COMPANY FINANCE CHARGES OF FRAUD

Evening Post, Volume LXXXVII, Issue 75, 30 March 1914, Page 2

COMPANY FINANCE CHARGES OF FRAUD

A JOURNALIST'S CLAIM., The stoiy of a fir&t venture into tho difficulties of company financing was told in the hoariny of the action Cox v. Heyes and another at tho Supremo Court, this morning. Mr. Justice Edwards presided. Tho plaintiff, Lloyd Cox, journalist, claimed £437, with -interest and damages, from Peter Heyed and Joseph M'Cluggage. Mr. Blair appeared for ihe plaintiii, and Mr. Petherick for tho defendants. Prior to the opening of the case, Mr. Petherick asked for the case to be struck out on tlie grounds that, in thesucccsssiva amendment;} of the original statement, of claim, an entirely new causo of action had been set up. It was contended by Mr. Blair that the several amendments had all been made in accoidanco with orders of the Court, and had not been appealed against by the defendants, and after his Honour had expressed his opinion, Mr. Petherick abandoned his application. ' INVOLVED TRANSACTIONS. A lengthy statement of the involved transactions leading to the charges was made by Mr. Blair. Some years ago Mr. Frank Hyde, a private secretary of Sir Joseph Ward, took over the conduct of the Whangarei Advocate, a daily newspaper published at Whangarei. He was unable to make a success of the venture, and raised a loan of £1700 from Mr. F. Mander, M.P., the security given being a bill of sale over the newspaper plant and two life insurance policies for £500 each. Mr. Hyde died in September, 1909, and Mr. Mander, being the only secured creditor in his estate, became the possessor of the paper. The clearing up of the estate was undertaken by the Public Trustee, but in the absence of assets the creditors had the prospect of losing all their money. Mr. Peter Heyes was then Commissioner of Taxes, and, acting on bohalf of others, he proceeded to float a company and, as agent for tho company, agreed to pay Mr. Mander 10s in the £ on tlie amount of his bill of sale, the sum thus promised, and accepted by Mr Mander, being £813. Tho plant and one insurance policy were handed to Heyea, and the other policy was returned to Mr. Hyde's widow. The plaintiff, Lloyd Cox, was appointed to conduct the paper, two qualifications required of him being that he must possess the goodwill of Sir Joseph Ward, and must invest £500 in the business. He and Mr. Heyes had an- interview with Sir Joseph, then Prime Minister, and it was then decided that^ the company, to rehabilitate the goodwill of the paper, should pay all the unsecured creditors 6s Bd^ in the £, through tho Public Trustee. In due course, tho company was registered, Heyes being shown as the holder of 500 shares, Mr. M'Cluggage as the holder of 250, and the plaintiff as holder of 500 course, the Company was registered, Mr. Heyes, J. M'Cluggage, John Plimmer, the late Arthur Lodder, and the plaintiff. The paper ran for two years, when Heyes commenced to draw out of the working account large sums of money, giving Mr. Mander a promissory note in the name of the company for £250, being the balance of the purchase money. Dur> ing those two years no money had been piovided for the plaintiff at Whangarei to finance the paper, and as the Wellington office of the company made periodical demands upon the earnings of the business, tho manager, on 7fch January, 1912, demanded that the director* should meet at Whangarei and explain why, with a capital of £4000, half of which had not been accounted for, tho business was being penalised by the transfer of money to Wellington. The defendants Heyes and M'Cluggage, with John Plimmer, went to Whangarei, accompanied by Mr. W. J. Napier, and a meeting was held, at which Mr. Napier assured the plaintiff that when the bal-ance-sheet appeared he would see where the capital had gone, and that the position would be satisfactory to him. He was given a vote of thanks, and entertained and praised by the directors. In the following March the annual meeting of the company was held, and tho balance-sheet issued. Tho plaintiff could' not attend, and did not receive a copy of the balance-sheet until after the meeting was over. To the Burprise of the shareholders at the meeting, the balance-sheet set forth that the company had bought the business not from Mander, but from Heyes, for £2500, and that under an agreement the company was liable to Mander for £250 of the, purchase money, to Heyes for £686, and for £500 to the Bank ot New South Wales for an advance. There was a warm discussion, and Mr. Plimmer, one of the original directors, repudiated tho agreement and moved that legal advice should be taken as to the validity of the document. Heyes then despatched Mr. J. D. Sievwright to Whangarei to see the property, and to introduce the balance-sheet to the plaintiff who was much surprised when he saw it. He found tha^ the company was bankrupt. Application was made to the Supreme Court for an inspection of the company's affairs. The defendants persuaded Messrs. Gilmer and M'Guire, two of those* who, with the plaintiff, had made the application, to withdraw their affidavits, and the application could not proceed. The defendants, acting as directors of the com* pany, then mortgaged the assets to Sievwright for £2000, and proceeded to pay the disputed claims in the balance-sheet. The plaintiff was dismissed from his position, and Sievwright was appointed manager. Debentures were issued and the shares were reduced in value to 2s 6d. The plaintiff's claim was for tho difference in the value of his bhares thus brought about on his holding, £437, with interest and damages. OPENING ADDRESS BY PLAINTIFF'S COUNSEL. In the course of his opening remarks, Mr. Blair mentioned, among other circumstances, that the plaintiff had paid £400 for his £500 shares, and that that sum, while admittedly received by the defendants, had never appeared in the company's books. Ho alleged that tho sum had gone straight into Heyes's pocket. The insurance policy for £500, which, in consequence of Mr. Hyd&'s death, was as good as a cheque for tho amount, had been given by Mr. Mander to Heyes, and he had not accounted for is yet. The whole capital of the company seemed to have been absorbed by Heyes, leaving the company on the rocks of bankruptcy. f The subsequent history of the paper was that its affairs became so bad that Mr. Mander bought it again to save it from extinction, and it was now running under different management. llegaiding the defendant M'Cluggage, Mr. Blair said that he and Heyes were closely associated throughout the business, as they had been in other affairs, and were, equally involved and blameworthy. THE EVIDENCE. Thomas Arthur Lloyd Cox, the plaintiff, said that he was a journalist, and had never had any business training, or any experience in company finance prior to his association with the Advocate. He had saved £800 or £900 from his ■\sages, a,nd, wishing to invest it, approached Mr. Mander, who, having sold the paper to Heyes, referred witness to the latter. Heyes told him that he had bought the paper horn Maniler at iOe in

the £, on his mortgage, and asked him if ho would invest in the paper if appointed managing editor. Heyes mentioned that Sir Joseph Ward had asked him to form the company, and that tho capital was to bo £40Q0. His Honour: Sir Joseph Ward does not sei'in really to have had much to do wifli tile ca&c. Mr. Blair. No. He had nothing to do with it. Witness continued that ho had taken up the position and had carried on the business, financing it to a considerable extent with his own money. Merchants had enquired who would be responsible for tho debts of the paper if there was any trouble, and he had leplied that he would be personally responsible, thus standing by Heyes while he was forming the company. For some months he was unable to get any replies from Heyes to bis enquiries as to the progress of the company. He urged Heyes to get the company floated, and to buy a linotype machine, which was provided in June, 1910, prior to the formation of the company, but on its behalf. With this improvement the paper began to show a profit. Subsequently, on the recommendation of Heyes, when the company was formed, the witness was given a bonus of £100 for his assistance prior to the formation of the company, and he agreed to allow this to go towards paying for the 500 shares which he took. In the company's minutes this was shown only in an entry that he was to receive 500 shares for £400. He never saw anything of the agreement to purchase until after his dismissal, and it was not read' or examined at the first meeting. No statement of any advances was^ftade, and an entry on the minute-book referring to them was not in the book when he saw it a year later. The entry had been forged afterwards, and read "also a statement of advances to P. Heyes." In the conduct of the business claims were made upon him by Heyes for payment out of the trading account liabilities which should have been paid out of the capital account, and no money from the capital account ever came to Whangarei. He had sent Heyes £150 to be paid to Mr._ Mander, but it was not paid over until considerably later ; Mr. Mander had to sue for it. After several letters to Heyes asking for information as to the disposal of the capital, witness was visited* "by four directors, Nvith Mr. W. J. Napier, of Auckland, but they brought no books or documents with them. (Proceeding.)