IN BANKKUPTCY

Manawatu Standard, Volume LIV, Issue 109, 7 April 1934, Page 12

IN BANKKUPTCY

AGENT’S DEFICIENCY. TAYO RESOLUTIONS PASSED. Probably the largest meeting of creditors seen for some time in Palmerston North, the representatives present numbering 37, attended tbe examination in bankruptcy yesterday afternoon at the Courthouse of James Robert Mcllraith, agent, of Palmerston North, before the Deputy-Official Assignee (Mr C. E. Demnsy). Bankrupt’s schedule showed a deficiency of £1662 11s lid, and at the conclusion of the meeting two resolutions were passed. Mr A. M. Ongley appeared for bankrupt. Unsecured creditors whose claims had been filed numbered 282, some 260 of these being clients on whose behalf bankrupt had been authorised to collect outstanding accounts. Ten creditors represented trading obligations, and 12 personal debts. The list was an exceptionally lengthy one, the creditors heine mainlv business people in Palmerston North, Dannevirke, Taihape, Ohakune, Raetihi, Levin, Foxton, Shannon. Rongotea, Takapau, Otane, AA’aipawa, Kimbolton, Mangaweka. Hunterville, Pongaroa, Ormondville, Feilding, Marton, Bulls, AA’oodville, Pahiatua, and Johnsonvi'le. Debts owing to unsecured creditors were set down in bankrupt’s schedule as being £1426 17s 6d and to secured creditors £ll 5s 6d. Other liabilities amounted to £689 3s 9d, making the total debts £2127 6s 9d. The assets consisted of £167 10s Id in book debts estimated to produce £l5O, cash in hand £lO 14s lOd, and property £304, making a total of £464 4s. This left a deficiency, as stated, of £1662 11s lid. Creditors present were Messrs C. F. Spooner, AAh D. Boreham, R. P. Booth, AA r . M. Roacho (AVatson Bros., Ltd.), J. M. Rule (for G. A. Evans), J. Amos (for Mr Kingsbeer), H. P. Kirkham, Davis (New Zealand Express Co., Ltd.), Jennings (R. J. Burke), R. A. Hny, E. C. Sawliill, J. T. Moody, McKay, T. P. AA r ysocki, AV. B. AVinchcombo, K. H. Fowler, Booth, D. L. Riddell, I. Symons, E. Mitchell, A. Long (Carnarvon Hospital), J. Nicholls, F. Hall, AA’oolston (Opera House Garage), AV. S. AA’arren, J. R. AA r ood, W. J. Crawford, Mullaney (Oliver and Son), H. P. Christensen, I. Masters (J. Reed and Co., Barton and Co., L. A. Needham. Nicholl Bros.), F. McSweeney and Co., D. Norwood (E. C. Gibbs), H. Hepwortli, R. A. Maplis, L. J. Fitzgerald, H. Hamer, AV. A. Hopcroft, A. Hancock, Rose, Nicliolls (F. AV. Bedford, E. Johnston and Co., Lewisham Hospital, E. C. Bryant and Co., Dr. Tennant, Jas. Smith, Ltd.), L. Hill (Hill Bros, and Mr Ralfe). BANKRUPT’S STATEMENT. Bankrupt, in a sworn written statement, said that he was 29 years of age, married, with three children, and commenced business in Palmerston North trading as the Standard Mercantile Agency Co. eighteen months ago. Prior to this he was employed for the previous seven years by the largest company in New Zealand in the same line of business. He attributed his bankruptcy to tlie following reasons : —(1) Under-capitalisation; (2) the economic situation prevailing at the present time, which had reflected itself seriously on all collection businesses, in relation to the percentage of return for the volume of business handled. Bankrupt added that he commenced the business with very little capital, but expected to have additional capital to put into it after paying his AVellington liabilities from the realisation of shares held in the Wellington firm. However, after tlie issuing of Supreme Court proceedings in December, 1932. for the recovery of this capital, a compromise was effected, on legal advice, for some £250 less than he had expected to receive, with the result that although he had the organisation of the Standard Mercantile Agency well under way, he found himself with no further additional capital available to put into the firm. Temporary finance was arranged on several occasions for short periods, but the repayments were heavy and the money was of no real value to the business. The interest paid was heavy. For the eighteen months’ trading £30,872 worth of accounts were handled for collection, with the result that only £4432 was recovered, this representing approximately 14.3 per cent, of the total. From statistics compiled over a period of 20odd years in a similar business, it was shown that tlie average percentage of collections was between 60 per cant, and 70 per cent, recovery per year, so that it could be seen that the economic situation' was now reflecting itself seriously on collection businesses. After the first twelve months’ trading a balance was taken, and an actual trading loss was made of £356 odd, plus an additional £209 odd, caused by defalcations and theft of moneys by an employee who was immediately dismissed. He realised the position immediately and made several endeavours to refinance tbe business and float it into a company on a sound footing. . Negotiations proceeded until tbe middle of February of this year, when they were finally unsuccessful, and lie had no option but to file tlie petition. During the last six months, continued tbe statement, the business was slipping still further as a result of defalcations and lack of confidence. A net trading loss of £239 was made, making a total trading loss of £BO4 15s. His motor car was seized under of all equity was made thereon. The a hire purchase agreement and a loss office furniture was also seized on an unregistered bill of sale and a loss was made here on realisation. His personal drawings from the business for the first twelve months were £398 13s 9cl, from which he paid £BO odd in travelling expenses, and was also tied up under a lease of a furnished house for twelve months at £9 15s a month. As soon, as he was free of this lease he moved into a small flat at a rental of £1 a week and reduced his personal drawings for the last six months to £99 2s sd. “I regret the position very much indeed,” stated bankrupt, “but I consider it was impossible to carry on the business without sufficient capital to see it over for at least two years, as it is extremely unlikely that 'a trading profit could be made until such time as things improve generally and the public are in a better position financially to pay their way than they are to-day. I am sorry that I om not able to make my creditors any offer at all at present as I have no employment and no immediate prospect of any employment.” COLLECTION OF MONEY. “There is one thing which requires explanation,” stated the D.O.A. in opening the examination of bankrupt under oath. “Did you pay any AVcllington debts?” Bankrupt said that he had paid portion of them. Some £145 was owing to other creditors there besides £452 to his brother-in-law. The D.O.A. : Do I understand that an amount of £1092 17s lid of that owing to unsecured creditors is for money collected ?—They were all collection creditors.

The D.0.A.: Is this money which you have actually had and not accounted for? —Collected by the firm

and accounted for in the books. The D.0.A.: And the balance between this and the total of £1426 is for personal liabilities ?—Trading debts, a few" personal liabilities ana some AVellington liabilities. Under further examination, bankrupt said that when he married his wife he had a Post Office account. There was 2s 5d in it now. She had not come into any money since. There was a balance of about £143 owing on his car when it was seized. The D.0.A.: How much money had you when you started in business? — Approximately £34. How much have you got now? —14s sd. AA’hat have you done with the £1292 you collected ? —The balance-sheet and books disclose the whole position. That is a matter the creditors will like to know about. Is this amount of £ll 5s 6d all you now owe for wages? —Yes. Further questioned, bankrupt said the £304 listed in his assets was for a property in Duncan Terrace, Wellington. It cost £2500 to build, and its present valuation was £1950 to £1975. He could not say what the Government valuation was. The D.O.A. How long is it since you realised that vou could not pay this money which had been collected ? —Since the annual balance on September 30, 1933. I knew the position, and had reasonable expectations of floating the business into a company. And you still went on collecting?—! still maintain that I had expectations of floating a company, and carried on. Asked where he had expected to obtain fresh capital, bankrupt said that he was negotiating in two quarters in AA r ellington, and also in Palmerston North. Replying to Mr AV. J. Crawford, bankrupt said there was £3O or £4O owing on his first car when lie traded it in for about £135, securing another costing £225. Bankrupt, replying to further interrogation by Mr Crawford, said that £1092 was owing for collections up to the present. Mr Crawford: In other words, that has gone up “in smoke” in addition to the trading loss?—Yes. Mr Christensen said it would appear that 35 per cent on collections was required to make the business profitable. Bankrupt had been charging 7i per cent commission. That left a deficiency of over 25 per cent. It seemed to bo an extortionate amount. POSITION OF CREDITORS. The D.0.A.: The position is that the money collected should have been treated as trust money.

Questioned by Mr blasters (Taihape), bankrupt said that his office equipment cost £69 and the first car £l3O. It was essential to incur those liabilities when he started business. Some £IOO received from the realisation of his share in a AVellington business went to meet AVellington liabilities. He had accounted periodically to some people for money collected, and had given no definite preferences to any.

Mr Masters said statements for the whole period'of collections had not been given. He knew of a case where a small amount owing was settled recently by bankrupt. It appeared that he had satisfied some creditors in preference to others who had been demanding money over a long period. Could the creditors obtain figures showing definitely how much had been collected, how much had been paid to the creditors, and how much had gone in personal expenses ? . Bankrupt said that all the transactions were recorded in the books. The figures showed where the trading losses had occurred. Mr Masters: The figures should be given us. Tlie D.0.A.: It would take a long time to go through them. There is an express-load. I propose to obtain as much information as possible and adjourn the matter to have the books looked into. It was stated by one creditor that the money should have been in trust. He said he knew of a cheque for £5 0s 6d which had been given by bankrupt in February of this year.' It was dated 1932 and returned by the bank. It looked like a deliberate action. Numbers of creditors, after making inquiries, were quite satisfied that it was useless to come to the meeting. Mr Christenseu asked what was happening to money still coming in to bankrupt on the creditors’ behalf. The D.O.A. : I applied to the Post-master-General to have all letters addressed to bankrupt delivered to me. He declined to do so without a Supreme Court order. Air Christensen : Money is still coming in to him and I have no power to stop it. It is a dreadful position. Another creditor said that the debts were not assigned to bankrupt, but were still being collected by him. They could not stop it and could not get a statement from him. The D.O.A. said people would stop when they found out about these proceedings. LOSS ON OPERATIONS. Bankrupt under further examination, said that he ha.d collected £3IOO in the first twelve months, the commission on that sum being £343 14s lOd. Other earnings in the same period had been £4l Is 9d as surplus to contra from postages, £294 from subscriptions, £BB 15s from summons fees and rebates on Court costs, and £2 19s 2d iu suspense account. Payments had included £243 12s for commissions on new business. His own drawings had been £398 13s 9d, petty expenses £93 13s Bd, salaries £202 and travelling expenses £l6 6s 6d. His own travelling expenses in that year were paid out of his own drawings. In October, 1933, a bank manager discovered that one of bankrupt’s representatives had been appropriating cheques. Air Alasters: But others have had to suffer for that, not you. Bankrupt said he too had incurred substantial losses for the same reason. The exact amount was not arrived at until January of this year, but was later debited to the first year’s trading. There was a loss of £565 18s 5d over the first twelve months. The second period of his operations was from October last to Alarch 27. Earnings included £154 3s 8d from commission, £39 18s from subscriptions and £lB 2s 4d from an adjustment. There was a loss of about £239 over this period, bringing the total trading loss to £BO4 15s His liabilities incurred in the first twelve months were £363 10s 3d more than his assets. He required at that stage at least £6OO capital. Answering the D.0.A., bankrupt said that he did not admit an amount of £254 proved for by a AVellington creditor for money borrowed. The D.O.A : In addition to the money collected you have had a large amount from other sources. —-That was prior to coming to Palmerston North. A creditor: To what amount were you insolvent when you started in Palmerston No) th ?—On paper, £3OO. The D.0.A.: According to his figures he owed £540 when he started in Palmerston North, and had assets of £3OO. Air Masters: Including AVellington creditors, he is insolvent now to the extent of £1662. He used £SOO himself to live He must havo known at the end of the first three months that he was using the creditors’ money to live. Mr Alasters asked bankrupt how the cheque previously mentioned returned as “stale” came to be dated 1932. Bankrupt said that was an orror. Another creditor said that anyone

with business experience cl id not date cheques two years back. The D.0.A.: The question is, why you did not pay everybody? Mr Masters: He assured me definitely that no creditor had received preference. A creditor: I was paid in February. QUESTION OF REPAYMENT. Mr Masters: He should tell us how he intends or hopes to repay to his creditors the money he has used which does not belong to him. Bankrupt: If I can get on my feet I am prepared to make reimbursement. The D.0.A.: I have been listening to that sort of thing for the last 16 years. Bankrupt said that he was sending definite statements of their positions to each of the creditors. He still had about 180 to do. Questioned concerning the property at Wellington, bankrupt said that it had two flat mortgages oil it. Mr Christensen: Have you any testimonials from your previous employers?—l have two in my possession, but I contend that that is no business of the creditors. A creditor: How could you get £3OO behind when you were earning £l4 a week? —Like ma.ny others at that time, I was spending more than I earned. Bankrupt said he had no objection to the D.O.A. receiving all his letters. All letters for the firm were being directed to the D.O.A. He had no alternative but to receive letters for himself at the Post Office, as he bad no other address. He would make an order directing them all to the D.O.A. RESOLUTIONS CARRIED. Mr Masters then moved the follqwing resolution: —“That this meeting requests the D.O.A. to place the whole matter of what appears to be trust money not paid over to the creditors in the hands of the police, and that bankrupt be prosecuted if the law will allow.” Mr Masters said be thought that bankrupt bad made unwarranted use of the money collected on behalf of people who had trusted him. Mr Masters asked the D.O.A. to place the facts as fully as possible before the police or the department concerned. , , Mr H. Hepworth seconded the moMr C. F. Spooner considered that they would be a little premature in passing such a motion until the D.O.A. examined the books and found out ir any money had not been accounted for or expended legitimately. They could blame bankrupt for starting with no capital and themselves for trusting him as much as they liked. He mov au amendment that action be deferred until the D.O.A. ascertained if bankrupt’s statements were substantiated bv the books. , , ~ A Mr A. Hancock seconded the amendment. . _ -i,-.-The motion was carried on a snoi of hands. _ ~ , K „_i_. Mr Masters then, moved that bank rupt’s discharge be opposed very seriously until such time as he P ro ™W d some means towards paying his creditors’ claims to the extent of at least lo Secon<Rd £ bv Mr Christensen the motion was carried, and the meeting n as then adjourney sine die.