WALTER GUTHRIE AND CO. AND ALLIED COMPANIES.

Otago Daily Times, Issue 10731, 20 February 1897, Page 2

WALTER GUTHRIE AND CO. AND ALLIED COMPANIES.

TO TUB EDITOH. Sir, —I hand you herewith a letter written by me in December lssfc, the publication of which I withheld for various reasons. As so much publicity has been given to the affairs of the companies by the publication of Messra Buller and Cook's affidavits, I think ib only ri<»ht that the position from my point of view should be laid before the public. I should, therefore, be glad if you would find space for the letter in your valuable columns.—l am, &C,

Walter Guthrie.

Dunedin, February 19.

Invercargill, 31sb December, 1896. Walter Guthrie axd Company (Limited)

To the Editor.

Sir,—Having been at Hantner Springs and on the sick list, I have not been able sooner to write in reply to the remarks of the bank's solicitor when addressing the court in connection with the liquidation proceedings anent this company on the llth and 18th iust. At tbis stage of affairs I would have much preferred to remain silent, bat as the reruxrks referred to are so inaccurate and misleading, I desire, if you will kindly allow me the space, to reply, in order that the actual position za&y be placed before the public.

In referring to the business of Walter Guthrie a-nd,Company (Limited), when giving reasons for the closing up of the concern, Mr Hoßktng said:—"The los*? had amounted to over £40,000 in six years, or at the rate bf £6000 or £7000 a year, and if the business were to be carried on as Mr Brent suggested for some time, there would not only be this continued loss,.but the loss of interest on the debentures, amounting to nearly £1000.per month, in addition to the loss admitted by Mr Brent."

By the foregoing remarks the public are asked to believe that this particular company is not only losing £6000 to £7000 a year in interest, but by adopting the business-like advice of ilr Brent (one of the liquidators of the company appointed qy the court) to reopen the premises with the view of disposing of all the goods possible in the ordinary way of trade before calling for tenders for the remaining stocks which might then be left on hand, a farther loss at the rate of £12,000 a year in interest on debetures would he made.

I must confess to great difficulty in following the financial reasoning of the bank's solicitor but I might explain to him that the two amounts he mentions as possible to lose by this one company in interest amount to far more than the total interest charge for all the Beven companies, not only on debentures and other ordinary items of .indebtedness, but also discounts and local and foreign exchanges as well The position of "Walter Guthrie and Co! (Limited), as disclosed by its balance sheet of the 31st March last, is as follows :—lt was possessed of assets ab cost price in the shape of stocks,; properties, &c , as well as good book debts, to support 2Qs in the pound on its entire indebtedness, including debentures, open credits, • and shareholders' capital; besides which there waß a large reserve heid against possible depreciation of assets. This, ifc must be admitted, is a very different state of affairs. It is quite true that the ironmongery part of the business has not been able to make interest during the last six years, bub that has been largely made good by the profits from other companies, together with concessions and other allowances made by the debenture-holders and directors. There are several reasons which have operated to prevent the ironmongery business from paying interest. Let me instance two :—(1) The bank's interference in the management, especially of this particular company. During the period referred to no less than three managers of Walter Guthrie and Co. have been engaged to suit the bank's notions. (2) During the period referred to the Dunediu hardware merchahts have greatly extended their business in Invercargill by opening large warehouses with increased stocks. Any experienced merchant will at once understand, the adverse effect that such additional competition must have on a single house that had hitherto held the principal stocks and customer connection in a. small place. I venture to think, however, that they wili experience considerable difliculty in understanding the policy of liquidating such a business because ifc had failed by itself ,to provide interest for a few years. Let me explain how such similar circumstances in trade are met and dealt with in the other Colonies. .1 will refer to two important instances in connection with businesses of a similar character to Walter Guthrie and Co. (Limited) so far as the ironmongery is concerned, and which have been dealt with during the period under review The concerns to which I allude had a share capital of about £500,000 and £450,000 respectively, paid up. To make good trade losses other than interest, brought about, I have no doubt, by exceptional circumstance's— Or, rather, I should say, to effectually deal with the position thus created,—one company wrote off £150,000 and the other £100,000 of its capital. Supposing.l wished to follow Mr Hosking's mode of arriving at trade losses, I would take into account all the interest that had not been earned during the period such losses had accrued, when I have no doubt instead of £150,000 and £100,000 respectively being shown «s lost* the amount might beset down at over £300,000 sterling in the case of each of the two companies referred to; Notwithstanding such exceptional losses, however, neither of these companies proposes liquidation as a means of solving their difficulties. 'Ihey prefer waiting for better times, knowing well the results that must inevitably follow a disastrous course of liquidation, although the businesses referred to are situated in a large centre.

In the case of Walter Guthrie and Co. (Limited), I have shown that there has been no actual'loss of capital; bufc notwithstanding this fact liquidation has been forced Upon the concern, and this, too, in the face of every conceivable buiness-like proposal that could ba made by the directors to the bank to conserve the interests of the.shareholders and creditors.

If it is difficult to account for the liquidation of Walter Guthrie aud Co. (Limited) under the circumstances I have detailed, how much more difficult must it be to arrive at any reasonable conclusion for the Bank of New Zealand's action iv forcing on the liquidation of such companies as the New Zealand Pine Company (Limited) and the Southland Farmers' Implement; and Engineering Company (Limited) ? two concerns which are very successful. The reputation of the Piue Company is too well known throughout the colony, te need me to say more than afc the date liquidation was forced on ifc the net revenue was equal to paying interest on the whole issue of debentures of Walter Guthrie and Co. (Limited), which includes the debenture intereat of all companies connected with the parent concern.

In connection with Mr Brent's appointment; as co-liquidator, Mr Hosking says: "Mr Brent was afterwards proposed. "No objection was made, but grumbling assent, and it was curious that, iv the cases that had arisen, Mr Brent had been, as ib were,, the champion of Mr Guthrie or Mr Guthrie's views." Grumbling assent, indeed ! Let me tell Mr Hosking that the assets representing our shares of the amalgamated properties were of more value at date of amalgamation, and are still afc date of this suicidal liquidation more valuable than the assets supporting the bank's capital, and if the proficc made, by the estate handed over by us uuder the amalgamation are taken into consideration, as compared with fche non-paying assets then supporting the bank's capital, the difference in value in our favour would be very considerable. As it may not be kuown now, ifc is only righfc to say that we made a very large reduction in the value of our estates to be amalgamated, at the special instance and as a special favour to a very high official of the bank.

As to the most profitable mode of liquidating, I have not changed my views one iota, aud havo spoken to many experienced merchants, all of whom agree that my proposals at the meeting of the debenture trustees to sell the bulk of the stock by the process of ordinary trade before calling for tenders is the proper method if realisation to the best advantage is the first comuderation. I maintain that if the stocks are sold as Mr Cook proposes they will nob realise within 50 per cent, of what they would do if sold as I have already indicated. Besides, I have very grave doubts if any satisfactory tenders will be received at all. Aud, in event of a very serious loss resulting from an unskilful mode of realisation, will not the result ba far more serious to me and my friends than to the bank ? Yet our proposals receive no consideration whatever.

first considering these amalgamation proposals, taking into account the great value of the estates we held, aud seeing that the possession and control cf (hem represented a large portiou of my capital aod living, I was most careful to have provided in the amalgamation agreement and debenture deed that, in the event of any unforeseen contingency, each set of debenture holders should have equal representation, and two trustees were appointed for each side accordingly. My faith in the future as to the value of legal documents to carry out whafc most laymen would expect they should do may be better understood than expressed as the position now stands, when one side by holding a preponderance in value can have their nominee appointed with sole control of the entire estates, and notwithstanding thafc the person so appointed may have little or no expert or mercantile knowledge fitting him for the important duty entrusted to him.

In support of his contention to bring all interests under the power of the bank's liquidator, the bank's solicitor stated, amongst other thing 3, that the Bank and Estates Company held £173,000 of the debentures, and the other debenture-holders £50,000. The figures are scarcely correctly stated, as the other debentureholders hold more that £50,000 without taking into account a proprietary interest iv a large portion of the pledged debentures, lodged aa collateral security only, to cover the bank's open indebtedness at the rata of 30s iv the pound; the principal portion of which was arrauged as a condition of the amalgamation of all the companies.

I contend thafc bnt for the bank's treatment of the companies every oue of thase debentures would be returne ; d to us and paid in full; and in proof of this contention let me state that shortly after the present president was appointed, and before we understood the bank's policy towards the companies, we offered to purchase from an outjide holder £3000 worth of shares in Walter Guthrie and Company (Limited) afc a small discount, proving conclusively that in our opinion all the debentures were worth 20s in the pound, otherwise shares would have h*d no value. Nothing but the bank's subsequent attitude to the companies has since occurred to change our estimate of values. As a matter of fact every department of the business was improving, and I contend that even at thia late stage, arid after such enormous damage has been done, the company's assets ara still capable of working out 20s in the pouad to all creditors and shareholders To accomplish this, however, the business would need to be conducted under capable and experienced commercial management, and not on liquidating principles, which, under the most favourable, circumstances, cannot help being disastrous to all the.interests concerned^ and especially in a small place like. Invercargill.

Refemog to the uniformity of the debentures as a security to the several holders, the bank's solicitor said " There is no difference of interests so far as tha net results of the liquidation are concsrned-utiless Mr Guthrie should be rendered acoountabje for any monejs he has received. Ido not wiah'td accuse Sir Hosking of beiug intentionally Unfair in presenting his case to tbe court, bufc as .there is something like au insinuation in the above remark I will shortly explain my connection with the companies, and the public will be able to judge as to whether there is any justification for my name being brought forward in such a manner..

About 13 years ago I purchased the business of W. Paisley and Co.—the entire assets of which firm practically belonged to the Bank of New Zealand—in company with a bank partner when the style of the firm was changed to Walter Guthrie arid Co. Some seven years later, and at the urgent request of the bank, the business was converted into a limited liability company. The whole of my Own and friend's capital was taken out in paid-up shares, no portion whatever having been received in cash, and in addition I alao hold contributing shares, to the value of £4000; upon which all fche calls have been duly paid by mci and which shares are thus fully.paid up. I am nofc indebted to the bank one penny, nor do I owe "any money to the companies. Instead of this being the case, the latter have on many occasions been under considerable monetary obligations to me. During mosfc of the time I have acted as consulting director of this and the other companies. .The fees or allowances that .hava . been credited to me by all companies have . been strictly in accordance with agreement; nevertheless I have not received a farthing for niy own use inasmuch' as that, in order to assist Walter Guthrie md Co. (Limited) to cope with the exceptional competition it has had*to contend with during late years, I have not only made allowances equal to the whole of my salary and fee's, but"have.^lso returned my debenture interest dividends have made cash and other allowances, amounting to over £10,000 in all.

It was chiefly my instrumentality fchafc brought about the amalgamation of the profitable New Zealand Pine Company (about three-fourths of which company was owned by myself and family) with Walter Guthrie arid Co,' Limited (practically owned by the bank), which, for the time, was a non-paying business. We sold the Piiie Company much below its real value, as can be proved from the fact that my party offered <to repurchase fchafc company afc an advance of £17,000 upon fche price we were allowed for it, and this offer was made affc^r the Pine Company had contributed about - £20,000 to the profits of the amalgamated: corripaniea. -. These concessions were made purely in the interests of the bank and shareholders, as my co-debenture holders can testify, - '

The.. Pine" Company was, from the date of its inception to the date of its amalgamation, in a perfectly independent position,-and could have changed its banking account at an hour's notice at any time, and bnt for my urgent desire to improve the position of the.bank and shareholders df Waiter Guthrieand Co. (Limited) by sharing the profits of the Pine Company by amalgainafcioh, I could, with my relatives, have been drawing ah income of from £8000 to £10,000 a year ever since the amalgamation, instead Of having that company and the others rushed into a disastrous and ruinous liquidation. With the foregoing personal explanation, I am content to leave myself to- the judgment of your readers.

Having referred to.the allowances made by myself, ib would;be unfair to my co-partners in the Pine Company were I to overlook the large and generous concessions made by them from time to time in the interests of Walter.Guthrie and Co. (Limited), in which coinpariy they, like myself, were only shareholders. ' They joined in these concessions purely in the interests of- the bank arid shareholders and to strengthen the position of Walter Guthrie and Co. (Limited). As I have before stated, at the time bf the amalgamation the bank were practically the owners of thafc company, whilt the Pine Company belonged solely fco ns. The bank also made some reduction in interesfc-*-which it could well afford to do, considering the very large amount of interest it has received and the extreme rates charged whenever an opportunity occurred;' ia fact, for ordinary trade discounts the whole of the companies were charged excessively high rates up to the very last. This* however, I would not have.referred to had the-treatment ofthe companies otherwise beeu such as might have reasonably been expected from any institution interested in their welfare to a far less extent than the Bank of New Zealand was. The bank's -attitude and actions to the companies, however, I will deal with later on.

I have shown that my party made -large monetary concessions for the benefit of the bank and shareholders—far beyond our equitable proportion—and will now mention some of the many proposals we have made to adjust matters to conserve the interests of all parties, and particularly to avert the present disastrous catastrophe, which the bank has kept hanging over ths. head of these companies, like the sword of Damocles, ever since its management was changed—over two years ago.

First. We agreed to join in the sale of the Pine Company to a London syndicate. The bank first suggested that scheme, but subsequently objected for what seemed to us mosfc unbusinesslike reasons. * ...-*■"

Second. We then offered to re-purchase the Pine Company, aud'to give £17,000 more than we received for.ifc.

Third.. We offered to purchase the bank's and Estates Company's interest in all the companies, and to lodge £50,000 of our mortgage debentures as a security for the effectual carrying out of the purchase,, and to float the Pine Company ourselves, handing the bank 80 per ceut. of the proceeds of the sale as an immediate payment: -

Fourth. We offered to sell our interests in all the companies to fche bank upon easier terms than we offered to pay for the bank's and Ertatcs Company's interest.

Fifth. We offered to divide the companies, so that each party could deal wifch their own share.

The bank authorised its Dunediu solicitor to go into the matter with us an£ arrange a settlement on this latter basis, and we understood that the bank was to act upon his advice. That gentleman had the agreement reduced to writing in accordance with his own views, and signed by us. Nevertheless, after, we were put to all the incidental trouble and expense, on reaching Wellington we found, that those in authority had again changed their minds.

Other proposals for settlement and adjustment were made without success, and as a lasfc resource, rather than tha hank should precipitate such a disastrous method of liquidation in ao small a place as Invercargill, Sir Robert Stout (as chairman of the companies) apd myself (as consulting director) offered to resign' our positions on the oirectcrsto; and this notwithstanding thafc we hold, in conjunction wifch our iriends, aboufc £SO,OOO iv the companies, seveu-eighths of which are represented by mortgage debentures.

The treatment .-tit-ended towards us, particularly during the last two years, seems to have been with the deliberate intention of baulking the successful conduct of these companies and crippling their opersiiiens. 1. The first b'ofvi dealt by the present management of tbe bank—about 18 months ago—was the dishonour of a secured property bill for £500, which had to be immediately paid by the company; and this was done notwithstanding the fact thafc the transaction was fully explaiued to the bank and deposits valued afc three times the amouut had just been lodged by the companies.

2. The Londoa aod American bank credits for the purchase of goods were redujed to onehalf the amount ananged under the amalgamation agreement, and tbafc notwithstanding the fact that the company was paying cash on receipt of bills of.ladtog, instead of waiting until 90 days after sight as previously arranged. By continuing this part of the agreement on the cash system referred to the bauk ran little or no risk, while ths curtailment of the credit had at once the effeefc of disorganising the entire business. It is impossible to discover any reasonable excuse for this destructive act while the business was continued as a going concern, which was the case for over 18 months aft-erwards, especially as the companies were not requiring further bank capital, Bor have they required any extra capital down to the date of the liquidation proceedings. On the contrary, the indebtedness of all the seven companies to the publio has been paid off to the very smallest possible amount, and the bank indebtedness by way of trade discounts is also largely reduced. 3. About the 4th June last, and while the companies were workiag under definite and secured limits—which they bad been doing for 12 rao'nths previously—the bank dishonoured

small bills to the amount of £213. In order to do so £817 of ordinary trade bills, paid in for discount, were rsfused, sud ficst-cl»ss trade cheques, amounting to £293, which were paid in were nofc placed to credit until cleared, because they were payable out of Invercargill— the cheques alone would have more than covered the bills dishonoured. The motive for departing from the usual practice bf crediting the accounts with cheques as paid in, and the dishonour of such a small sum thereby, is incomprehensible, even from a prudent banking point of view, especially considering the bank's large stake in the companies,—and unless the credit of the companies was intended to ba deliberately assailed, can any other motive be conceived?

4. The bank then stopped discounting most of the ordinary trade paper of the various companies as if by another method to force them into bankruptcy.

Having failed in every attempt to ruin the companies and force them under by outside pressure, necking now remained for the bank but, in its outi name, to petition fche court, and by so doing they have deliberately and enormously depreciated the value of their own good assets and ours.-*

After what I have explained with regard to the bank's treatment cf the companies, it must be abundantly maoifest to the, bulk of your, readers that there is some hidden influence underlying when it is remembered that tbe bank snd Estates Company are carrying, on a number of concerns far less profitable and with less prospect of complete success than those companies under review. It must also, be borne in mind that the bank's own position during the past two and a-half years has moat adversely affected both the volume of trade and' measure of profits. '

Having in' th« meantime, however," beei, assisted out of fche mire itself by a generous public, the management cf the bank appear to be blinded as to the effect of the policy they are pursuing towards one of their important outlying interests, and fail to realise that this is just the very policy to precipitate the bank again into the position from which "ifc has so recently emerged—and afc such a fearful cost fco its shareholders. *...,"

I venture to say that there is no merchant of experience in fche colony, having a full knowledge of the position, and ramifications of. Walter Guthrie and Co. (Limited), if he.be" free to express an opinion, who could possibly support the bank in its conduct towards these companies during the last two yesrs; nor would they support the liquidation of * such assets (located as they are; aa a means of improving the position, to say nothing about the bank's suicidal proposals now beyig Carried out by its nominee receiver as to tie best method of realising the stock. I know little or nothing about Mr Cook himself, beyond that he is said fco bean accountant, and that Mr Bailer stated he has, on behalf of the bank, placed quite a number of estates in his hands for realisation, and that he bai always given the bank every satisfaction. To enable one to form a correct opinion as to what Mr Buller may consider "every satisfaction." from the- bank's point of view, it would be necessary to have some idea of the magnitude,position, and character of the businesses dealt; with, and particularly as to the conflicting interests with the bank, if any. ... ■, Perhaps I.am not possessed of the manysided mercantile qualifications of Mr Buller to justify me in giving expert opinion in/ tha management, or mismanagement, of all and sundry businesses; but, with aU due deference, I do feel that I am qualified to form and to give expert advice as to fche best and mosfc satisfactory arrangements that should ho made either for-the carrying on or for the liquidation of such large and complicated concerns as Walter Guthrie and Co. (Limited) possess

_ According to circulars sent out by the bank's liquidator, and the advertisements to be seen in the press, together with the -large quantities o£ stock being received into some of the ax-res, ifc appears that some of the companies are -to-be carried on as going concerns, while others are to be liquidated. In either case, howler, I venture to say that something more than accountant experience is required i ahd why the bank should seek to prevent our side beirig represented by a man who has oeen' trained in mercantile affairs is past my comprehension as it ought to be manifestly in the bank's own interest to secure competent management. Mr Buller has informed us, and has given it as one of his special reasons for Mr Cook's fitness for the pcsifcion of sole liquidator of the companies, that he has a large number of other businesses on hand, and *^iany clerks and some accountants in his employ in various parts of the colony. Now, according to my judgment—aßd I make bold to say thafc ifc will be supported by any man of experience in such matters— the recommendation of Mr Buller is the very one thafc would specially disqualify any man from being appointed to such a position. • I say without' any _ hesitation whatever, that the very* best mercantile experience the colony can produce is necessary to the proper-.and effectual conduct of: these companies, .either -as going concerna or to liquidate them to.the best advantage. Ifc is absolutely necessary that: [the chief manager or liquidator should have full knowledge of' values of goods and machinery, and that his entire time and attention^ should be devoted exclusively to the business of the companies.

Just imagine for a moment, Sir, your having £300,000 invested in a number of" mercantile and manufacturing companies, ihvolrieng large' sawmills, woodware and furniture factories* implement and engineering factories, large wholesale stocks of general merchandise, the mo^t" varied assortments in the colony, and necessitating the employment of hundreds of men Whafc would you think of a friend advising and pressing upon you—as Mr Buller appears to be doing in the interests of the bank and others— a man with Mr Cooks training, experience, anc^ with so much other business of his own on hand afc the same time? I am in no wav attempting to belittle Mr. Cook's abilities in his own profession, and assuming that he has the necessary time to attend to his duties. But it fiils my mind with alarm afc the possibility of my having to entrust my own and family* capital invested in the companies, and involvine between £50,000 and £60,000, principally id mortgage debsntures, fco the sole control of one liquidator..

In conclusion, let me refer once more to the several proposals, appearing in the body of this letter, that we have made to the bank during the last fcwo years, especially to the one refer* ring to the dividing of the.assets as a proper method of adjusting and settling the present difficulty.

Mr Cook has reported on all the compariies on behalf of the bank, and I understand thafc values have been arrived at by him. Without questioning the values he has set down or his mode of arriving at them, let me say thafc we were prepared to accept his valuation as a basis of settlement, and offered to take over any of the companies to the relative value of our debentures. Mr Cook having been appointed to report and value solely by the bank, surely nothing could be fairer than our willingness to accept his figures as a basis of settlement. This, however, like all other proposals, was" refused, and a disastrous and expensive liquids*, tion preferred. Nearly two years ago the bank had a similar investigation made of all tha companies by two of its own most able officers, ono of whom was brought all the way from Adelaide as the most capable mercantile officer in the hank's service, so the president informed us. I challenge the bank to produce and compare that report with Mr Cook's, both aa to values and ofcherwisa. I have not seen either report, but I know Uiat Mc Stnhbins, the bank's first nominee investigator, was a merchant of experience, and as such would not dare in the interest of his own reputation to have advised fche bank to adopt the disastrous policy ifc has embarked on since the liquidator's report reached them.

The whole proceedings from beginning to end' are surrounded with mystery. There is no question thafc a. settlement on the division basis would have tho effect of saving, the bank a sum ofconsiderably over £100,000, with a saving to! ourselves in proportion.

If the companies had been divided, I hava no donbt whatever that I could work our part of the estate to support 20s in the pound to all concerned, and the bank could do likewise with their portion, under careful management. Foi instacen, if tho bank bad taken over the Pine Company as a portion of its share of the assets the profits from that company alone, working as ifc was under the late directors, would have more than covered current rate of interest oa th 6 entire bank indebtedness. Considering the bank's great influence snd commend of capita], there is not the slightest doubt that the several companies falling to its share could have been placed as going concerns to work out £0s in "the pound, and thus avoid a gigantic loss, while at the same time a good and profitable connection would be saved to assist ia earning a dividend for the bank. In fact, fco prevent such an allround system of wrecks ge and tp conserve current business, it would have been a great incentive to the speedy and profitable sale of the several bnsicesiss if a small concession had been proposed in the rato of interest to be charged for the balance of the purchase money. Every one of the companien intended to be carried on at the time liquidation proceeding! were commenced exhibited marked and steady improvement from, evory point of view, aa the books will show. The Colonial Company was in process of voluntary winding up by ourselves, and would have been merged inta Walter Guthrie and Co. very shortly. Now, from what I have said ifc will be seen thafc the companies have been forced into liquidation jregardlesi of result. Surely the magnitude^- the issues involed demanded more than one independent valuation before such a crisi? was precipitated. In conclusion, I may say that I have never before heard of a case where payable companies have been forced into liquidation. I can only conjecture, as previously stated, that some underlying influence has been at work to bring about such a deplorable result I am, lie., Walter Guthbie.

— AU-beggars iarttal-r.jawsfc.be.&'Ji Uceuss3