THE N.Z.L. AND M.A. COMPANY.

Otago Witness, Issue 2080, 4 January 1894, Page 5

THE N.Z.L. AND M.A. COMPANY.

■» CPeu Pbb9B Association.) London, December 26. Mr Stewart estimates the gross liabilities of the New Zealand Loan and Mercantile Agency at L 5.440.000, of which, it is expected that L 2,250,000 will rank. The total assets amount to L 4,494,000, from which is deducted the Bam of L 1,370,000, 370,000 for debenture-holders' claims, leavicg L 3,123,000 to meet the L 2.250.000 liabilities which a>e expected to rank, thus giving a surplus of L 873.000. Auckland, December 27. The general manager of the New Zealand Loan and Mercantile Company has received a cablegram that the official receiver has called a statutory meeting for the 9th of January. (Fnoii Oira Own Cobbespondent.) 30 and 31 Fleet street, London, November 17. When, I wonder, shall I have the pleasure of writing that the reconstruction of the New Zealand Loan and Mercantile Agency is at last an accomplished fact ? I fear that the pleasure is not yet for me. " Hope deferred " still " makes sick the hearts " of the unhappy shareholders in that company, who, with a liability of £22 10s per share hanging over their heads, not unnaturally feel that they would welcome almost the worst in preference to this long-protracted suspense. But I do not think that things seem to be shaping themselves-a little more definitely just at present. To understand the situation, it is necessary to group the parties concerned into three distinct bodies — apart from the shareholders. There are — (1) the secured debenture stockholders, with Baron Schroeder at their head ; (2) one specially secured creditor, the Bank of New Zealand ; (3) the unsecured creditors. Now Baron Schroeder and his party believe themselves to have ample security for their £1,300,000 debenture money in the shape of the uncalled capital of the company. The Bank of New Zealand knows its security to be an abundant cover, even if realised. on forced sale. Therefore, in existing circumstances, were liquidation to be cempulsory, the Bank of New Zealand certainly, and Baron Schroeder and Co. probably, would come out all right. But the prospects of the unsecured creditors would be much less cheerful. In these circumstances it might be thought that Baron Schroeder's policy would be to press for a settlement, regardless of any interests save those of the debenture stock holders. But there is another side to this. Great indignation prevails among the holders

of unsecured debentures at the course which is found to have been pursued in hypothecating over their heads the whole of the uncalled capital as security to the favoured holders of the consolidated debenture stock. They vow vengeance if they are left out in the cold. If Baron Schroeder were to enforce his claim it would be stoutly resisted on the part of the unsecuredcredihors. From what I can gather, Baron Schroeder'B security is legally valid. But it is held by some that if it wers contested on equitable grounds and as giving an undue preference to particular creditors, even if it were not upset, the matter might be fought from court to court up to the House of Lords, and would not be settled for at least three years, all of which time law costs to an alarming amount would be running up. The law is proverbially uncertain, and if the result should be the upsetting of the security, the last state of those debenture stock holders would be infinitely worse than the first. Then again much unpleasantness would ensue. Nasty things have been said already about the creation of this-security at all. Much nastier things might be said and thought if this select knot of secured creditors came in and "scooped the whole pool," leaving nothing whatever for the unsecured one?, who had fondly imagined themselves to stand on precisely tlia same footing. Altogether it is believed that the debenture stock holders will deem it their interest to deal liberally with the company and that no further difficulty on their part is probable. Next, as to the Bank of New Zealand's position in the matter. Its security is even better. It does not consist of uncalled capital, which can be realised only at the cost of causing widespread distress and incurring consequent odium. No ; it is good, solid, tangible property, which could be realised by gradual Bale, and which is certain to yield fully 20s in the pound on the bank's claim, and most likely much more.

The Loan and Mercantile people, I understand, want the Bank of New Zealand to forego this advantage, or, at any rate, a part of it, and to relinquish or slacken their grasp of this security, so that it may once more be practically in the possession of the company *, but I cannot quite make out what they have to offer in return for the proposed waiver. It seems to me that under all the proposals that have been made — I am not permitted to disclose their precise nature— the bank would be left in a much worse position, and would no longer be able to rely on fulfilling its assurance to its own shareholders that the security would realise fully 20s in the pound.

There has, I hear, been some talk to the effect that if the bank will not forego its lien it will be the means of compelling liquidation and thus incur serious unpopularity, owing to the widespread loss which a compulsory liquidation of the Loan and Mercantile would involve.

This, however, is mere sentiment, which is necessarily over-ridden — at least so it seems to me — by the assurance which the bank directors gave to their shareholders as to the value of the security. What could they say in explanation if, after all, through their own voluntary concession, a serious loss should be made P

I hear, on what appears to be good authority, that the directors, while unable to entertain the proposal of the Loan and Mercantile Committee here, made a counter-proposition, the essence of which is the concession of such amplu4lme for settlement of their claim as to place tho Loan and Mercantile in a very favourable position in the matter. Further negotiations will doubtless ensue before a final arrangement is come to, but as the New Zealand Bank directors are understood to be anxious to do all in their power to meet the views of the Loan and Mercantile Committee, subject to the condition that the insurance of 20s in the pound shall be preserved to their own shareholders, I am not without hope that the outcome will be favourable.

One consideration should " make for " this result. It is the opinion of capable judges, after a close investigation of the assets, that a call of the whole £22 103 per share which would be necessitated by liquidation would not realise any more tban the £5 10s per share spread over two or three years proposed under the scheme of reconstruction.

Shareholders might struggle, and successfully, to pay £5 10s, with two or three years to do it in, and most likely would manage it somehow, so as to preserve the capital they had already sunk in the concern. But a demand for the whole £22 10a per share would be so absolutely impossible of fulfilment that many of the shareholders would abandon all hope at ouce, and would seek the aid of the friendly whitewash brush — indeed, would have no alternative. It is even believed taat the £22 10s called up in liquidation would realise less than the £5 10s called for purposes of reconstruction.

Such at any rate is what I understand to be the position at the time I am writing, an'l qu the whole I think it contains more hopeful features. Failure to reconstruct would mean a fresh public disaster to New Zealand. There is no mistake at all about that.

It is extraordinary how many people, both in New Zealand and here, seem to have purchased additional shares on the very eve of the suspension. I heard only yesterday of one retired gentleman of moderate means who had bought

400 shares- as a good investment of part of his little competence two or three days before the suspension was announced. Liquidation would mean to him the loss of his invested capital and the liability to pay -up £9000 besides. Most of the London papers have let the Loan and Mercantile severely alone since the suspension- was announced and commented upon. The Standard and the Financial Times have a shot at it now and then, and that is about all, and it does not matter very much. But what does matter very much indeed, directly or indirectly to everybody who is in any way interested in New Zealand, is that liquidation should be averted and reconstruction accomplished.

This morning 1 was informed that everything was settled at last about the Loan and Mercantile. The Scottish debenture-holders had agreed to the terms offered. That, I believe, is correct. Also, the Bank of New Zealand (so I was told by one of the leading financial authorities in the City) had been settled with. I gathered that the settlement consisted in acceptance by the Loan and Mercantile of tho bank s counter proposal. However, on inquiry at the Bank of New Zealand this afternoon I was informed that the bank at any rate had no knowledge of any such settlement having been arrived at. No reply had yet been received to the bank's counter propoaal. Nothing less than 20s in the pound wonhl or could be accepted by the bank, and that the Loan and Mercantile did not want to § lv . e< However, there may yet be considerable delay before a final understanding is reached. Sir J^mes Fergusson was closeted with the president and manager of the bank for a long time this afternoon. Up to the closing of my letter nothing definite had resulted