SUPREME COURT.

Otago Witness, Issue 2085, 8 February 1894, Page 14

SUPREME COURT.

IN BANKRUPTCY.

Monday, f ebhuaby 5. (Before his Honor Mr Justice Williams.) KB HENRY GUTHKIE.

Motion for final order of discharge. Mr F. R. Chapman appeared for the debtor, and Mr J. F. M. Fraser for Gibson and Co., the opposing creditors. The Debtor, examined by Mr Fraser, said he acquired the farm at Waihola some 14- or 15 years ago. This property showed a depreciation of £5000. The Hakateramea property was bought about the same time, and had since depreciated. Both properties were valued about two years ago on behalf of the Savings Bank. He was told the Waihola property was valued at £2 per acre. The equity of redemption on this valuation was worth about £800. When bought £3 per acre was paid for the Waihola property. The depreciation in the value at Hakateramea was not much. It had been bought from the Crown, and £2 an acre had been paid for it. The depreciation was not sudden ; it had been going on for years. When the land was valued he considered himself solvent. The surplus in July 1889 was £9000. It did not occur to him that he must have been bankrupt six or seven years ago. He did not think his position serious in 1893, but he knew he was making serious losses. It did not strike him as a risky thing to sell goods for forward delivery. Mr Hogg was a co-owner of ships with him. Mackerras and Hazlett were also co-owners in one ship with him. W. F. Graham was a brother-in-law, and another creditor was his mother-in-law. Stout, Mondy, and Sim, were his solicitors, and of the debt to them £250 was secured by Mrs Guthrie's promissory note. His brother was a director in the Hardware Company, but he could not say for certain that he was the managing director. Witness's household expenses had not been altered since his bankruptcy. He had no servants. His creditors had acted very fairly towards him.

In cross-examination, the witness said that since 1892 he had reduced the expenses of his household, and had kept no servants.

To his Honor : The bank was not pressing at the time the transaction was entered into with Gibson and Co. Before that they had not called upon him to produce his accounts, to reduce his account, or to get further security.

Mr Chapman, in moving for the debtor's discharge, said the assignee's report was favourable, and there was nothing against the debtor more than a mistaken estimate of his position. The bankrupt had kept his records accurately, so that all his transactions could be investigated. So far as the valuations were concerned, they may have been over sanguine ; but a little alteration the other way would show under the mark as regards the shipping. As to the properties, his Honor had had numerous cases in which the difficulty of correctly estimating the valuation of property had occurred. Moreover, this was not a question of whether Mr Guthrie had correctly valued his properties, but whether, accepting as a general rule, the valuations of others, he was justified in thinking that they were to be relied on. The creditors had not opposed the debtor, and the bank had exhibited no hostility towards him ; the only creditor who was complaining being his learned friend's client, who seemed to have made an ordinary trading loss.

Mr J. F. M. Fraser submitted that as the favouring creditors were principally relatives or co-owners of property with the debtor, their recommendation ° was of little value to the court. The court must be satisfied that the debtor had been guilty at any rate of imprudent trading. His assets had been non-liquid assets ; his freehold property congested and probably unsaleable; his shipping property unstable; his bank overdraft large ; and as his assets were depreciating to zero and he was making losses, as a prudent man he should have known his position, and that the bank could stop him at any moment. The bankrupt's position now was practically as good as ever, and his estate had paid the creditors Is in the pound. All the creditors except the one now opposing were satisfied, and he (the learned counsel) asked his Honor to make the discharge conditional upon some payment to the dissentient creditor.

Mr Chapman replied, traversing the statements made by counsel on the other side and asserting that the only ground for opposing the discharge was that the dissenting creditor should be exceptionally treated and should receive something for his diligence in opposing Mr Guthrie. The only question was whether the debtor had acted so as to incur punishment, and that was a question of hona fides. His Honor, in giving judgment, said : Whether the bankrupt is entitled to an immediate order of discharge or not, it is quite out of the question that the order of discharge should be granted subject to the condition suggested by Mr Fraser, namely, that the bankrupt should pay one particular creditor a composition on his debt. The object of the bankruptcy law is to treat all creditors equally, and an order of the kind would, in a case like the present, conflict with the spirit and object of the bankruptcy law. No doubt where a particular debt has been incurred by fraud it would be competent for the court to say to the debtor, "You must purge yourself of your fraud by restitution before the court will listen to your application for a discharge." That, however, is net the case here. There is nothing in the debt which has been incurred to Mr Fraser's client which distinguishes it from the general run of the other debts of the bankrupt. The only question, therefore, is whether, in the circumstances, the bankrupt is or is not entitled to immediate discharge. The result of the investigations of the accounts of the bankrupt by the official assignee and Mr Leary has been to show that the accounts have been kept with complete accuracy. The fact that they have been so. kept is the strongest possible evidence of the bona fidea of the bankrupt. It appears that ia the year ending 31st March 1893 the bankrupt made a considerable loss, but he accounts for that by special losses incurred in respect of one particular ship. That seems to have been the main cause of the deficiency for the year ending the 31st March 1893. On the 31sfc of March 1893 the bankrupt iv the ordinary course made a balance sheet showiug his assets and liabilities at that date. At that date there was a surplus ot £3165 3s 4d of assets over liabilities. A large portion of the liabilities consists of an overdraft at the Colonial Bank, which could of course have been called up at any moment. On the other hand, the assets consist principally of the equity ti redemption in various ships and in various land and house properties. It i 3 suggested that there has been an over-valuation, and that the Colonial Bank could have pulled up the bankrupt at any time, and that at that stage he should have called his creditors together. No doubt we know now that the valuation was excessive. It was, however, prepared by the bankrupt, not for the purpose of obtaining credit upon, but as a guide for his own conduct. It cannot therefore be supposed that these over-valuations were intentional on his part. So far as landed property was concerned, he relied, and it was not unreasonable that he should rely, upon valuations made by independent persons for mortgage purposes. '

So far as the valuation of ships was concerned he seems to have relied upon the valuations made by the underwriters and partly upon the price which had been paid for the vessels. Even allowing for a oonsiderable over-valuation, as the balance sheet Bhows a surplus of £3165 of assets over liabilities, I think there can be no doubt that the bankrupt honeßtly believed that at this time he was solvent ; and as the bank, notwithstanding his overdraft, were still honouring his drafts, it cannot be said that his belief was so unreasonable that the court must hold that to continue in business after the 31st of March 1893 amounted to gross negligence on the bankrupt's part. He continued carrying on business for some months after that time, and ultimately he was pulled up by the bank. He swears, however, that the debt which he contracted to the opposing creditor was contracted while the bank was honouring his drafts, and before the bank bad given him any intimation that it would not further honour his drafts or that he must reduce his overdraft. A fairly representative meeting of creditors has resolved not to offer any opposition to the bankrupt's discharge. The Colonial Bank, which is the largest creditor, was not represented at that meeting, but no opposition is now made on behalf of the Colonial Bank, and if the conduct of the bankrupt has been reprehensible, certainly they, being the largest creditors, havti the greatest reason to complain. While, therefore, the bankrupt may have been guilty of an error of judgment in not filing at an earlier date, it is exceedingly difficult to say that his conduct has been such that the court must refuse or suspend his discharge. If there was anything in his conduct at all which would make one believe that there was any want of bona fides, that would bs a very different matter. J do not think there is, and, as I have said, in coming to that conclusion I rely upon the fact that the accounts have been accurately and carefully kept throughout. The order of discharge therefore will be granted.

Mr Fraser applied for the opposing creditor to be allowed costs.

His Honor declined to accede to the application. There had been complete investigation of the bankrupt's affairs by the official assignee and Mr Leary, and the present case was simply one where a creditor appeared to oppose an order and failed. The court adjourned at 2 p.m.