JUDGE RESERVES DECISION

Press, Volume LXXXIII, Issue 25282, 6 September 1947, Page 5

JUDGE RESERVES DECISION

DISCHARGE OF ORDER SOUGHT

APPLICATION MADE BY DIRECTORS

“There was some difference of opinion between Mr Donnelly and myself about the payments for chattels going on to Newburgh. I disputed it, but [I nqw have to say that as the ’proI ceeds of the sales of plant were received these amounts, or substantially these amounts, were usually paid to the debenture holder,” said Mr K. M. Gresson, counsel for the applicants when the hearing of a motion for an order discharging the order that William Samuel Newburgh and Peter Belford Watts, public accountants, attend the Court for public examination on their dealings as directors of the Southern Cross Construction Company, Ltd. (in liquidation), was resumed in the Supreme Court at Christchurch yesterday before Mr Justice Fleming. Decision was reserved. Mr A. T. Donnelly, counsel for the Official Assignee, then made submissions on the law His submissions on the facts were made on Thursday, the first day of the proceedings.

If j'our Honour comes to the conclusion that there is a prima facie case °a_ “' aud > h remains to be determined whether it is competent for the order to stand. If there is no fraud according to the standards of ordinary, every-day men then that is the end of the matter,” said counsel.

He agreed with Mr Gresson that the proceedings in seeking an order for public examination should not be ex parte, Ry’’ they should go to hearing and the legislation should be amended accordingly. A man should be heard before an order was made, but counsel did not make the law, and they had to take it as it stood, continued Mr Donnelly. . More Stringent Legislation During the last 25 to 30 years the tenaency oi company legislation, in its history and development and because of just such happenings as we have here, hes been to create new statutory offences de . vlse new methods to catch up with the ingenuity of that small portion which does not live up to the standards or the ordinary business community,” continued counsel. ♦u\ et U conte n d ed by Mr Gresson ion}’ °l? th £_ au ,tbority of one case in 1894, when the development of company law had not reached its present stage, the section of the act could be amputated to furnish a right of inquiry into conduct of direetprs and company officers towards shareholders, but no right to inquire into their conduct towards anyone else. That was a reactionary construction of the section of the act and contrary to the tightening up of company recent years. If they were not entitled to have a public examination on fraud on creditors, why were creditors given the right to appear at examina!L OI i s L asl £!i counsel. Mr Gresson had said that the Official Assignee’s report was not complete, but he contended that the report was a completely fair and comprehensive document without going to interminable length. It had taken long and careful preparation. Mr Gresson said that even if the directors were found to have comn-utted fraud they could not be touched on a public examination because the fraud was committed against creditors, but if it was against the shareholders they would be “for it” on a public examination, said Mr Donnelly. His Honour: I would like to hear you on the question of fraud. Mr Donnelly: Fraud is that conduct which connotes actual dishonesty and involves, according to current notions of fair trading among commercial men, real moral blame. Every businessman knows what these standards are, and the Official Assignee says, for reasons given in his report, that Newburgh and Watts have fallen below, and far below, the normal, everyday standards of honest and honourable men. Inquisitorial Examination ‘The section of the act quoted by my friend does not mean that there has to be fraud against creditors to give them a right to be present at a public examination,” stated Mr Gresson in his rePj y • "If, they say we have been guilty of fraud let us be charged with fraud and have a fair trial—not an inquisitorial examination. If there are frauds by directors against creditors there is a proper procedure to take. “Mr Donnelly twitted us with seeking to evade a public examination. My submission is that the twitting entirely fails to t?ke a realistic view of the position and fails to establish any grour.ds lor sucn an examination. What public man of any standing would voluntarily submit himself, however right he might be, to being pilloried in what would be a fishing expedition) to see if he would incriminate himself? I challenged my friend before, and I challenge him again to charge us with fraud and let us have a fair trial. I submit that the order was not warranted by the facts. A public examination is an unsatisfactory type of proceeding and alien to our ideas of justice, and these directors were perfectly justified in refusing to rehabilitate themselves in such a manner in the public eye,” said Mr Gresson. “Does this report of the Official Assignee establish fraud? Where is there any dishonest dealing? Mr Donnelly’s survey was a distortion, extravagant, illadvised, and a medley of innuendoes. He would not have stooped to a presentation of that character if the report had been sufficient to establish his case. His remarks were ill-fitting and uncalled for—‘burying the corpse l T ‘picking the bones clean!’, ‘putting the creditors to sleep I’ This is a serious matter. It is easy to be facetious. This matter should have a calm, detailed and deliberative examination of the facts—which I have tried to give it. Mr Donnelly says ‘they farmed and manipulated the affairs of the company.’ Well, I say he farmed and manipulated the facts to present these directors in as unfavourable a light as possible," said Mr Gresson. Definition of Fraud An appearance of fraud on a superficial survey was not enough to warrant these proceedings. There must be actual dishonesty found on a detailed examination of the facts. Defining fraud, Mr Donnelly had offered a loose measure—the standards of everyday men. That was not the standard. It must be precise, said Mr Gresson, who then quoted the following from a judgment:—“Fraud is a term which should be reserved for something dishonest »and morally wrong.” What such fraud was committed in relation to this company? he asked. Conduct which, in a colloquial term, was not 100 per cent, was not enough to constitute fraud.

“Mr Donnelly’s criticism was devastating and ruthless, but there was nothing constructive,” said Mr Gresson. “The only offence that I could collect from it was that the directors should have called the creditors together. But that is not fraud. It is glib enough to say the creditors should have been called together, but it was not practicable. They were scattered all over the North Island and the directors were here in Christchurch. When a meeting of creditors was called, only 13 attended. At what stage should the creditors have been called together? The crucial period was from June to December, but conditions, were fluid and there was ho need to consult the creditors.

When it was decided to cease operations the sales of plant proceeded and the money went to the debenture holder, as it was right that it should. The failure to consult the" creditors might be disapproved of, but it did not constitute fraud. There were constant reports to the creditors and they were given correct accounts of the position. It was November when the first hint of a deficiency appeared. When the meeting was called the creditors had every opportunity of investigating the position.

There was one other aspect of the Official Assignee’s report which made it quite inadequate to support a charge of fraud, continued Mr Gresson. The company’s cash book was not exhibited. The report did not show what moneys the directors had at their disposal or what happened to these moneys in their entirety. The report, with its deficient, unbalanced nature, was inadequate to support the charge of fraud. There was not one element of fraud, or anything left undone which should have been done.

“I ask your Honour that, if you are not satisfied I have made out a case for the discharge of the order, you give a written decision, or if it is an oral decision. you fix a time so that I can have the opportunity of taking it down,” concluded Mr Gresson.

His Honour: I will do that. I will reserve my decision. The order for a public examination will stand down in the mean-