BANKRUPTS AFFAIRS

Wanganui Chronicle, Volume LXXXIII, Issue 20103, 23 March 1928, Page 8

BANKRUPTS AFFAIRS

Before the Registrar of the Supreme Court, Mr W. 8. Jones. a public exam illation of Thomas E. Thomas, who was adjudicated bankrupt on his own petition on December 6, and whose estate shrowed a deficiency of £14.825 J9s 2d. was commenced at the Court yesterday morning, and continued all day. Proceedings will be continued to-day. Mr Izard acted for the official assignee, and Mr A. A. Barton appeared for the bankrupt. Bankrupt said he commenced business in 1910, when he was in partnership with Mrs Burnett, who put in a sum of £2,000. The partnership witli her was dissolved in 192-'. the terms of the dissolution being that bankrupt was to par ' er £lO.OOO at the rate of £2,000 a year. Up to 1923 she had drawn £4OO a year from the business so that for her investment of £2.000 she was getting roughly £15,000 back again. In 1923 bankrupt was. financ ing with the Bank of New South Wales, and in 1925 he approached the Bank of Australasia, and they arranged to finance him to the extent of £7,000 on condition he formed the business into a company. Up to the end of April. 1925, bankrupt had paid £l,OOO off the £lO,OOO due to Mrs urnett, and he gave to her promissory notes, spread over a period, of £7,617 12s Id, and £1,382 7s 2d of his son. Trevor Thomas, who owed this latter amount to bankrupt. In July of 1925 he made up a balance sheet to present to the Bank of Australasia. When he formed the company the bills he gave t Mrs Burnett were endorsed by the company. ami Mrs Burnett and her husband appeared as debtors at the time the partnership was dissolved, to the exent of £BB7 14> lid. That should have been written off, but this was never done. Sundry debtors of £6,179 shown on the balance sheet of 1925 included the debt to Mrs Burnett oi £SB7 ]4s lid. Bills receivable of £1.582 7s Id represented the bills owing by bankrupt’s son Trevor. Of that amount bankrupt had transferred £1.382 7s Id to Mr? Burnett, and consequently they did not belong to him. htock on hand was shown as £15,694, which was arrived at by stocktaking by bankrupt. The Taihape branch was shown as an asset owing £4,576 4s sd. “Ithink then* were assets owing to that amount.” said bankrupt. His Taihape ledger showed that in August his stock-in-hand ther? was valued at. £4.799 2s 2d. For the year ended July 31, 1925. the Taihape business showed a loss of £453 5s od. Mr Izard: So your Taihape busineswas not exactly a profitable one. A Sudden Reversal. Continuing bankrupt said his balanct sheet in 1925 showed a balance of as sets over liabilities of £22.451. In De cember of 1927 bankrupt showed a de ficiency of £12,599 19s 2d. Mr Izard: So in two years a tota credit of £26,000 was reduced to a de ficiency of £12,599. How can you ac count for it! Thomas: 1 can’t, account for it. In reply to Mr Izard bankrupt sai that from 1921 to 1925 the slump ha< not affected him. It was since 192‘ that his business had suffered. Thomas said he purchased th ■ Tai hope business in .1919, and up -•> 192-‘ he conducted it always as a separate business, although goods were brought from the Wanganui firm. In 1925 th< loss and drawings at Tai hat wen £822 5s 9d, for the twelve month: ending July, 1926 they were £1.189 Jo4d, and for the year ending July 31 1927, were £2,349 6s Sd. The stock-in hand in the Taihape shop for the yea: ending July 31, 1925 was £4,792 2s 2d July 31, 1926, £4,298 5s sd, and at th< end of the following year £2,119 17: 7d. The amounts owing to T. E Thomas and Co. Ltd. (Wanganui) oi these respective dates were on Julv 31 1925, £4,576 4s sd, July 31. 191'6 £6,711 18s 3d, July 31, 1927. £6.240 5: 6d. A balance sheet of the Taihapt business on July 31, 1927, showed tha the liabilities exceeded assets ly £4.009 2s 4d. so that there were not suf ficient assets at Taihape to meet th* debt to the Wanganui business. Bankrupt prepared a balance >he«*l for the company ’s business at Wang-i nui each year up to July 31, 1926. Tht last of these balance sheets showed t trading loss of £1,316 10s 3d. ( arriforward into this balance sheet wen bills receivable of £1,052. which wen not receivable, and the debits owing ■ • Mrs Burnett. Out of the business hr had drawn in that year (including hi.salary of £1,000) £2,529 10s 9d. Ji the same year he had drawn out oi thf Taihape business £lB3 5s lid. On July 31, 1927, Thomas prepare< another balance sheet of the companv and in that he again carried forwarthe bills receivable and the debt t( Mrs Burnett, which were not real I \ owing. This balance sheet showed :■ profit of £195 8s Id. Drawings from Business. His drawings from the company’ business that year were £1.205 <Ss Id and his drawings from Taihape £l,oB’ Is 3d. Up to July of 1927 he was lx* ing pressed by some of his creditors There were summonses out against bin for trade debts and he was renewin’ trade p.n.’s as they became due. Bi limit with the bank was £7,000. am he was pretty wa ll up to that limit al the time. The bank held a debentun over the company’s assets. a mort gage over the company’s leases, an as signment of certain life policies and : guarantee from an outside man o £2.500, while Thomas himself had per sonally guaranteed the account. Abou August, 1927, the bank urged furthe security, and on August 24, 1927, hi gave the bank security over his housi on Durie Hill and his house at Tai hape, subject to the existing mortgage thereon. In September of 1927 he sen his son to Wellington to see the ban! but he also called on a few of his ere 1 itors, although witness did not tell bin to see the creditors. Hp knew that h< did see the creditors, and he knew thai be took the balance sheet to Welling ton to show the bank. Bankrupt knew that his son did see one of tin creditors. (An objection by Air Bar ton to tins question was here noted) At this time the Wellington creditor were not pressing him. The Welling ton creditors were Mackay Logan, Bin.

PUBLIC EXAMINATION

ESTATE OF T. E. THOMAS INVESTIGATED

Harris. Abbot Oram, Kaiapoi Woollen Co.. Ross and Glendinning. He had been renewing bills for these creditors. After his son’s visit to Wellington bankrupt got further credit from all these creditors, including about £5O worth of credit to the Taihape business. He would certainly have shown that balance sheet to any of the Wellington creditors had they desired i> see it. ami he had not instructed his son not to show it to them. His son was secretary and was also a director while bankrupt was a governing director and had sole power. Mr Izard then read the following exerpt from the D.O.A.’s report of bankrupt’s statements: —“I was responsible for rhe issue of the 1927 balance sheet signed by me, which was shown to my creditors in Wellington. They had no difficulty in getting fig ures from me. I did this to obtain further credit from them.” Thomas said this was correct except the last sentence. Proceeding he said he did not show the 1927 balance sheet to any of the Wellington creditors, and he did not instruct anyone else to. The balance sheet for the period ending July 31, 1927. showed excess of assets over liabilities amounting to £19,000, bu’ by December, 1927. there was an e\ cess of liabilities over assets of £l2. 000. Mr Izard: Don’t you think you grossly over-valued your stock? Bankrupt: 1 don’t think so; stock depreciated enormously. Items Particularised. Proceeding Mr Izard went into various items of the July. 1927. balan -e sheet. Bankrupt did not know that £474 of the book debts cculd not b“ traced, and he was surprised to ]earn that, the D.O.A. could not collect more than £1,500 of them.. His balance sheet showed £7.02»7 representing goods owing from Taihape. On July 3.1. 1927, his liabilities totalled £15,851. His assets were what he had n the Taihape business. shares in the company, ami the equity in the Durie Hill property. Questioned al->ut the value of his Durie Hill property, bankrupt said that in 1919 he turned down an offer r,f £6,990 for the property. To-day it was worth more than £3,500. Asked why he did not include tindebt to Mrs Burnett in the balance sheet, bankrupt said he treated it as a private debt. One of the things tha 0 had crippled him was having to make these payments to Mrs Burnett. Two Mistakes. On September 21, 1927. at a meeting of the company the following minute appeared in the minute book signed by the bankrupt ami 11. \V. Thomas, secretary: “A special meeting of the company was called for September 24, 1927, to consider the attitude taken up by the Bank of Australasia in respect to the Overdraft. It was resolved that he secretary proceed to Wellington, to place the matter before the company’s creditors there.” Mr Izard: Did the secretary proceed to Wellington?—’ think so. When further questioned, Mr Thomas said that notwithstanding this entry the secr« ary had no instructions to interview any of the company’s creditors. except the bank. Air Izard: The entry in the minute book is wrong then?—-Yes. It should have only !»<•< n the bank. Producing a copy of the balance sheet from the bank in 1927, Air Izard asked bankrupt to account for valuing his Durie Hill property at. £1,500 in January and then valuing it again in December at nil. Bankrupt contended that this was also a mistake. The Taihape Business Pruceuling. Air Thomas said that his overdraft limit at the Taihape Bank was £lOO, the security being a Borough Council £lOO debenture, belonging to his wife. Air Izard’s next question concerned th,, paying of bills through the Wanganui account. As an example he quoted Julv 21, 1927. when six bills amounting l.e £228 Is fid were paid by the company’s account at I Wanganui on behalf of the Taihape business. j Mr Izard: The proper entries were jput through the b<*ok? Yes. I I am not suggesting there is anyllhing wrong with the books. They are in fact most admirably kept. i So that on occasions you drew out of which ever account was in funds? Yes. In regard to a property he ha*:!; transiferred to hi son. Keg., bankrupt said that this property had been bought land paid for by himself in 1920. A ; transfer was prepared then and it hail been held in Air Barion’s office unsigned until J 927. This closed Air Izard s examination. Capital Increases When questioned by Air Barton, 'bankrupt remarked that in 1911) the •total capital of the firm was £2OOO, land from then on to 1921 the business had prospered rvejy year. while the capital had also incr«*ased. Air Barton: Can you tell me what your capital was in 1921’- About £23.000. “In 1921. wh>-n the slump came,’’ bankrupt continued, ‘‘L was loaded up with gooes 1 had nought three or tour • years before. In 1921, 1 got three years’ bactc supplies in one lot # ami; at I that time prices of goods were falling to the extent of 50 J>er cent.” , lu making up his balance sheet he [said he had taken into consideration the depreciation of the value of the Igcods and he had written down considerably tae amount of the value of his stock. As an example, in .1922 he had written off £7OOO. Mr Barton: In this deed of partnership the arrangement was that the business was to be carried* on entirely in your name? Yes. You had no entries whatever in your books showing that Airs Burnett was a partner?—No. Your own sons did not know? —They dir’ not. During the time Mrs Burnett was a partner you paid her by cheque monthly?—Yes. How did you do it?—l put it. djown

to mv own di swings. In ’ 1922. yon dissolved partnership. —Yes. You thought vou had made a gociu deal when you dissolved? Yes. From 1919 bankrupt’s son, Roginalu had kept the books and he had known nothing about the arrangerjent with Mrs Burnett. He had made out the balance sheets ci 1925 and .1926. T.hc reason that the. item, bills receivable had been left out was due to the fact that he did not know that they had been endorsed by bankrupt, and the same reason applied to sundry cx'btors including Airs Burnett.

Mr Barton: In July 1925, you appreached the Bank of Australasia, and they agreed to finance you provided the business was formed into a company. In vour 1927 balance-sheet you have not allowed for depreciation of buildings. Why?—Because I thought there was quite enough written off already. ,So that if you had wanted to deceive your creditors, you need not have written off the amount from your assets? Stock Valuations. Continuing, Air Barton mentioned that the stuck o f the company in 1925 had been valued at £.15,000, in 1926 at £ll.OOO, and in .1927 at £ll,OOO. Mr Barton: It has been suggested by Mr Izard that the asssets are con.'iderablv oxer-estimated. What do you say to that?—They are not. Do vou consider thn» any idea of the value uf the stock could be gained by comparing it with the. amount received for it at a liquidation sale?—No, I do not. The stock has been given away. Do you consider the stock as shown in the balance-sheet is a fair value? Yes, well worth the value. Bankrupt said that the fittings would have brought their estimated value, had they sold at an acution sale. When asked if the Woollen Mill shares were set down at their cost price, bankrupt answered in the affirmative. Air Barton: You had no intention to deceive anyone by that?—No. 1 take it that you consider that if you had been left alone, you would have been able tn pay up. —Yes. I would have been able to pay 20s in the £. Reduced Liabilities.

Bankrupt, stated in reply to a question from Air Barton, 'hat his Taihape business was a small one. and that so long as the Wanganui business went on succesfully. he hopefl lie would be able to nurse tin* Taihape business. Air Barton to bankrupt: All the transfers of stock from Wanganui to Taihape were entered up to you? Mr Izard: No, not to you. Don’t put it like that. To vour account, Taihape, headed T.F.T. Air Barton: Well then, to your account. Taihape. headed T.E.T.? Bankrupt: Yes. Air Barron: Mr Izard has suggested that since .1921 your business had not improved up to the present time. —I think it has. Your liabilities in 1921 were £32,,000? Mr Izard: How does he know? He’s got nothing in front of him to go by. Mr Barton: Your friend the District Official Assignee ami the liquidator have left the shop in such a mess that it’s impossible to find anything there. I spent hours there this morning myself looking for a book. Air Barton to Air Thomas: In 1927 your liabilities wore reduced to £10,982. Air Izard (sarcastically): You are quite right Mr Barton. Air Barton proceeded to question bankrupt, but he was interrupted again by Air Izard, who told him not to put the words into bankrupt’s mouth. Air Barton: You owe me some. At this stage the examination w r as adjourned till 10 a.m. this morning.