FRAUD ALLEGED

New Zealand Herald, Volume LXXII, Issue 22059, 15 March 1935, Page 12

FRAUD ALLEGED

CLAIM FOE £33,820 TOBACCO COMPANY CASE ACTION BY LIQUIDATORS h SHAREHOLDERS LOSE ALL Allegations of corrupt practices on a large scale in the promotion of the Preriiier Tobacco Company (New Zealand), Limited, were made in proceedings brought before Mr. Justice Herdman in the Supreme Court yesterday. Chambers, Worth and Chambers, public accountants (Mr. Mackav), ae liquidators for the Premier Tobacco Company (New Zealand), Limited, in liquidation, took action by way of misfeasance proceedings against. William Samuel Russell, managing-director of the Premier Tobacco Company, Limited (Mr. R. N. Moody). The plaintiffs claimed a total of '£33,820, made up of 15,000 £1 shares received 'by the defendant, 15,000 shares which he allowed to go to the Eeronne Syndicate, though it had never carried out/ its part of the contract, and £3820 cash received by defendant. Mr. Mackay said the question was jvhether Russell had been guilty of misfeasance within tho meaning of section 254 of the Companies* Act, 1908. In 1930 Russell was managing-director of Tobacco Growers (New Zealand), Limited, a concern having a nominal capital of £25.000, which went into liquidation on January 14, 1932. New Company Proposed In September, 1930, this company received from R. 6. Stavely Dale, man-aging-director of the Endoto Syndicate, in London, proposals for promoting a tobacco manufacturing company in New Zealand, with a capital of £250,000, of which £IOO,OOO was to be issued. There was to be a promotion fee of £IO,OOO and 30,000 pounif shares in tho new company, this to bo divided equally between Russell and Endotb Syndicate. Russell registered the Premier Tobacco Company in March, 1931, and' about that time was instructed .to substitute the name " Eeronno for Endoto.

The Premier Tobacco Company, which was to be promoted by the Eeronne Syndicate, issued a prospectus, on which the public subscribed for shares, continued counsel Ihat_prospectus was a highly-cqloured document which set out that the directors in England would he the Hon. Richard Cecil JoynsonHicks, now Lord Brentford, R. G. Staveley Dale, F.R.G.S., and John R. Remer, M.P. The New Zealand directors were Russell, a brother of his, now deceased, and M. M. Millikin. ■The prospectus claimed that the Eeronne Syndicate was a strong group with connections in Paris, Berlin, Athens, Cyprus, Alexandria and Addis Ababa. , Loss of £23,000

Its confidence was said to have been ehown by financing in over three times the amount of capital that New Zealand was asked to subscribe. His Honor: How much did the public subscribe?

Mr. Mackay: The public in New Zealand 'subscribed £23,000 and they lost every penny of it. There was not a penny piece subscribed in England. Counsel said that Russell, for reasons best known to himself, elected to treat as a personal matter the p>ro- s posal to promote the company. Tobacco Growers (New' Zealand), Limited, was in liquidation and, was in like position to the Premier Tobacco Company, which had left its sharelamenting. They had lost the .whole of their capital. Russell's cable agreeing to the proposal that he should receive half the fee for promoting the Premier Company formed the basis of the charge against him of receiving a secret commission. sfyid Mr. Mackay. The cable was followed by a letter to Alexander Ronne, of whom it might be said that he was equally culpable with Russell in these proceedings. Ronne was a bankrupt carrying on in London the business of a free lance tobacco agent. He was associated in some way with the Endoto Syndicate. No Inquiry In England His Honor: Has this been investigated in England at all? Mr. Mackay said it had not. Lusgell's explanation of why he stepped in to take the £SOOO and 15,000 shares was that Tobacco Growers was in a difficult position, and he did not wish to prejudice the promotion of the Premier Tobacco Company by the introduction of 'Tobacco Grower.-/ name. The agreement dated March 1A Uol, provided that the promoting syndicate should receive from the Premier lobacco Confpany £IO,OOO in cash, and 30,000 paid-up shares for its services. The syndicate never paid a penny piece for any of the purposes stipulated, neither did it raise any capital, said Mr. Mackay. It was obvious that this agreement at quite an early stage failed completely want of consideratlC>His Honor: Who was the syndicate? Mr. Mackay said the matter was highly involved. Ho had been engaged in litigation over the Premier Tobacco Company for over three years and had not got "to the bottom of it yet. jausbcll dominated and controlled the whole concern, and kept moot of its aif airs to himself; 'A principal question lor the Court was whether or not Russell was at any material time a member of the Eeronne Syndicate, or whether the moneys and shares he received from the company he by virtue or secret'' agreement between himselt and the syndicate, whereby they paid him a commission. Two Main Charges

Tho two, main charges against Russell, said W. Mackav, wore that he received a secret commission, and that acting as director of the company he sanctioned the huge payment ot £IO,OOO apd 30,000 £1 shares to a nebulous concern that had never in any wav met its obligations. Russell had received £3BOO in cash. His Honor: In what capacity. Mr. Mackay: As agent for the Eeronne Syndicate. In answer, to His Honor, Mr. Mdckaj said he could not say exactly who-were the members of the Eeronne kynuicate. Its documents were signed by different names, and the deduction ho drew was that it was a nebulous and fraudulent concern. Russell claimed to have been a member ot the syndicate, but he (Mr. Mackay) was prepared to show tnat he had not been. Eeronne had sprung up in a night_ to take the place of the Endoto Syndicate. Mr. Mackay referred to the directors of the Eeronne Syndicate as including " two undischarged bankrupts and a penniless lord." His Honor: Lord Brentford is not penniless/, is he? Mr. Mackay: Perhaps not exactly penniless, but I will place facts before the Court to show th.it he is a person of no standing in the business community. His Honor: He is a son of the late Sir William Joynson-Hieks?

Mr. M,ackay: That is so. Counsel quoted from Russell's interrogatories the admission that the Eeronne Syndicate had no capital or financial resources apart from tho payments to which it was entitled for floating the Premier Company and the

resources of its individual members, yet in the prospectus it was icferred to as a " strong financial group, with connections in various Continental centres. Russell said that the Eeronne Syndicate went out of existence 111 November, 1933, tho month the Premier I'obacco Company went into liquidation. c His Honor: Did Russell send any of the money lie got Home? Mr. Mack ay: Not one penny, sir. His Honor: Then his friend Lord Brentford did not get any? Mr. Mackay: He did not participate in the booty. His Honor: Did the Premier Tobacco Company ever do any business? i Mr. Mackay said the only thing it did was to buy for £4OO tobacco from a concern of which Russell was tho principal. Tlvis tobacco went mouldy in store, and was subsequently sold by the liquidator for £l6. That was the only business they did, except to go down to Nelson and inveigle honest tobacco growers into contracts. They erected a" £3OOO building there, which they subsequently lost.

Secret Commission Alleged Tho Keronne Syndicate, Mr. Mackay said, risked nothing. The promotion agreement was a bet of £40,000 to nothing. He submitted that cablegrams which Russell admitted sending and receiving in March, 1931, established beyond doubt that he had an arrangement for a secret commission. 'lho deceit consisted in the fact that thero was no disclosure in the prospectus of tho fact that Russoll, a director of the company, was to benefit by its promotion to'the extent c>f £SOOO and 15,000 £1 shares. The Premier Tobacco Company became entitled to commence business on April 20, 1931, and in May confirmed and adopted the promotion agreement made with Russell. Before the agreement was confirnied Russell had received £1350 under it. That was before the Eeronne Syndicate had paid a penny piece under its contract for the promotion of the company. Mr. Mackay said that 12 months after Russell had been informed by Dale that the position for raising money in London was well-nigh hopeless, he went down to defraud unfortunate tobacco growers in Nelson, with the published statement in May, 19dJ, that " capital to the extent of £150,000 is subscribed, guaranteed or underwritten in London to the satisfaction or the New Zealand directors." A Trip to London

In September, 1931, Russell advertised in a financial journal that of the company's 250,000 shares, 1/ 0,000 had been issued "in London, said counsel. Later, liussell persuaded the shareholders that if he went to London he could do something to pull the company out of the mire. That trip cost the shareholders £9OO, and while he was in London the company went into liquidation. Mr Mackay said that since these proceedings had commenced Russell had circularised shareholders, placing his views before them and asking them to help him to stop this persecution by the liquidator. " I propose to hand the document to Your Honor, _ said Mr. Mackay, " because I submit it is most improper and a clear contempt or Court in commenting upon a matter which is sub judice." Dudlev Norton Chambers, partner in the firm of Chambers, Worth and Chambers, said he had been unable to find a complete record of the promotion of the Premier Tobacco Comnanv. It had a nominal capital ot £250,000, of which £23,188 had been subscribed for by the public.

The Only Assets When the Premier Company went into liquidation the only assets were office furniture worth a few pounds, tobacco in'bond which had gone mouldy, uncalled capital of approximately £BOOO, and a building at Nelson on which the company had spent That building went back to the Nelson Borough Council without compensation and was utterly valueless as an asset. Tho liabilities were two debentures ot £IOO each in favour of Mrs. Russell, creditors of approximately £3300, and a liabilitv to the Crown for a lease at Newmarket which was settled by. the pavment to the Crown of £450. Yerv little of the share capital would be collected, said witness, as much of it was held by married women and infants. The company had at present £2200 owing to creditors, £I4OO m the bank, and there were £3OOO worth of calls, of which perhaps £2OOO would be collected. Probably the company would eventually pay creditors 2Qs in the pound. Between £19,000 and £20,000 of shareholders' capital would be wholly lost. j From the company itself Russell had received £2551, and in addition the companv had paid accounts amounting to £1249 which it was considered Russell should have paid, witness continued. No money had been received from England and the qualifying shares for the three English directors had been paid for by Russell. They refused to pay calls on them, alleging that they were not properly appointed, witness had sorted out items of advertising by the Premier Company amounting to £255. % Defendant Cross-examined

The defendant, William Samuel Russell, who was submitted for crossexamination by Mr. Mackay, said that Now Zealand Tobacco Growers, Limited, had been forced into liquidation by the state of the Australian market. It had been very financial in Australia, though, not in New Zealand. In London he had met the directors of Eeronne. They never sent him the money direct, amounting to £3OO. that he had paid for their qualifying shares, and when he asked them for it they told him to take it out of the syndicate funds. Mr. Mackay: How much of the syndicate's funds have you passed on to London? • Witness: None at alt. They had not functioned there, and we decided we would not pay anything until they did. His Honor asked if there was in the prospectus for which Russell was responsible any statement that Russell was to receive £SOOO and 15,000 pound shares. Witness: There is the statement that the syndicate was to receive it. Witness said he had never been a member of the Endoto Syndicate, but he was a member of the Eeronne Syndicate. , j His Honor: Why did the hndoto Syndicate go out of existence? Witness: There was trouble in their own camp and dissension among the directors.

* A Russian Baron's Loss Witness told Mr. Mackay he had learned in London that Dale and Ronne were 'both undischarged bankrupts. At one time the London directors had £IOO.OOO firmly underwritten. He could find no trace of the company having been registered in England. Fie had ono half-share in the Eeronne Syndicate. His Honor: Why did you continue to take money from shareholders after you knew that the money could not be got in London? Witness: The prospectus was changed. They endeavoured to get the money in London eventually. Witness said when he went to England he represented the Harbour Bridge Company, hut he did not receive any payment from it. In answering Mr. Moody witness said he knew that Ronne had lost £40.000 in the Hatry crash. Ronne was a Russian baron. Witness admitted to Mr. Mackay the authorship of a letter to a share salesman offering him, under certain conditions, "A secret over-riding commission of 2J per cent." "What is wrong with it?" asked witness. "I paid it out of my own pocket."

The hearing of legal argument was adjourned "until this morning.