JOINT STOCK COMPANIES' FINANCE

Nelson Evening Mail, Volume LXI, 18 June 1926, Page 9

JOINT STOCK COMPANIES' FINANCE

TRADING ON INADEQUATE PAIDUP CAPITAL (.Special to Mail.)' WliJf-r.tNGTdlsr, This Day There'is a tendency on the part of many jnim stock companies in New, Zealand to trade on inadequate paid-up 'capital, to borrow extensively against uncalled capital, and to take deposits from the public without keeping any 1 cash or other liquid reserves to meet! demands for repayment of the deposits—a fruitful source of danger, commented the chairman of director at the annual meeting of the Hank of New* Zealand 1 at Wellington to-day. i During the war, and after, we were compelled by force of circumstances, to make a number of advances partially secured on uncalled capital in order to enable farmers' concerns to round awkward corners. These advances have, in several instances, resulted in considerable losses to the Hank. Whan some of these companies got into financial difficulties resulting in liquidation, their liquidators were obliged to take action' tl)rough the law courts against shareholders to recover payment of the amount uncalled on their shares. Calls, of course, could have been made by the directors of the companies concerned whilst their companies were in active operation. Had the directors made those calls, instead of obtaining advances from the Bank against security over the uncalled capital, no complaints would have been made. When, however, the liquidators exercised the directors' functions in making calls, then the shareholders by some peculiar process of reasoning, resented being called uopn to meet' their just debts to satisfy liabilities bona-fide incurred by the directors in the ordinary course of their company's operations, and especially so if the Bank happened to be ono of the unfortunate creditors. The. lesson of this is that, in future, uncalled capital of farmers' companies is not likely tojie looked upon by bankers as. a reliable security. From time immemorial the lender never has been popular—at least, never popular when tho loan has to be repaid ; in our day and generation also this attitude of mind continues.

As you are aware, Government in 1921 had-to come to the rescue of de-posit-taking companies by proclaiming a moratorium on all deposits, with the exception of bank deposits. It was hoped that those companies would benefit from that experience, and conduct their businesses on sounder lines in the future, but, unfortunately, .deposits are again being freely taken. Moratoriums are not calculated' to improve the credit of. any country, and if, in the future, a position similar to that of 1921 arises, the Government should consider whether it..'would not be in the :ii*ir-bs-ts of the country to allow matters, without Jet or hindrance, to take their ordinary and natural course.