THE COLONIAL BANK.

Otago Daily Times, Issue 10621, 17 March 1896, Page 7

THE COLONIAL BANK.

OFFICIAL LIQUIDATOBB,

The question of the appointment of official liquidators to suocfted the provisional liquidators of tho Colonial Bjck of New Zetland csme before his Honor Mr Justice Williaas in Chambers on February 28 oa a motion mude on behalf of the directors of the bank for the permanent appointment of the gontlemsn who are acting provisionally ns liquidators. Mr B.C. Haggitt appeared for the directors in support of tha motion; Me W. C. MucGregor appeared on bab.aU of If r William Learmond and other sh&reholders to oppose, as did also Mr T. Young (of Wellington), who rapressneed Mr C. Fraber, a shareholder supporting Che claims of Mr Braund (of Wellington) ; and Mr J. F. M. Fcaser appeared for Messrs Hugh Adam aud R. Coghill, shareholders -who favour the appointmost or the gp.utlemen ceuomruended by tha diractors.

On taking his seat on the Suprame Court borjch on February 23, his Honor: Hr Justice Williams delivert'djudgment on the motion for the appointment' of official liquidators for the Colonial Bank of New Zealand as follows :—

I do not think there is numcieut grouud for ordering an inspection of the books of the batik before the appointment of lqulditors. Tha main ground on which inspection is sought is that an inspection is necessary before liquidators are appointed, in view of this persons Dominated as liquidators by the directors. It is not suggested that, except in the case of Mr Lsrnacn, anything will be found in the books relating to tho individual transactions of these gentlemen with th« bank. As to Mr Larnaoh, he has sworn that he is not now indebted to tha bank, though he may have been so indebted at the commencement of tho liquidation. There is no reason why ths oonrt should not balieve his statement, more espacially as, if it is untrue, the books oE the bank ara and will remain in existence to controvert it. What ia suggested is that all three gentlemen have bean more or lais connected with the management of the bank, that there ia reason to believe tbat the »ff lira of the bank have been mismanaged, and that if that is tha case thoy ought nob to bp. appointed as liquidators. Iu order, however, to ascertain whether the affairs of the bank have baen mismanaged, and, if so, whether any persons connected with the management have rendered themselves liable to proceedings of acy kind it 13 obviously necessary, not that there should, ba an inspection of books attue instance of individual shareholders, but that there should be an investigation of the affairs of the bank by independent persons. The duty of conducting this investigation will, of course, devolve upon the permanent liquidators. To initiate and complete such an investigation before the appointment of permanent) liquidators would postpone the appointment of liquidators for an indefinite period, and seriously delay the winding-up proceedings. If, however, from the lasts before the court there ara reasonable grouuds for supposing that an independent investigation is necessary, that affords a good reason for. the oourb in appointing permanent liquidators to take care, as far as is reasonably possible, that the persons appointed are persons who are'not responsible for the previous management of ths bank. The firat question, therefore, is whetaer, from the facts bnfora the court, there is enough to show that it is dasirable that the aff.*ir3 of the bank should bo investigated by independents persons. The balance sheet for the half-year ending 31st August 1895, shows the following item on the creditor side : Bills discounted snd all other debts due to tha bank, £1,731,5*9. On the debtor side it shows the items : Capital (£2 paid up on 200,000 shares), £400 000; reserve fund, £85,000; profit and Ihss. £19,800. The total of these items is £484,800. The balance of profit and loss is stated to have been arrived at after making orovisiou for bad aud doubtful debts. The 103rd paragraph of the deed lof■ settlement makes ■it the duty of the directors, in making up the balance sheet, to deduct from the grow profits of the half-yenr, or to charga against the reserve i'nnd, "not only all debto duo to thn company, which shall appear to tb* Board of Directors to be bad debts,' but also all such as shall appear to them to be ot, a sariously doubtful character." The statement, therefore, that the amount of bills discounted and all other debts dua to the bink is £1,731,549 implies the assertion that no part of this amount consists of bad or seriously doubtful debts.' If, then, the other items on the creditor side of the balance sheeS are of tha value's placed opposite them, and as to this there is no question, it follows that not only is the capital originally subscribed intact, but also the reserve fund and the balance of profit and los3—in short, the entire £484,800. This, therefore, is the sum which, if tha statements in the balance sheet are correct, might be expected after-deducting-any necessary expenses, ultimately to roach the pockets of the shareholders if the business of the bank were taken over as B going concern by another bank, and nothing at all given for the goodwill of the'business. No person reading tho present contract could fairly suppose that it would work out so as to prodnoe' anything like . onoh a result. The contract for Bale of the 18thOotober is based on the balance sheet of the 31st Au?nst. By that contract, however, only £926,197 Out of the £1,731,549 of debte is taken over by the purchasing1 bank as. absolutely good. The D list, amounting to no less a sum than £102,274,----is not taken over at oil. It is statad by Mr Watson in Mb report that the assets in this list are eliminated in accordance with the act. - The 36th section of the " Bank of New Zealand and Banking Aot 1895 "provides that the Bank of New Zealand may purchase and take over the business and assets of any other bank carrying on business in the colony, "excepting ' such portion of the asssts of the selling bank ar the directors of the Bank of New Zeilaud and the auditor appointed by the Governor undrfr the Share Guarantee Act shall certify in thsir opinions to be bad, doubtful, or valueless" The £102,27* has been eliminated in accordance with this section. The C list amounts to £98,383. In respect of this amount £55,233 of the purchase money is held as security by the Bank of New Zealand, and not only is this sum so held, but the Colonial Bank guarantees the Bank of New Zealand the whole of the.difference between £55,233 and £98,383. There is, therefore, the obvious contingency, not only that the shareholders of the Colonial Bank may receive no part of the £55,233 reserved, but that they may have to pay a considerable stim to the Bank of. New Zeiland in spect of the accounts in the C list. The B list Bmounts to £604,695. In respect of this, £272,072 of ths purchaso money is reserved as security, but the Colonial Bank,is not liable beyond this amount. Any deficiency, however, in tho sum of £604,695 will, up to the Bum of £272,072, fall upon the shareholders of the Colonial Bank. Shortly, therefore, the purohasinc; bank has, out of the total debts of £1,731,549 due to the sslling bunk, treated £102,274 as absolutely valueless, £98,333 bo doubtful as to require an absolute guarantee 00 the part of the Coloaial Baak, and £604,695 as containing such an element., of doubt as to require £272,072 to be retained* as seourity in respeot of them. This is, of course, inconsistent with the implied statement in the balance sheet that no part of the £1,731,549 consisted of bad or seriously doubtful debts. It is suggested that the eitimate is merely that of tha buyer, and was overoantious. That may be so, but' the directors nevertheless, by entering iuto tha agreement, have to a certain extent made themselves parties to the buyer's estimate. If the statements in the balance sheet ara correct they have made a bad bargain. If they have made a good bargain the balance sheet is delusive. If there are, in fact, over £100,000 of bad and doubtful debts then the profit stated to h'.ve been earned was not earned. If there was that amount of bad and doubtful debts in August 1895 r it would suggest at any rate the possibility of bad and doubtful debts forming p-wt of the total debts appearing to be due to the bank in March 1895, and of the dividend declared in that and previous half years having been 'in effect paid oak of capital. There is quite enough before the court to show the necessity for a careful' investigation ot the affairs of the bank. What the result of such on inquiry may be it is, of course, impossible to anticipate. As wa3 said in re the Varieties Company (1893, 2 Ch. 241), it may be when the. whole matter is gone into, there will be no ground for making any imputation against the persons who have been conoerned in the conduct of the business of the company. On the other hand, it may turn out that the directors or officers of the bank hnvo incurred a civil or criminal liability. No possible explanations can settle the matter one way or the other without an investigation of the bank's affairs. To make such an investigation is the duty of the liquidators. As stated in "Palmer's Winding-up Forms," page 193, it it the duty of the liquidator to investigate the affairs,of the company in detail, and to ascertain whether any of the officers and employees commit any misfeasance or breach of trust. For that purpose he should examine the books and documents of the company, and make all necessary inquiries, and should, if need be, examine persons capable of giving information under section 177 of the act of 1882, and, further, Bhould take summary "proceedings against the delinquents under section 226 of Che ace. or by action as he may ba advised. In the above circumstances it is to my mind quite clear that no director of the bank should be appointed as liquidator, even although be may be recommended by a majority of the shareholders, and therefore that Mr Larnanh ought not to ba appointed. This, of course, involves no personal imputation against Mr L&msch. There is to bs an investigation of the affairs of the bank. This investigation may or may not disclose a liability on the part of the directors, but obviously one of the directors should not be a party to tho determination of whether it does or does not disclose such a liability. With respect to Mr Viger9, no doubfc the sams abstract principle applies. The position of Mr Vigors, however, in the bank was after all that of a subordinate. He was in no way responsible for the bolicj of the b»nk. JJurthermore. it is.^l think.

F evident that the realisation of the "B " and ■ | "C" acoaunts will bo a very -di£soult and ] | delicate operation. It seems to me highly i d'sirable that one, at any rate, of tte liquidator* would have special banking kwwtadga, and, wore than that, thub he should be a?qr.ainted with the history and prospeots of the individual accounts iu these lints. The i principal duty of the liquidators will bo the careful realisation of tueae accounts; and although a searching investigation of theaff&ira of the bank is absolutely necessary, yet it would be initchievou* to introduce a distinctly belligerent element, or that t so liquidators should neglect tae careful realisation of the*o accounts and give thennolves up to a crusade against tno former mauagament. Mr Vigors also received a larger number of votes at the meetiog of snareiiolders than any other of the persons nominated as liquidators. As 1 have said, I am 6*tißfi«d that ouo of the liquidators should be a banning expert. Tha only other banking expert nominated is Mr B:auni. I have no doubt whatever of Mr Brauod's ability, but ho comes from another bank, and cannot pretend to have any knowledge of the accounts which it will be the main duty of the liquidators to realise. Kor 13 there evideuce before the court that the appomtnißnt of Mr Brauud would be consonant to tae wishes of any very large number of shareholders. In the abova circumstances, aud in view of the large number of votes obtained by Mr Vigors, I am not pri*paved to accept; the rejponsibility of refuflinc to appoiat him as one of the liquiditors. Had he'been the sola liquidator, the case would have been different. As it is, however, there will be two other liquidator-), aud should it tarn out that he interferes with the full investigation of the bank's aff lirs, or reFusßa to j >m in proceedings against parties guilty of raiß--feasance, or that a» an officer of the bank ha has himself been euilty of miifeasanca, it will be in ths power of the other liquidators, a3 it would be thoir duiy, to corns to the court and ask for his rem.iv.il. With respest t'i Mr Ra-u----snv, I dp not thiak that tho mere faot thit iu 1891 Mr Kitmsy was an auditor of the b.iak it an evidense thab he is mw uufit for the position of liquidator. The duties ot an auditor ars dsSoed.by sec .ion 102 of ths deed of setrle- ' ment. Tho auditors all a!o»j{ h».ve considered tUat tbeii' dutius were little more tlun arithmetical. That appears clear from the forai: of cartiflcste whii'h they • hive used. WhaS the duties of an auditor are ia any particular ca^e depends upon the definition of those dutiei by tha ■ language of tha deed of settlcmsnt or articles of association. Looking at the. language of sejtion 102, snd also of section 104, there is a fair ground for the contention that the view of the ftudiiora was correct. The year 1891, however, wis ts»o years b.-.fore the Australian banking crisis, and silica then bauking affairs have altered materially. Even supposing that Mr Ramsay misconceived his duties as auditor ia 1891, it is difficult to imagiue that the present condition of one bank can be in any way attributable to his misconception. It is suggested, however, that the fact that Mr Ramsay was nominated by the directors and his sub-iequeut couduot have shown that he is under tie influence of the directors, aad will not act impartially. Now, it was the duty of the direciors who presented the petition t>> nominate liquidators; I certainly ought not to usmine from ; the mere faot thab a person is so no'uinatsd | I that he is unfit to be a liquidator. What Mr Raina&y his sinoe dona and said has b?eu the subject of conflicting affidavits ; but Mr Ramsay has sworn that if appointed he will do his duty independently. Tuwre is absolutely no evidence : to sao-.v that his business relations are sucb. that j he will be liable to be improperly -influenced, nor is it questioned that he ia a man of probity and uorijjhtness. Furthermore, the meeting of shareholders nominated him by a large majoI rity, the number of votes he received being only eecoud to Mr Vigecs. It also appears that at that meeting he received the votes j of half th« members of the Shareholder**' Committea who originally mes at Mr Ma'jGfegor's office. With respect to that meeting, 1 hav« already stased thiit when I originally mentioned the subjdoc of the meetiug it was in ray mind not that it should be convened by the pro- ] visional liquidators, bub that it should be convened by tha court aftsr tie winding-up order had been made. Probibly, however, I did not. express myself with sufficient clearness, and. the provisional liquidators were under tbe impression that I intended they should call the . meeting. This impression, lam satisfied, was j shared by everybody ooncarned, because after ths notice of the meetiug no protest was m&de against it being summoned, but efforts were made on the parb of the shareholders who objected to the provisional liquidators being appointed permanently, to secure proxies. It was not till tha eve of the meeting that any objection was taken that it had not been convened under the rules.' The object of any! such meeting, however, was to obtain the opinion I of the shareholders. Whether ths meeting was formal or informal, if it is reasonable to suppose that it gives a fair expression of the wishes of the shareholders, it has performed its object. As to the conduct of the meeting, no .parson was prevented from taking part in it who had a right'to take part in it, or was disbarred from the free expression of his opinions on the subject before the meeting. The only thing in connection with the meeting oug-* gestive of unfairness is that the provisional liquidators, in the circular convening it, mentioned that they wore willing to act as permanent liquidators, and forwarded to the shareholders forms of proxy with the name of the proxy to be appointed in blank, but addressed to tha liquidators. Having access to the Bhare register, and to the Addresses of the shareholders appearing iu the bank's books, this of i course gave rh»m an advantage in obtaining j proxies. Applications on behalf of other share- | holders for inspection of the share register, in j order to ascertain the naniei! and addreeies of shareholders and to send them proxies, wcra refused by the provisional liquidators. Although under tbe deed of settk-mant the shareholder may have had no right to such an inspection, yet it seams to ma if the provisional liquidators get information from tbe bank books which they make use of, not for the purposes of the liquidation, but to secure proxies in favour oft&eir own appointment as perruinent liquidators, that it was reasonable they should place othar Shareholders in a similar position to themselves. However, before and at the time the meeting was convened it must have been well known to all shareholders that tbe appointment of permanent liquidators would be a matter of contest. It may also be assumed that every shareholder who could be reached was forwarded a form of proxy, at any rate by the liquidators. It was qnite; open to any shareholder to dispose of his proxy as he pleased. The affairs of the bank had besn discussed for sonn time previously in the newspapers, and every shareholder who took any real interest in the bank's affairs would know whatv side he intended to support, aud would give his proxy to someone who would carry out bis views. lam not satisfied that, notwithstanding the way in which the meeting was convened, it did not express the views of the shareholders. Tho majority by which Mr Ramsay was nominated was bo large that it is difficult to imagine that nny alteration in the mode of convening the meeting would have turned it into a minority. Nor do I think that on the whole Mr Ramsay's conduct indic&tt!s an undue leim'lls in favour of the directors of the bank. If he has shown any indications of partisanship, it is in miking common cause with the other two provisional liquidators to swure the nomination of the tLree us permanent liquidators. But it musb be remembered that the appointment of the three as provisional liquidators had bean attacked iu the fir.it instance, and Mr Ramsay, was therefore in a manner compelled to make common causa with his fellows. I think, therefore, Mr Ramsay should be eppr>int9d one of the liquidators. A< to the other liquidator, Mr William Lawrence Simpson, apart trom Mr Larnacb, obtained tho next largest number of votes as the eUareholders' meeting, and he will be accordingly appointed tho third liquidator. Iu reply to Mr MacQragor, his Honor said that the qusstiou of costs could not then be discussed, but would be considered in Chambers.