Directors Fined For Failing To Keep Proper Books

Press, Volume CIX, Issue 32053, 30 July 1969, Page 7

Directors Fined For Failing To Keep Proper Books

It was remarkable that the directors of a company could be intimidated by their general manager, Mr K. H. J. Headifen, S.M., told Leslie Vernon Bielski, Donald Ayrisworth Carnielo and John Mark Maich in the Christchurch Magistrate’s Court yesterday. The three, all directors of the Credit Union of Canterbury Society, Ltd, appeared on separate charges of failing to keep proper books of account between the formation and wihding-up of the society. Their pleas of not guilty were reversed after the Crown prosecutor, Mr N. W. Williamson, conceded that their honesty was not in question. Bielski and Maich were fined $3OO, with costs.

Because Carnielo “had enough sense” to resign and announce this "publicly when he saw things were not going correctly, the Magistrate reduced his fine to $2OO. Defence counsel were Messrs A. P. C. Tipping (Maich), D. H. Stringer (Carnielo), and D. H. P. Dawson (Bielski). In giving his decision, the Magistrate said that the society was one which paid debts for its members and one in which people were entitled to place their trust. Formed in 1965, it went into liquidation on July 28, 1966. This placed a high degree of responsibility on the directors and it was not sufficient to plead ignorance of business procedure, he said. “In fairness to the accused, there is no evidence that these three are dishonest people, and I state publicly that there is no suggestion before the Court of this,” the Magistrate said. “Having heard counsel’s submissions, an extraordinary situation has arisen. What I am at a loss to understand is why the directors, with ready access to legal advice, seemed not to investigate the extent of their authority, or to even consult a solicitor. “Remarkable Letter”

“They appear to have been dominated by the general manager, yet the rules of the society state clearly that the board of directors has sole control. “I have before me a remarkable letter that is unique in my experience. From the general manager to Bielski, as a director, it says: ‘Over the last week or two, in my personal opinion, you have exceeded your position and authority in the society.’ “From this it seems evident that the manager was actually running the society. “But these people seem to have permitted their employees to operate a system at a loss.

“It may be said that the Court is acting harshly, but I am not prepared to lighten the penalty because of dominance by the general manager. Here are men running a concern and acting as trustees. No matter how njuch they attempt to place the blame on the manager, the ultimate responsibility rested with them.” Ih his submissions Mr Stringer said that this was a case of “the tail wagging the dog,” as the general manager, a Mr Forsyth, had taken on himself the running of the entire internal systems of the company.

The directors were employed elsewhere, Mr Stringer said, and when they had acted for the society all matters were passed into the hands of Mr Forsyth. Later, Mr Forsyth had assumed a domination well out of proportion and had directed that

all letters, bank withdrawals and telephone calls be handled by himself. While this did not legally excuse his client, it must be stated that accounts were locked up in a cupboard to which Carnielo did not have a key, said Mr Stringer.

With his non-existent business qualifications,' Carnielo should never have been a director, but he had been moved by the plight of people in financial troubles in the city. When it became obvious that something was very wrong he had resigned his directorship and had not accepted business on behalf of the society, Mr Stringer said. “Wanted To Help”

Mr Tipping said Maich had come into the society because he wanted to help people experiencing financial difficulty, but he had too great a lack of business experience to embark upon a venture of that nature. His neglect really stemmed from not fully investigating the running of the society when he heard that something was amiss. For Bielski, Mr Dawson said that he had become a director under the impression that the position was to "build up numbers” and was merely a formality. Until the society wound up operations he had not known how great his responsibilities really were. When Bielski had queried any discrepancy, Mr Forsyth had explained it away, said Mr Dawson.

The Official Assignee ,Mr J. B. K. Curran, told Mr Stringer under cross-examination that Mr Forsyth had destroyed documents by fire, but it was not known if accounts had been included. To Mr Dawson, Mr Curran said the society’s minutes showed that the secretary, a Mr Best, had submitted an unsatisfactory financial report to a meeting of directors on September 1, 1965. On a motion seconded by Bielski intense dissatisfaction was expressed and a formal resolution moved by Maich called for a further detailed report of the society’s financial position and accounts. Mr Best’s resignation was accepted on September 8, but a further report was submitted and accepted on September 15. Supervisor Appointed On October 12, however, a resolution proposed by Maich and seconded by Carnielo found the report unacceptable for audit purposes and a written complaint was forwarded

to Mr Best by Carnielo. 'The decision to appoint Jameson, Son, and Anderson as supervising accountants was made on May 25, 1966. Graeme Edward Purchase, an accountant, said no records of Mr Best’s period as secretary were available, but he understood a report prepared by him showed a loss of $5600.

Collectors had called at members’ homes to conduct transactions, but he had been unable to follow these dealings as there were gaps in the receipt book system. Services uncharged to members’ accounts amounted to $3OOO. Mr Purchase said that loans were made to members, but it was hard to investigate the system as double-entry bookkeeping had not been carried out.

“I think it extremely unlikely that the union would have been able to accurately know its position any time after Mr Best left,” he said.

Mr Purchase told Mr Tipping in cross-examination that Mr Forsyth had actually run the day-to-day operation of the office.

To Mr Stringer, Mr Purchase said he had no guarantee that even members’ accounts put through a bookkeeping machine were accurate, as there were no proper double-entry accounts kept. It was possible that some receipts had been missed, he said.

He told Mr Dawson that the cash book had not been kept up to date, nor could he remember seeing a regulation journal. Mr Tipping said that there were two questions to be considered —(1) That the accused acted dishonestly, and; (2) That proper account books had not been kept.

Mr Williamson said the Crown did not dispute that there was no question of dishonesty on the part of the accused. In view of this the accused changed their pleas.