four or five years bankrupt had I o become aware of Gcodraan's failing. J s , in not making entries in the books and * Koglecung to fmisli busintes under- *' taken foT clients. Bankrupt trnstod Go&clman implicitly, and the more roadilv be-causc he had private means. ! tj For three or four yrans Jio had great j difficulty in getting Goodman to make i n proper ontrieß, hut it did net occur to ' C! him that he should have tho books ?' thoroughly investigated. Bankrupt . v further ndmittet] thnt he discovered he a ' owed some of his clients more than Lβ T* cxpocted. but took Goodman's asstir- ; h ance that there wore seciir.if.iofi again<t ' liiri liabilities. In May. 1005, when his ifrairs wore invwtigated %Mr Ollivi<;r, i . he thotiffht at the worst he would have J 1 •omo £3000 to meet, and as a matter Sf ■>f fact outride of Brown's Trust, he aid not owe more tlian. £400 or ■LOO t<: o clients. Ho attributed his losses to "' aking too optimistic a view of wctiri- " :i'.."<=. and partly to guaranteeing \ n iocuritie< to clients. Apparently Gr,odnan paid ont mnrey to make" up for *" socurities which turned out deficient p! Jankrunt had his books balanced last P. 1 .on , .** fisht or nin<? roars ago, and on ■ \pri! 20th. lt'os, made an assignment Jo o his cr«litors. Mr Dougall took up the examlna!o;t, and elicited the statement that i"hen tho bankrupt began practising on iU own account, h-o put about £300<) R. nto tho business. He was euro ho did fr tot terraw niomey from the truet ac- }* oTint to make up the general account. Si 'he Bank of New Zealand had never Bi

pressed, as far as he could remember, tor payment of an overdraft. Money, might have gone in from the trust account to tho general account, but tbei would be securities for it. Goodma brought a groat deal of business to til ! office. The sum of £4 10s per week wt not the limit of his drawing, but h salary was understood to be £2.50 a yea: He had no percentage of profits. Wii ness thought that he did sometime draw more than his salary, but h sometimes lent money to tho office His Honor said that it appeared in possible to get anything out of th bankrupt, without the*, books havin been first examined. Counsel sceme i able only to go fishing, for the bejil rupt said practically that he knei nothing Mr Stringer said that he had cor sidered the public examination promt ture. His Honour replied that It seemed t be simply a fishing expedition. As rule public examinations were futile and in the case l>eiore him the exaim nation seemed moro than usually futile j Tlie accounts of the busiuejss were ex oeedingly complicated, and ciothin. I could be tlone until they were investi i gated. A public examination was pre sumably a moans of preventing a bank rupt applying for an early discharge but. an etu'lv application was hard"; likely. Mr Joynt: If we wait for tho ao counts, wo may have to wait till th< Day ol Judgment. His Honour: But surely that doesn"' tho position. You don't sugges that an early application for dischargt is likely. Tho public oxaminatio; s ems to be merely a method adoptee of blowing off steam. Mr Denial! wiid that the creditors uncLubt.xiiy wished to tlo something i and the public examination was thou only opportunity. | After the luncheon adjournment, bankrupt stated that he had lent money to one Hamiil on a second mortgage Ho could not say whether he mortgaged Iris house to one Gould, but he paid Gould a considerable sum ol money. He believed that the certificate of tit'e was deposited with Gould, but there was no registered mortgage. Hia Henour asked why Mr Dougall was going into tho matter. Mr Dougall said that he represented a number of creditors who wished to orquirc fully into the bankrupt's affairs. I Tho creditors had found it very diiliI cult before the banKruptcy to obtain | any information from the laakrupc. [ His Honour said that he trusted that the questions woultl be made relevant. If every creditor could come and ask general questions, the proceedings would bo interminable. Mr Dougall said, in reply to the Court, that he dud >nnt represent Hamili, but he submitted that he was entitled to mention any transaction that might throw light o» the bankrupt's methods. Bankrupt further stated that Hamill's matter wan undertaken on the understanding that it would bring legal work to the office It was not a practice of the oflico to lend money for the benefit to be obtained by tho office through legal work. Han-.ill's matter included the possibility* of a great deal of business in the way of cutting up land, and that was an inducement to him to make the loan. Some years ago witness took up an aotion of Biett v Cox, in which the coits were to bo guaranteed, but the guarantee was not forthcoming, and the costs were paid by witness. Mr Dougall a-ked whether guarantees hail been given by witness. Bankrupt asked whether the question was asketi on behalf of Carlett. He wished to know whether the question should bo amsworod, in view of the fact that Mr Dougall was acting for Curlott. His Henour atked whether Mr Dougall was acting for Curlett. Mr Dougall replied that ho was, but he had no intention of seeking any information that might be of use in Curlett's case His Honour said that tho fact that Mr Dougall was acting for Curlett seemed a reasonable ground for tho opinion that the examination was premature. It was not desired by the Official Assignee, who acted for the great body of creditors, and there could be no question but that it Mas useless in view of the present condition of tho estate. It would be far better to postpone tho examination, than to go into matters that might affect the future action of the Official Assignee. Tho whole proceedings seemed futile. Some further discussion ensued, in the course of which his Honour reiterated his opinion that the examination was useless, and asked whether Mr Joynt was not of opinion that a postponement would be advisable. Mr Joynt replied that ho was forced :o the conclusion that the proceedings vere not in the interests of the estate. Mr Hoban, who had taken his place n Court after the adjournment, iita,tcdl hat he appealed for Mr John'ton, a, arge creditor. Ho tnought that the ibjeot of the enquiry was to obtain iiller evidence than that which the Dfficial Assignee could possibly obtain. Mr Stringer said that it woif.d take nonrhs to complete the invest, gatdon if the books, and until that was dona ittlo progroi-s could be made. After further evidence, His Honour delivered the following udgment :—"The application of this ection of tho Act, it seems to me, is ery frequently misunderstood. " Its bjeet—the public examination of tho ankrupt—is not tlie obtaining the inormntion es to tho bankrupt's affairs, 'his is provided for by the machinery of , ho Act. which provides for the sworA ', xamination of the bankrupt, of his ooks, and of all parties who may give ; iformation before tho Official A*siguee. ' 'ho public examination of tho bankrupt ■ i supposed to bo subsequent to this, and i 0 be assisted and made practicable by ho aid of these preliminary cxamina- ' ons. No bankrupt, can possiblv bo J xamined satisfactorily <in public withut this preliminary investigation. , his is illustrated by the case of in re ' Lawrence (22, L.T., N.S.. p. 246), hero it was held that it is the duty ' f the trustee, prior to public cxaminaon of the bankrupt, to examine into ' 10 accounts, and require production of ooks and all such information as < tight bo necessary for the explanation ' F tho bankrupt's affairs. There ia ' nother illustration of this in the case I r in ro Mvlno, re Pen'ciT" (28, ' .T., N.S., "p. 175). In this ise it was held that it is the duty of ' 10 Court to adjourn the public ' eamination of the bankrupt if his • atemomt of affaire, filed pursuant to i io Act, be insufficient to inform the J usteo of all tho facts relating to the I f inkrupt's estate, and his dealings 1 icrewith. A full consideration of both ' * leso cases will show what should l>e a ! mdition precedent of such an exam:- t ition. In the present case, as. I indi- 4 ited early in the examination, none 1 these materials can be brought be- 4 re the Court. There are complicated counts, and many matters which will' quire very full examination at the I l inds of the trustee. Any public exnination at this stage must therefore 1 premature and unsatisfactory. I ink the Official Assignee was quite - stificd in his statement that tho prent application is premature, and, m v me respects, calculated possibly to In- j g rfere with the satisfactory wineling jfj lof the estate. The obvious cotir.se '■ £ 11 be to adjourn the present proceed- ! b ss to a future time, when tho Official signee will, it may be hoped, be in £ v-soss-ion of the materials to make a X blic examination effective, when the -. oceedings may be commenced prae- a' ■ally de novo. Tho case is there ad-i irned sine die. I