THE COLONIAL BANK AND THE J. G. WARD ASSOCIATION.

New Zealand Mail, Issue 1267, 11 June 1896, Page 20

THE COLONIAL BANK AND THE J. G. WARD ASSOCIATION.

Dunedin, June 5. Mr Justice Williams sat in Chambers this morning to hear ail application by the official liquidators of tho Colonial Bank ol New Zealand that an agreement, dated the Ist June, and made between the said liquidators on tlio one part and Alfred Leo Smith and James Bonn e Reid of tho other part fir the salo and purchase of certain debts due to the Bank and securities for tho same as in the agreement mentioned be sanctioned upon the grounds (</) That it will lie beneficial to the Bank that the agreement be sanctioned, and the sale and purchase thereby provisionally agreed to eo dinned and given effect to, and (b) The further grounds disclosed in the affidavits sworn and tiled therein, and that the costs of and incidental to the application may he costs in the winding-up. Mr Haggitt appeared for tho official liquidators, Mr W. C. MacGregor for the shareholders’committee, Mr T. Young for Mr C. Fraser (of Wellington), and Mr YVoodhoiuo for the persons named as purchasers, Messrs A. Lee Smith and J. B. Reid. Mr Haggitt, who opened in support of the summons, real the offer made to purchase and the agreement between tho liquidators and Messrs A. Lee Smith and J. B. Reid, which the Judge is asked to sanction. This agreement contains 13 long clauses, its effect being to sell to A. Lee Smith and J. B. Reid tho debt of the J. G. Ward Farmers’ Association to the Colonial Bank as on March 20th, 1800, and all securities for tho same or any part thereof held by or on behalf of the said Bank, and also the promissory note of the Hon .). G. Ward and tho said debt or sum of £1(5,000 or thereabouts duo by the lion J. G. Ward to the Bank, and all seouiitios for the same respectively, or any part thereof held by or on behalf of tho Colonial Bank, and also the debt of tho Hokonni Railway and Coal Company and all securities for tho same or any part thoroof held by or on behalf of the Bank at the sum of £02,750. Nothing in the agreement is to prejudice the right of the liquidators to dispute as between tho Colonial Bank and the Bank of New Zealand the liability of the lastmentioned hank to the liquidators in respect to a.sum of £5052 Is 4d debited by the Bank of New Zealand to the account of the Association on December .11, 18Do, without the authority or consent of the liquidators, and if this sum of £5052 Is 4d shall he found to have been improperly charged to the account of the Association, so far as the Colonial Bank and the liquidators are concerned, the liquidators shall not be bound to assign that portion of the debt of the Association to A. L. Smith and J. B. Reid until the question between the said hanks has been settled and determined. In reply to a question, Mr Haggitt observed that £55,1100 was written off as a condition of tho Colonial Bank guaranteeing the account. There was an amount written off. and there was a promissory note given, and that was all they knew of the matter. Mr Haggitt then proceeded to read the affidavits. I’lie aili lavit of .Messrs Vigors, Ramsay and v inipson. official liquidators of I.lm Colonial Bank, sets out that the ,J. G. 'Yard Farmers’ Association was a customer ol the Colonial Bank, and kept an account current with tho Bank at Invercargill.and Gore. The said account was one of tho accounts appearing in the “C” list referred to in clause 13 of the agreement dated October 18, 1805, made and entered into between the said Bank and tho Bank of New Zealand and approved by Parliament. Immediately oil the agreement taking effect the Bank of Now Zealand wrote off an amount standing in tho right hand column of the C list against the account of the said Association and credited the account of the Association with £55,150, being the amount so written off The Colonial Bank is bound by tho terms of the agreement to indemnify and protect tho Bank of New Zealand against any I loks or deficiency in roiilisiition of tlie account j of the Association. The Bank of New Zealand not having taken over the account within three months the liquidators required the Bank to take it over or reject it, and tho Bank of New Zealand rclusing to take over the account the liquidators requested the Bank of New Zealand to realise or liquidate the account. Afterwards tho liquidators employed Messrs Cook and Gray, accountants, &0., to investigate tho affairs of the Association on their behalf, and Mr Win. Richard Cook, one of the firm, made such investigation and re-

ported that tho accounts of the Association as valued by bim at tlio 20th March last past showed a deficiency of assets to meet liabilities amounting to £18,450 lGs 4d. Tho liquidators investigated the affairs of tho Association themselves, and believe tho results arrived at by Mr Cook virtually correct, although of opinion that his estimate of tlio value of the book debts would not be realised if tho said Association wore to bo put into liquidation. The Colonial Bank guaranteed to the Bank of New Zealand the payment of tlio sum, £20,000, advanced by the Bank of New Zealand to the said Association upon its debentures, and also interest thereon, which amounts to £GOO every half-year. Tho currency of tho said debentures is 10 years. The liability of tlio said Association to tlio Colonial Bank, including the amount of these debentures, was on tho 20th March last past £02,17D Ds 2d. The securities held by tho Colonial Bank for tho said indebtedness are the said debentures to the amount of £20,000 presently held by tho Bank of New Zealand, further debentures to the amount of £30,000 held by the Colonial Bank, and the guarantee of tho Hon J. G. Ward for tho payment of the overdraft of tho said Association up to the amount of £2o,ooo.The Colonial Bank also holds a promissory note of the lion J. G. Ward, dated the 10th October, 18D5, for the sum of £55,150, payable on demand. This promissory note represents the amount written off tho account of the said Association and credited to it. Tho Hon J. G. Ward is indebted to tho Colonial Bank in the sum of £IO,OOO or thereabouts in respect of a draft on London for that amount in transitu on the date of the agreement of 18th October, 1895. Tho payment of this draft is guaranteed by tho Colonial Bank to the Bank of New Zealand under clause 25 of the agreement, and the only security held ns against the draft is IGOO shares in a company called Nelson Bros. (Limited). Those shares were paid up to tho amount of £lO each, and wero estimated to be of the value of £9 each at tho time of the negotiation of the said draft, but at tho time of arrival of tho said draft in London, their valuo was considerably loss, and the said shares at the present time are practicably unsaleable. The liquidators assert that it is of the utmost importance to tho successful liquidation of the Colonial Bank to bo rid of the account of the Farmers’ Association and the liability to the Bank of New Zealand arising out of tlio liquidation thoroof under clause 18 of the agreement. They nro satisfied that Mr Ward is not in a position to pay an appreciable sum in respect of his liabilities to the Bank, and that in point of fact his promissory note and his guarantee are both valueless to tho said Bank as securities. They are satisfied that the £G2,750 offered in cash, with the purchasers’ guarantee of £SOOO in respect to tlio shipmentof oats, was more than could be realised by other means by the salo of the estate, and they believe it will be beneficial to tho Bank if Messrs Smith and Reid’s offer wore accepted and the agreement given effect to. Mr Ward, in his affidavit, said inter alia— The Colonial Bank holds my promissory noto for £55,150, which was credited to the account of tho Ward Farmers’ Association in the hooks. 1 was personally debited in tho hooks of the Association with certain losses incurred in carrying oil the business of tho Association and of tlio Ocean Beach Freezing Works, and tlio said promissory note represents the amount standing to my debit in tho books of tho Association at the time I signed the promissory note. I signed at tho requestof the General Manager of the Bank. The amount of the promissory noto has been credited to me in tho books of the Association. Previously to giving the promissory nolo I had signed a guarantee to tho Colonial Bunk, guaranteeing the account of tho Association to the extent of £20,000. In conjunction with Dr Hannan, of Invercargill, and others, I signed a guarantee to the Bank, guaranteeing tho account of tho Hokonni Railway and Coal Company to the extent of £SOOO. Dr Hannan died in April, 1801, and the Bank continued to carry on the account of the company after his death. I have been informed that the guarantee given by him and myself and others lias, in consoquenoo thereof or for some other reason, booomo legally unenforceable. Since the formation of tho Ward Farmers Association, all the money 1 have received from all sources lias been paid into tho Association. I have not granted or agreed to sell any part of the property or effects, real or personal, since the Colonial Bank went into liquidation. I have used iny best efforts and all my influence with iny friends to bring about the offer made by Messrs Leo Smith and Reid to the official liquidators. Mr Ward was examined at considerable length by Mr Young as to the manner of making"up tho Association’s balance-sheets, and gave an emphatic denial that tho purchasers were acting as agents. They wore simply endeavouring to help him out ot a difficult position. He had divested himself of everything, and ho was practically going out of the concern. Mr W. B. Vigors, in cross-examination, said he was aware of the draft of £30,000 on John Connell and Co. by the J. G. Ward Association which never went on. It was supported by warrants for oats. Tho date was about tho 20th or 30th Juno last (on the day beforo or on tlio day of tho balance of the Ward Association). Tho draft was held till the 13th October, but was then cancelled and afterwards recharged to the Association. In reply to Mr MaiGr gor, he said the oats were supposed to he in the stores at Invercargill, lmt lie afterwards had reason to believe they wore not there, and that tlio bonds were worthless. The warrants were signed by the manager of the Ward Association. It was at tho Bank’s suggestion that tho transaction was carried out. 110 himself effected the negotiations, instructed by Mr Mackenzie, general manager, who had the cable from London on which the Bank acted. After other evidence was heard Mr Young addressed the Court, and the proceedings were adjourned till next day. Dunedin, June fi. The hearing of the application to authorise the official liquidators of the Colonial Bank to sell the securities hell for the indebtedness ot tho J. G. Ward Farmers’ Association to Messrs A. Leo Smith and J. B. Reid for £G2,000 was continued to-day before Mr Justice Williams in Chambers. . In his evidence on tho previous day, the Hon J. G. Ward said the balance-sheotof the Ward Association ending June, 1895, was, so far as ho know, prepared by John Fisher, fuel l manager. To his knowledge, neither Mr Vipers nor any of tho officials of tlio Colonial Bank assisted in its preparation. Tho Asso, ciation had credit for £50,000 and £40,000 outside the Bank. Before the balanco-sheet a cash payment of £25,000 or thereabouts was made, as the result of the sale of tho Ocean Beach Works to Nelsons, A draft for

.£25,000 was lodged some time before that. Ho did not think tho draft was cancelled before remission to England, but was not certain about it. As to the drop in indebtedness to the Bank in 1805, it was because the liability disappeared from the Bank, and was transferred against special transactions under special credit by arrangement. He was not in tho Colony, and could not give tho details of tho drop. Some timo after tho balance-sheet was prepared tho manager of the Association said that heavy losses had been made, the loss being estimated at <£25,000. Witness immediately advised tho Bank of tho fact, and requested them to make an investigation, which they did, and it showed that the loss was .£55,000. That was after his return from England. He was not hero when tho balancoshoot was made out. Mr Young said there was another peculiar thing. In the 1803 and 1801 balance-sheets thero was the item “ Bills under discount and drafts against shipment.” In June, 1803, they were ,£32,000 and .£12,000, and in 1801 they were £51,000 and £33,000. These had disappeared from the balance-sheet of 1805. Witness said ho could only speak in a general way on the matter. Asked if there was any understanding by which ho was to take over assets, Witness said there was no understanding or arrangement in that respect. On the contrary, ho thought it was conditional on Reid and Smith that they were to control the business themselves. At any rate, witness said, “ To be perfectly plain, I have given up everything I have, and I have done everything I could to get out of it.” Witness also gave absolute and positive contradiction to the statement that ho had received a letter from Mr Murray stating that the Bank of New Zealand would see him through. Cross-examined by Mr W. C. MacGregor, witness said lie was responsible to the Bank for £911,000, and the valuation of his property was £IOOO, so that at present he was hopelessly insolvent. lie became aware of his position when advised of losses ol tho Ward Association; that would bo about August. He informed Mr Mackenzie, general manager Colonial Bank, as soon as he was advised himself. Investigation was made by the Bank, which disclosed losses, ol which he was advised for the first time, to the amount of £55,000. The total indebtedness ol the Ward Farmers’ Association and ol himself to tho Colonial Bank was £IOO,OOO, and under terms of sale the whole was to be purchased by Messrs Smith and Reid for £07,000. Tho Hon Mr Ward took opportunity to emphatically deny the insinuation that he was conniving with men on both sides in reference to tho banking legislation. His troubles had boon great enough as they wore, and lie should liko to say that these statements wore absolutely unfounded. Tho following correspondence was produced ; May 23rd, 189(1. To Mr W. Watson.—Dear sir, —In view of the fact that Sir Robert Stout and Mr Duthio have made statements reflecting upon me in connection with the Bank of Now Zealand’s purchase of tho Colonial Bank, I shall be glad if you would kindly give mo replies to the following questions on the subject:—!. Whether at tho time of the bank legislation 1 was in any way consulted as to tho terms of the proposed agreement between the two banks ? 2. Whether I made any representations to have any account in which I was interested placed inany particular list? 3. Whether I wasadvised as to where or how it was intended to deal with any account in which T was interested ? 4. Whothor I or any member of the Government were cognisant of tho position in which any account was placed when taken over ? You will no doubt fully appreciate the importance it is to me, and I presume to yourself also, that I should bo in a position to fully and authoritatively answer what has been said, and therefore your replies as to these matters of fact will enable mo to deal with tho subject.— l am, Ac., .1. G. Ward. Wellington, 25th May. —Tho Hon J. G. Ward. Hoar sir, —I have received your letter of 23rd inst., and now reply aerial im to your queries as follows:—1. So far as I know you were not at the timo of the banking legislation consulted as to tho terms of tho agreement which afterwards took place betwoon tho two banks, nor were you consulted on that particular matter at any subsequent time. 2. I am not aware that you made any representations to have any account in which you were interested placed in any particular list. 3. You were not advised by mo, or so far as 1 know by anyone else, as to whero or how it was intended to deal with any account whatever. 1. 1 am not aware that you or any other member ol tho Government were cognisant of the position in which any account was placed when taken over. —lam, Ac., W. Watson:, President. Tho reply from the directors of the Bank of Now Zealand was as follows :— *' We have perused your letter of 23rd inst. to Mr Watson, and his reply, with which we concur as representing our views as well as his.” Mr 11. Mackenzie replied : —“ You were cortainly not consulted by me at the time ol tho banking legislation in regard to the proposed agreement between the two banks, and I have no knowledge of your having been consulted by anyone else. You nude no representation to me, nor to my knowledge to anyone else, to have any account in which you were interested placed in any particular list. You wore not, to the host of my knowledge, advised as to where or how it was intended to deal with any account. So far ns I am aware, neither you nor any member of the Government was cognisant of the position i:i which any account was placed when taken j over. Mr Ward added that most people, with a very slight knowledge of the circumstances, would at onco see that if he bad been consulted, or had brought pressure to bear to have his private affairs put right, they would hardly have seen one of tho most difficult accounts in tho list repaid in three months, while almost all tho others had three years in which to pay. Instead of having special treatment he had had treatment of the worst kind. When tho Court resumed to-day, Mr W. B. Vigors was recalled to answer some questions by the Judgo. The Hon J. G. Ward said he had been unable to find any letter from Mr Murray re- ! yarding his affairs. If he had had such a letter, le would have said so. Replying to the Judge, Mr Ward said the debit balance against him in the books of the Association was partly made up of losses on various shipments. If there had been a profit, it would not have been credited to his private account. Tho position was that the shipments made to London, as far as giain yvas concerned, were made in his name except in cases made on behalf of farmors. Tho debits wont to his account. Ho did not know until advised in Wellington that these debits had boon made. The Association wag not debited with them

beeauso it was his wish that the Association should not speculate. It worked out that if there yvas a loss ho was to bear it, and if there yvas any profit the Association was to get it. He gave to the Association the yvliole of the commission business attached to the freezing works, amounting to about £2OOO a year, and in consideration they carried on all sheep purchases for tho works in his name. Either tho profits or losses there yyould have gone to or against him, but that yvas not the arrangement in regard to grain. Air Ward again repeated, with reference to the Bank agreement, that no one told him it yvas intended to place £55,000 in any particular list. All lie knew was that losses lmd been mado of £25,003, and ho believed lie would bo able to reduce the amount to a groat extent. AVlien asked ho gave a promissory note for the amount. He held £25,000 worth of shares in tho Association, which he looked upon as yvovth the face value, and £lO,llOO yvortli of shares in Nelson Brothers. The depreciation yvhieli had taken place had materially reduced the earning poyvcr of the Association. There had been a depreciation in the value of shares since then of £37,003. His private affairs were closely mixed with the Association, and the large business having become disorganised and talked about it bad all'ectcd everything, and his position was entirely different to what lie contemplated yvhon lie gave tin? promissory note. Mr Young then addressed the Court against the sanctioning of flic sale. Messrs Smith and Reid were not only buying the whole of the securities, hut t lie debts as well. While the assets might be yvortli nolhing, the debts of Mr Ward must lie worth something. If the Ward Association wore put into liquidation tin: directors might be compelled to return the dividends, or it .Mr Ward yvere made bankrupt, the Court might, after investigation, suspend bis discharge until he paid a certain sum in the pound. As a result of the examinal ion, other matters might transpire, and other assets be disclosed. 'I no compromise should not be agreed to until every' remedy against the Association and Mr Ward bad been exhausted. Mr W. C. MacGregor also addressed the Court. He dreyv attention to a statement at tho proceedings for the appointment of the permanent liquidators, when Mr llaggitt said he liad been requested to state that before the Colonial Bank bad consented to yvrito off £55,000 off the C list, security bad been taken for the amount. It now appeared that the security yvas worth no more than (he paper it was written on. It yvas for the Court to say yvhellier such statements should 1)0 cloaked up. Mr Woodliouse, in addressing the Court, said tho purchasers would derive no benefit yvliatevcr from the sale, which was made for the Ward Association. Mr Justice Williams asked if he really meant to say they yvere going to pay £02,000 without the hope of profit out of friendship f The tiling yvas astonishing. Mr Woodliou.o replied that they did not hope for profit for themselves, but for the Ward Association. He contended the offer was as good as could be obtained by liquidation yvlien the expense of the latter yvas considered. Nothing yvas to be gained by driving Mr Ward to the Bankruptcy Court, as lie had given up everything he possessed and there was no suggestion of impropriety on his part beyond having been extremely speculative. Mr Haggitt, in replying, quoted figures to shoyv that if the estate went into liquidation the very most they could got out of it yvould be about £OI,OOO, whereas the present offer yvas £02,750 and the relief from the guarantee of £SOOO more. It could not be said there had been any secrecy in the proceedings or any attempt oil the part of the liquidators or Mr Ward to keep anything back from the Court, yvhieli had tho yvliole of the facts in their nakedness. The result was that it appeared that for a debt of £92,179 the Colonial Bank held as security some shares in NeUon Bros , yvortli nothing; Mr Ward’s guarantee for £20,000, yvortli nothing or nearly so; and Air Ward’s promissory note for £55,150, which yvas yvortli as much as his guarantee. They held his equity in certain freeholds, valued by Mr Ward at £3850, yvhieli if realised yvould probably not realise £2OOO. The Hokonni Company’s guarantee yvas yvortli nil, so that tho yvliole of the securities did not amount to more than £2OOO. Another advantage in accepting the oiler was that if tho Ward Association yvas brought to grief it would injuriously affect a number of accounts in the B list, and on the liquidation of the Bank Alr Young had hinted that arising out of the Ward Association balance-sheets there might be possible grounds for prosecuting someone. He supposed the late general manager. It might be from a strictly moral point of vieiv that an offence having been committed it yvas someone’s duly to prosecute; but lie submitted that yvas not the liquidators’ duty. Their duty yvas to get as much as possible for the assots of tho Bank. The agreement would not prevent anyone aggrieved prosecuting. II had been said Ibe effect of the compromise yvoul 1 be to screen somebody, Air Ward bis learned friend pointe 1 out. Ihuv could be lie screened r Wliat greater injury could he be subjected to than the examination ot the last two days. The only thing that could possibly be secured to him was secrecy and s.il -nee with regard to the t ran-ae; ions ol Ihe Ward Fanners’ Association, and these had b -cn ripped up from top to bottom, if.- 11 1 ■ll dealt with the rise in the prim- of oil s, and point -1 out that the price was fix ;.j long before there v-' vs any ri -e at all. He e mem-red yvildi .Mr .Simpson at i-yo-n il .he i 1 -j 1 < - 1 1 ;- ha-1 p ever to alter the contract or back out of it inconsequence of the id. it yvould be a dishonourable and disreputable thing to do. Air Justice Williams intimated that he yvould give judgment in a day or tivo. Du.s'i-:din t , June 9. Mr Vigors was further cross-examined by Mr Young as follows at the Supreme Court on Saturday in regard to the draft for £30,090 which did not go forward. Mr Young; Now, I notice that in the report of the directors of the Colonial Bank submitted to the half-yearly meeting of proprietors on the 25th September, 1895, they shoyv a net profit available for listribution of £19,980 2s lOd. Do you knoyv whether the balance-sheet from yvhieli these figures arc taken included the Ward Association accounts as represented by the balancesheet of the 20th of June r Mr Vigors : Our balance-sheet would include the Association debt as shown in our books. Then it would get the benefit of this £30,000 transaction ? It would appear as good in your balance-shoots to that extent f —Yea, it yvas supposed to be good at that date. Was it supposed to bo good on tho 25th September P—Our balanco-sheot was dated 31st August.

I know that. But I ask you was it supposed to be good on the 25th September, when the balance-sheet was submitted to the proprietors f —l should say not. As a matter of fact, did not the directors and tho manager knoyv on the date when they presented the report to the shareholders that-, so far as the Ward account was concerned, it yvas, at any rate, in a very much worse position than it yvas represented in the balancesheet. r—l think so. To an extent sufficient to wipe out the whole apparent profit for the half-year, viz., £19,003 r—l should not like to say they knew that. Then I understand that this meeting for the approval of (lie report was adjourned till some date in November? —Yes ; I think so. Mr Haggitt: It was adjourned until after the approval of the agreement. Air MacGregor : The report yvas confirmed after the approval of the agreement? Witness: I do not think I was at that meeting. Ah' Young; Still, you knoyv as a matter of fact it was done? I believe so. So that at the time of (lie final presentation of the account the directors and the general manager must have knoyvn that this Waid account yvas £55.333, in round numbers. worse oil' than it yvas represented in the balance-sheet ? —At what date ? The 1 Stli November ?I. presume so. And no intimation of anything of that sort was given to the shareholders in any form yvliatevcr ? No. Air Haggitt; Did the directors know at that time that Air Ward’s promissory note yvas valueless ? Witness; I should not think so. Air Young: Now, about those figures. There is no occasion for any mystery. Before this £55,153 yvas written oil the account stood at £118,333, or thereabouts, did it not ? —That is how it appears in the " 0 ” list. Then you yvrote oil' £‘55,333, which reduced it to iM 1,30 i ? Yes, in round figures. The reason of that reduction was that the Bank of New Zealand yvould take it over at these figures, the £55,333 being yvritten oil r I think so. Then you say that in November the £53,333 yvas deducted, bringing tho account up to £7.3,333 ? - Yes. Then the £23,330 worth of debentures guaranteed to the Colonial Bank would bring it up to £9.3,003, at yvhieli it noyv stands ? Yes, £92,850.