SUPREME COURT Public Examination Of Company Director Begins

Press, Volume CX, Issue 32360, 28 July 1970, Page 8

SUPREME COURT Public Examination Of Company Director Begins

The public examination of Stewart Industries, Ltd (in liquidation) began in the Supreme Court yesterday before Mr Justice Macarthur. The managing director of the company; Edward Samuel Stewart, was still under cross-exam-

. ination when the hearing was adjourned to August 24. Mr N. W. Williamson appears for the Crown, and Mr G. S. Brockett for the company. When the company went into liquidation in 1885 it had a deficiency of £82,155. Edward Samuel Stewart said that he was a selfemployed radio technician. He was formerly managing director of Stewart Industries, Ltd, which had earlier been known as Stewart Electrical Industries, Ltd. He was an undischarged bankrupt The company was formed in 1960 and he had not been in business before that date. Before that time he had worked in the radio industry in the United Kingdom and New Zealand and was an associate member of the British Institute of Radio Engineers. The company was formed to manufacture record players, amplifiers, radiograms and associated electronic equipment It commenced with a fully paid up capital of 4000 £1 shares. He held 3510 and his wife 490. The money came from his family by way of a guarantee made to the Bank of New Zealand for a loan. His wife was secretary and he controlled the company, Mr Stewart said. J. W. K. Lawrence, his wife, and witness were responsible for the records of the company. Until the last year of the company—l96s —no full time accountant was employed. A Mr McGregor was employed in July, 1965. No audit was ever made of the books.

Rapid Growth The minute book of the company was kept by J. W. K. Lawrence . and Company. Witness signed all the cheques for the company, except when he was out of Christchurch, and then they were signed by David Lawrence on his behalf. Mr Stewart said that the company operated on an overdraft and had a pension fund 1 for senior male members of the staff. Asked why the pension fund was in overdraft, witness said it was left to the manager of the company, and if he did not advise witness when payments were due to the insurance company the account would go into overdraft He agreed that from its

early days the company was always in difficulties because of its rapid growth. In May, 1962, he went overseas to find markets for his company’s products. Mr Williamson: If the growth was so rapid in those early years why did you go overseas to look for other mar kets?—Cast your mind back to 1962. The New. Zealand economy at that time was as grave as it is today and 1 felt that with my experience and training overseas that 1 could contribute to New Zealand’s economy in a small way and at the same time place the company in a better posi tion with our import lictns ing. “It may be argued by some creditors that this was wrong but if we had been more suecessful—we were retarded by Government interference—they would have benefited immensely from it," said Mr Stewart. Cheque Dishonoured He agreed that in June. 1962, a letter was received from B.S.R. stating that it had presented a cheque from the company three times and on each occasion it had been dishonoured. He was not in New Zealand at the time and accommodation was not made at the bank. Mr Stewart admitted that the company always had some difficulty in meeting its trade creditors. It had started with a capital of £4OOO in the form of an overdraft guaranteed at the bank by his family, in 1965 the deposits held by his family with the bank were uplifted. In its first'year the company’s sale of goods amounted to $BBOO and in the subsequent years the sales totalled £lll,OOO, £150,000 and £170,000. This created a situation where it had to lean heavily on its creditors. When the company started he obtained a loan from his father and in 1963 he bor-

rowed money from Sales Expansion, Ltd, because the company needed money to meet an overseas shipment of goods. The amount owing to the bank increased as the company expanded. Credit Not Sought In November, 1963, the company entered into an agreement with Pacific Fac tors, Ltd, a subsidiary of Fletcher Industries, for further capital. The benefits were not what were expected because the bank requested repayment of an export de velopment loan. The agreement provided for a continuous audit by a public accountant and for accounts to be supplied every six months. The audit was never carried out. It was discussed with David Lawrence and their common thought was that since Fat tors was reaping a percentage of the company’s turnover they felt that It did not permit them to interfere with the existing arrangement they had with their public accountant which they found satisfactory. To his knowledge Pacific Factors at no time requested an audit but an officer of the company checked that goods had been dispatched on a number of occasions. Shown a letter from Pacific Factors, Mr Stewart agreed it asked for compliance with the audit requirements. This was not done and no further request was received from that company. In 1964-85 the bank overdraft was regularly more than £6400, said Mr Stewart. Towards the end of 1964 he negotiated with the Fletcher Trust and Investment Company about a new building. Mr Stewart agreed that a letter dated September. 1964, indicated that there had been some reduction in sales since April 1, 1964. He admitted that in January, 1965, he had placed a newspaper advertisement which stated that a strongly established company required finance. "Strongly Established”

Mr Williamson: In view of all the difficulties was that a true statement—Yes it was. We were progressing and had a history of progress. The company had 80 per cent of the market and was strongly established in the field of designing and producing equipment. Mr Stewart said that the name of the company did not appear in the advertlaement and the box number at 3. W. K. Lawrence and Company was used. The company’s solicitors had seen the adver- ' tiaement ’ and had not said it was illegal.

Mr Williamson: You described the company as a strong and progressive one, yet eight months later it went into liquidation with a very large deficiency—At the time the advertisement was inserted that was a fair description of the company. In a letter sent to persons who replied to the advertisement he had personally guaranteed amounts lent to the company and he also sent them a document entitled: “A History And Future Plans of Stewart Industries. Ltd" which he had compiled. I As a result of the advertisement he obtained loan moneys from two men in Greymouth and one in Timaru, Assets In 1985 In April, 1965, his assets consisted of equities in the company and in a property in Grange Street. His equity in the property he placed at about £BOOO. There was a mortgage of £5OOO on the property and he considered it was worth more than the £BOOO valuation placed on it later. Mr Stewart denied that his wife had an interest in the Grange Street property and said that he could not recall stating that she had at the time of his bankruptcy. “In your bankruptcy you. stated that your wife claimed an equity of between £l2OO and £l5OO in the property," Mr Williamson said. "She was advised that under the Married Women’s Property Act she was entitled to make a claim," said Mr Stewart. "I do not know how the figure was arrived at. 1 considered that the house was worth more than £12,000." Mr Stewart agreed that a 1985 valuation of the house did not show the valuation to be anything like £12,000. He said that in January, 1965, he considered that he was able to meet the guarantees he had made on loans.