THE New Zealand Herald AND DAILY SOUTHERN CROSS. SATURDAY, NOVEMBER 19, 1892.

New Zealand Herald, Volume XXIX, Issue 9040, 19 November 1892, Page 4

THE New Zealand Herald AND DAILY SOUTHERN CROSS. SATURDAY, NOVEMBER 19, 1892.

It is pretty clear that public opinion is about to compel a change in regard to the responsibilities of the directors of banks and public companies. Hitherto, in the colonies at all events, the responsibility of directors has been little better than nominal. They had the advantage of drawing considerable salaries for managing an institution, the said management being often merely to say ditto to an active chairman and manager, If they really made themselves acquainted with the affairs of the institution, and any calamity overcame it, it was generally found that they had contrived so that their stake, when the smash came, should be very small indeed. Their monetary loss was nominal, and as to their personal responsibility at law, that was regarded as nil. The shareholders might fume and fret for a bit, but that was all. They took what they could out of the wreck, and thought it was a pity to throw good money after bad, by prosecuting those men who by dishonesty or carelessness had been the means of their losses. The prosecution of the directors of the City of Glasgow Bank opened the eyes of Britain to what might happen to men whose intentions had been good all along, but who had acted rashly and foolishly, and who had attempted for a time to make things smooth, in the hope that the crisis would pass over, and that everything would come out all rie;ht. The directors of the City of Glasgow

Bank were men well stricken in years, of good credit in a commercial community, not consciously dishonest perhaps any of them. But they had to go to gaol all the same. They had placed themselves in the position of taking care of the money of other people, and they had lost that money, and when it was lost had pretended for a time that it was still in existence.

A few days ago, we gave an account of how Francis Abigail, late managing director of the Australian Banking Company, had been sentenced to five years' penal servitude for fraudulent conspiracy, while Roderick McNamara, late manager, had been sentenced to seven years' penal servitude for the same offence. There are other charges still to be heard against them, which may increase their sentences. • The judge, in summing up the evidence, said :—

It appeared that the defendant Abigail came into the company somewhere in July, 1887, and—it has been said after pressurenot only became a director, but chairman, for the duties of which office he was paid, and from that time, towards the end of 1887, down to the winding up of the bank's affairs ho took a prominent and active part in the management of the bank and its operations. It was quite clear that from first to last he represented that the bank was not only in a sound but flourishing condition, and that he used language which would tend to convince persons that its affairs were in such a position as would make it safe for them to invest their moneys. Even at the last moment, when the affairs of the bank ware in a state of utter collapse, he represented it to be worth 42s in the £.

Both Abigail and McNamara protested that they were not conscious of having done anything to defraud any man. But there is no doubt that in the balance-sheets representations were made which were not true, and which therefore it was punishable to make.

A cable message in yesterday's paper informed us that C. R. Staples, manager of the Anglo-Australian Bank, and John Haroldson, general manager, had been arrested at Sydney on a charge of conspiracy and issuing a false balancesheet. To-day we are informed that one of the auditors has also been arrested. The Anglo-Australian* Bank was advertised as follows :—Authorised capita], £2,000,000 ; subscribed capital, £251,685 ; paid-up capital, £100,317 , total capital and reserve fund, £261,707. The head office was in Queen-street, Melbourne, and there was a London branch at 120, Cannon-street, E.C. The London directors were : Lord Camoys, the Hon. Ashley G. J. Ponsonby, Mr. James Blackwood. Connected with the London branch were thirty-eight deposit agencies in the United Kingdom. A note to the advertisement ran thus :—" By a special clause in the bank's articles of association, depositors and debenture-holders are secured by having a first claim upon the assets, securities, and moneys of the bank. The bank is prohibited from purchasing or dealing in land, freehold property, stocks, or shares of any kind whatever." The Anglo-Aus-tralian Bank had, however, intimate relations with the British Bank of Australia, which failed in July, 1891. The shares of the British Bank of Australia, fully paid-up, amounted to 12,500, of which 2731 were held by the Anglo - Australian Bank. That bank also held 46,000 shares paid up to 255, leaving 75s to be called up ; and 26,345 shares paid up to 20s, leaving 80s to be called. The failure of the British Bank of Australia thus entailed a liability on shares upon the AngloAustralian Bank of £277,880. The latter institution also owed the former £63,058, making a total liability to it of £340,938. Under these circumstances suspension was a mere matter of course, and it occurred on the 19th August, 1891. On the 17th of August the directors caused the following statement to be drawn up: Paid-up capital, £100,641 reserve fund, £10,000 fixed deposit receipts, Victoria, £65,513 16s 9d ; savings branch accounts, £358 2s sd; current accounts, Melbourne, £659 is 3d ; Hobart branch, £7982 19s ; London branch, £35,980 17s id ; Adelaide branch, £10,543 19s 3d ; bills payable and other liabilities, £313,120 12s 4d: total, £544,800 8s Id. Assets : Freehold properties and other investments, £432,692 4s 3d ; bills receivable and advances, £/9,496 18s id ; amount due from land buyers, £20,065 8s 9d; sundries, £13,545 17s: total, £514,800 8s id. At the time of the suspension, of the total number of sharesnamely, 51,057, no less than 48,048 stood in the name of Mr. C. R. Staples, chairman of directors. The company was formed in June, 1888, under the style (which was afterwards altered) of the AngloAustralian Investment Bank, and took over a number of the properties held by the British Bank of Australia. The properties standing m the books of the company at the time of the suspension at £432,692 4s 3d were mostly situated in the outlying suburbs of Melbourne, and of course on these there was no possibility of realising at any price. Up to the date of the presentation of the last balancesheet to 30th September, 1890, a dividend had been paid at the rate of 10 per cent, per annum. The directors called the shareholders together when the British Bank of Australia failed, and said they felt that as soon as the liquidators of the British Bank commenced to wind up they could not go on.

The extraordinary way in which these Australian institutions have been leaning upon each other was shown in the report of the liquidators of the British Bank of Australia. They reported that the assets were largely illusory ; that the assets, freehold properties, £274,798, might be regarded as practically valueless ; that the asset, Anglo-Australian Bank £89,323, might also be disregarded. Of the uncalled capital, amounting to £342,641, £292,687 stood in the names of the AngloAustralian Bank and of Mr. C. R. Staples, and was therefore worthless. In fact, most of the companies which have came to grief seem to have been founded upon the anticipation that the " boom" would last for ever. Thus, for five and a-half years ended 31st August, 1891, the bona fide sales of one investment and banking company amounted to only £30,057, while fancied sales amounted to £415,850.' The payments of the company for the period were £158,567 in excess of its receipts, and yet the sum of £111,148 was paid in dividends, the directors taking no less than £67,437. This sort of management could not possibly last.

A fine time it was for directors, truly. But the day of reckoning has come. The English depositors in* these Aus-

tralian institutions are naturally very angry, and are determined that those men who are liable to punishment shall be punished. Hitherto in the colonies directors have been very loosely dealt with, and have escaped with merely the loss which they might be liable to suffer. They will learn now that if they allow a false -balance-sheet to be put forward in their name, a balance-sheet which contains misrepresentation, or which conceals anything Which ought to be made known, they will be punished as felons in the common gaol.