TOBACCO COMPANIES

Dominion, Volume 33, Issue 281, 22 August 1940, Page 12

TOBACCO COMPANIES

Public Examination Of

Officials

BALANCE-SHEET AND DIVIDEND (By Telegraph—Press Association.) AUCKLAND. August 21. The public examination before Mr. Justice Fair in the Supreme Court of officers of Loyal. Limited, and Consolidated Tobacco Company. Limited, two

companies in process of being wound up. continued today. Edward Valentine Gwen, re-examin-ed. by Mr. Mackay, said he and his father, who was one of the first, growers of tobacco in New- Zealand in a large way. conducted experiments and arrived at the conclusion that New Zealand leaf had different bacteria from that, of American leaf and they endeavoured to inoculate the local leaf with lite bacteria of the American leaf. When lie started with Loyal. Limited, lie had evolved a full process. The time required by his method was much shorter than for other processes' in New Zealand. While he was with Loyal, Limited, lie was offered a contract to go to Australia. Mr. Davie, Melbourne, was prepared to pay him £30.000 to take his processes to Australia. He did u£>t accept the offer because of his interests in Loyal. Limited. Eventually he agreed to sell his formula for £20,000, taking pat t payment in shares, because he regarded shares as likely to be more valuable than money. Replying 'to Mr. Aleredith, witness said lie had one letter mentioning the Melbourne offer, but did not think it stated the price be had been offered.

The case is proceeding. .Michael John Mahbr, hotelkeeper. Wanganui, said that before the formation of Loyal, Limited, lie was an accountant and company secretaryOwen and he were the main factors in forming Loyal, Limited. Of the other three directors, one was an electrical engineer, one a retail tobacconist, and the third had no experience of tobacco. 'Witness subscribed £lOO and later took up 95 shares. I'ii the first year there was a quite substantial loss of £1321. Next year the balance-sheet showed a profit of £4535. and in January of the following year the Customs Department issued a writ alleging £(1800 shortpaid duty. There was no previous arrangement that witness should get a substantial share of money paid by the company to Owen for his formulas. That was entirely in Owen’s hands. Mr. Meredith produced a balancesheet taken out by witness on February 28, 1935, showing a net profit of £304.

Mr. Meredith: 'Were you justified iu then writing to shareholders: ‘‘As at present advised the company can pay a dividend of at least 15 per cent”? — Fully justified. Not on those figures?—Yes, because it was a rough balance-sheet. I knew there would be at the very minimum that profit.

■With a net profit of £304, would you be justified in declaring a 15,per cent, dividend? —It would be absurd. , In reply to further questions witness said that nine days -after getting authority from shareholders to increase the capital, the value of Owen’s formula was increased from £lO.OOO to £20,000. The latter figure left a margin of £12,000, after payment of £BOOO to Customs.

Discussing the demand of the Customs on Loyal, Limited, Mr. Meredith asked whether it was not. a plain fact that the company watered the tobacco outside bond, and that was where the increased weight” came in. ■Witness said that possibly the Customs was told that. He denied that J. Grierson had told him that the stock figures in his balance-sheet of April. 1935, were inflated. He bad heard Grierson had said that, but he did not take much notice.

Out of £70,000 fresh share money. £16,000 went to Owen for his formulas, and witness got approximately £2OOO, lie said. 'Subscribers of the £70,000 lost all their money, and creditors of Loyal, Limited, got 14/- in the pound. He had nothing to do with the valuation of Loyal’s stock at the end of April, 1935, at £51,000. This ended the examination.