CITY MERCHANT’S BANKRUPTCY

Press, Volume LXXI, Issue 21655, 13 December 1935, Page 12

CITY MERCHANT’S BANKRUPTCY

UNSUCCESSFUL CLAIM FOR INSURANCE FIRE QUOTED AS CAUSE OF FAILURE A fire which destroyed a Lichfield street building in June last year and which was later the subject of a coronial enquiry was mentioned at a meeting of the creditors of Ronald James Davidson, a young city merchant, yesterday morning. Davidson told his creditors that he attributed his bankruptcy entirely tp this fire and to the refusal of an insurance company to meet his claim for insurance on stock which he said was destroyed by the fire. . , , Davidson, whose statement showed a nominal deficiency of more than £6OO, was questioned for time about his transactions by the Official Assignee, Mr J. H. Robertson. Then bankrupt and his solicitor withdrew, and the creditors discussed the position in committee. It "as announced later that the meeting would be adjourned, pending an investigation ox certain aspects of the bankruptcy by a small sub-committee of creditors.

Financial Position The financial statement of bankrupt was as follows:—Amount owing to unsecured creditors, £2588 8s lOd; secured creditors. £1637 Os estimated value of securities £1574 IBs 8d: making a total of debts of £2650 11s. Book debts were estimated at £200; and on the credit side was also quoted a claim against the Guardian Assurance Company of £IBSO. xotai assets were thus valued at £2050, leaving a deficiency of £6OO 11s. Bankrupt’s Statement Bankrupt, who is single and aged 27. said in his written statement that in October, 1930, he started business as a wholesale merchant and indentor under the name of Davidson and Company in Lichfield street. He put approximately £525 into the business, and his sisters also put in a certain amount on deposit, about £330. Money was secured from other sources. Bankrupt’s father attended to the inside work of the business, and bankrupt was the traveller. His sister was in the office, the business being in the nature of a family concern. In 1931 Davidson and Company purchased a farm at Amberley, and ran it for 12 months. It was sold at a profit of approximately £2OOO, the proceeds going to Davidson and Company. The balance of withdrawals from the firm kept the family. , . . At the beginning of 1934 bankrupt decided to form Davidson and Cornpay into a limited liability company. The business was formed into a company, with a capital of £1250. Bankrupt had all the shares except one, held by his father. The company was to take over all the assets and all the liabilities of Davidson and Company, and entered into a preliminary agreement. The company did not function, and had no bank account.

Fire in June On the evening of June 7 a fire in the premises of Davidson and Company practically destroyed the building and the stock and plant. Bankrupt was in Wellington at the time. At the time of the fire Davidson and Company was solvent. The insurance on the stock was held by the Guardian Assurance Company, and the insurance on the plant and furniture by the Union Insurance Company. A claim was made for the insurance. The Guardian Assurance Company took possession of the salvage stock, which was sold, and commenced valuing the stock that had been destroyed. The proceeds from the sale were paid into the firmis account. A coroner’s enquiry was held into the fire in October, 1934. The coroner’s finding exonerated everyone connected with Davidson and Company. The Union Insurance Company paid the father’s claim for furniture destroyed, but the Guardian Assurance Company refused to pay bankrupt’s claim. It was later decided to hold an arbitration to decide the value of the stock destroyed in the fire. The company claimed that it was not responsible, as the policy was held in the name of Davidson and Company, which had no insurable interest in the goods destroyed because a limited company, had been formed to take over the assets and liabilities. _ If this was so, bankrupt claimed in his statement, he was not responsible for the liabilities of Davidson and Company, Ltd. A committee of creditors approached the assurance company to see if a settlement could be arrived at, but had no success. The company refused to pay out without taking the matter to arbitration, and bankrupt filed. Purchase of Store Bankrupt took over the A.B.C. Store at the corner of Armagh street and Manchester street in March, 1933, and he paid approximately £2OO for it. After the fire enquiry some of the creditors of Davidson and Company pressed for payment and bankrupt paid them out of A.B.C. Store’s money; expecting to reimburse the business when the insurance was paid. This left the business short of finance. This, and the money that was lost by the disorganisation of Davidson and Company and expended in fees and expenses on the fire enquiry, made the position of the business very unsatisfactory. The business was sold for £458 17s 6d. Bankrupt had been supplied by certain people on a cash-on-delivery basis. When finance was difficult those creditors allowed further credit to give him a chance to carry on until he could obtain something definite from the insurance company. Cheques were later issued for those accounts, but he was not able to meet them. After explaining how he had distributed the proceeds of the sale, bankrupt said that he was left with an overdraft of £438 4s 4d against his insurance policy. He was now managing the A.B.C. Store. With the exception of one account for £6lB 9s 2d and one or two very small accounts, all his creditors were creditors of Davidson and Company. He lived at home with his parents and his wages went to keeping his household. "Under examination "by the Official Assignee, Davidson said that Davidson and Company had not produced a bal-ance-sheet during its operations. The firm merely had a rough idea about the way the business was getting on. He thought the £1250 put into the limited company fairly represented his interests in the company, with the addition of goodwill. Family’s Needs Asked about the purpose of forming the concern into a limited company, Davidson said that it was considered that there was sufficient in Davidson and Company to keep the rest of the family, but not to give him anything like a wage. He then decided to purchase the A.B.C. Store and build that up for himself while Davidson and Company kept the family. Bankrupt said during the examination that he had not taken out a balance for A.B.C. Store. ~ , „ The creditors of Davidson and Company were not notified of the change of status of the company, and the bank account was not altered to the name of Davidson and Company, Ltd. A plate, bearing the new title of the firm, was placed on the door a considerable time after the formation of the limited company. He thought that was just before the fire. Billheads, etc., were not altered. Davidson and Company, Ltd., did not take over the liabilities of Davidson and Company, “As far as we were concerned Davidson and Company, Ltd., did not function as such. We did not discuss the steps which should be taken to complete the changeover with legal advisers,’’ bankrupt said. “To all intents and purposes the firm was still Davidson and Company.” Company’s Refusal To Pay Davidson said that the insurance comp any tod aaitl that the-amount

the stock destroyed in the fire was not anything like £IBSO, and they refused to pay out. If the full claim had been paid the company could have carried on. Bankrupt agreed with the assignee that in the light of subsequent events it would have been wiser to have called his' creditors together when it appeared that the claim would not be met. He said that the purchaser of the A.B.C. Store was his aunt. When asked if it did not occur to him that other creditors might have been consulted about the distribution of the proceeds of the sale his reply was that at the time he did not know his position about liability for the debts of Davidson and Company. Bankrupt said that he wanted it understood that he did not offer any preferential treatment about the sale of the store. It was a genuine sale and the business had previously been offered to Royds Brothers and Kirk, with whom he had been doing business, and at whose valuation it vai sold. ,