BANKRUPT ESTATES

Wanganui Chronicle, Volume 74, Issue 68, 21 March 1931, Page 5

BANKRUPT ESTATES

D'ARCY AND PHILLIPS FURTHER EXAMINATION A COMBINED CREDITORS’ MEETING An adjourned meeting of creditors in the bankrupt estates of N. H. I).’Arey and D’Arcy and Phillips was held yesterday before the Deputy Official Assignee (Air E. Al. Silk). On the D.O.A.’s suggestion the meeting was a combined one covering the two estates as both were closely interwoven and, in many cases, concerned the same creditors. Bankrupts were represented by Air C. P. Brown. “When I received notice of this meeting,” said Air Brown, rang up and asked what the business was to be and I was referred by you (the D. to Mr Izard. I approached Air Izard and got very much the same answer. He referred me to you.” At this stage, Air Brown read a letter which he had written to Air Izard March 19, 1931. Messrs Afarshall. Izard and Barton, Solicitors, Wanganui. (Dear Sirs, — Re D’Arcy and Phillips. We are in receipt of your letter of 18th. instant. We think it well that we should define the position in regard to the books of this and the other companies in which Mr D’Arcy was interested. We have all along contended that the affairs of these com panies could not properly or fairly be investigated before a meeting of creditors of an individual share holder except in so far as the value of the shares held by the bankrupt were concerned. The Deputy Official Assignee is a statutory official and his powers and duties are defined by Statute. Section 59 of the Bankruptcy Act, 1908, provides that the bankrupt is to deliver to the Assignee all books of ac count, etc., relating to his estate; he is to deliver accounts and balance sheets showing particulars of his receipts and expenditures of his stock takings and of his profit and losses for not more than three years before the commencement of the bankruptcy. He is to aid in the realisation of his property and the distribution of the proceeds and to submit to such examination in respect of his property o r his creditors as the Assignee requires. Under Section 92 the Assignee may summon any person known or suspected to have in his possession any of the property or any book, paper, or document relating to the affairs or property of the bankrupt or supposed to be indebted to the bankrupt or whom he deems capable of giving

any information respecting the bankrupt, his trade, dealings, or property, or concerning his income from any source, or his expenditure. It is significant that when the latter power is exercised it is a criminal offence to publish the report of the examination save with the consent of the Court. It is submitted that Sections 59 and 50 are quite insufficient to justify the proposed enquiry or most of the previous enquiries in regard to the company transactions. No at tempt has been made to bring in the affairs of the profitable companies in which the bankrupt was concern ed and we fail to see why unprofitable companies should be placed on a different footing.

This has been our opinion all along, but in order not to allow any suggestion of obstruction we have supplied information and delivered up to you books to which you have no legal claim. These books were however, given to you for the information of the Assignee in the administration of the estate. We find that free access has been given to them to all and sundry, including creditors who have not proved, and it is therefore time that, we took a definite stand. Wo should have thought it unnecessary to quote authority but it is plainly laid down in the. case of re North Brazilian Co. 37 C.D. 83 that inspection of a company’s books will only bo allowed by the Court writh a view to the more beneficial winding up of the company and not for any collateral object such as obtaining discovery to enable individual shareholders to bring actions against the directors or promoters. The Deputy Official Assignee as an officer of the Court should act on that authority not only in regard to the books of the company but also in regard to the affairs of the bankrupt. There is a further objection to the proposed procedure; it involves the discussion of the affairs and the publication of details of innocent third parties. Already three < iti zens have been annoyed by the publication of their affairs in an inconi plete and misleading form.

We have advised Air D’Arcy to answer any proper questions to the best of his ability but we reserve the right to object to irrelevant questions. The responsibility for any infringement of the law must rest with you. We are also willing to produce for the Assignee’s inspection, but not for any other purpose, the books you refer to. The iniuute book was located yesterday afternoon with the journal and pass book at Air Finlayson’s ofiice. You have already had the cash book and ledger which complete the trading books of the company. With regard to the transfer to Air Lucas this was drafted on 9th. September, 1929, and stamped on 3rd. October, 1929. Yours faithfully, C. P. and C. 8. BROWN. Alay we also point out that the provision of Section 11 of The Evidence Act, 1908, ought to be observed. “I supplied all information asked for,” Mr Brown proceeded. “We have always been willing to supplv information the D.O.A. requires for legitimate purposes, but things have been done which we strongly object to and we do object to any further productions. “What Air Brown says is quite right,” said the D.O.A. “I referred him to my solicitor. I myself, have very few questions to ask and Mr Izard, representing me, will ask those questions. Regarding the letter forwarded by Air Brown I haven’t had time to digest it.” Mr Izard held that all the evidence brought out at the meetings with whfeh D ’Arcy and Phillips were concerned could be published. The press could use their discretion with regard to third parties. The D.0.A.: It is very right to protect the interests of third parties. Mr Hussey: The questions, as they are asked, cau be objected to by Mr Brown. Surely that is the correct way to proceed? So far as the liquidator of the Associated British Motors is concerned we have no objection to giving documents to you (the D.0.A.), but we do object to giving them to anybody who thinks.he has grounds for an action.

Air Cohen cross-examined bankrupt with regard to the transfer of shares to Afr Lucas.

Mr Cohen: You remember entering into a deed of Covenant on the thirteenth of September?—Yes. You rezinember the document and signed it?— Yes. At this time Afr Lucas and you had the same solicitor?—l understood Afr C. S. Brown was acting. Afr Cohen read a document which stated that five thousand shares had been transferred to Afr Lucas from Mr Barna Chhiba. They were fully paid £1 shares. Afr Cohen: So far as Afr Barna Chhiba is concerned he is an honourable man and a good citizen, but his name as an outsider is drawn in because of the recital in this document. Who arranged that sale from Mr Barna Chhiba to Afr Lucas? Bankrupt: I understand Afr Brown. Mr Cohen, reading further from the document, said that the covenantors agreed to execute certain things. “At that time,” he asked bankrupt, “the thirteenth of September, 1929, you wore a director of Aivade Buildings? —Yes. It was a private company?—Yes. Did Air Barna Chhiba, at that time, ho’d 5000 fully paid up shares? Bankrupt: As far as I know. Who were the directors at that time? —lt was carried on as a partnership. Area de Buildings had very few shareholders. Mr Cohen: Alight I suggest that the directors were yourself, Mr Phillips, and Afr Barna Chhiba. Bankrupt agreed that that was so. Afr Cohen: Was there nobody else? Bankrupt referred him to the minutes which Air Brown produced after asking the D.O.A.’s ruling as to whether the book should bo produced. Mr Izard (for the D.0.A.) saw no reason why the book should not be pro<lu ced. Afr Cohen: Where are the minutes after May 3, J 928? Are there any minutes after September, 1928? Bankrupt referred him to a resolution. Mr Cohen: But T refer to minutes of the company. The last, here is Alay 3, 1928. Were there none after that. The D.0.A.: You know of no minufoq after that, Afr D’Arcy? N (?. Mr Cohen: Who was the chairman of directors?—Myself, sir. Tn reply to further examination by Mr Cohen bankrupt, said that the com panv was treated as a partnership. Air Cohen (in reference to the minutes): But if a company is registered von can't override the Statute. The fact is you didn’t keep minutes after Afav 1928? Except one resolution of

the directors the book doesn’t give any data at all. It is a pity that you hadn’t kept minutes so that you would have had something in writing. Can you tell from the share register what shares Barna Chibba had on September 13, 1929? The share registers were produced, one of which was termed the “new” register for the purpose of identifica tion. Air Cohen read that on July 31, 1928 the share register showed 3000 shares in the name of Alessrs Chibba and C. P. Brown; 200 to Air Phillips, 3000 to N. H. D’Arcy and a further 2000 to Afessrs C. P. Brown and B. Chhiba. Air Cohen: So Barna Chhiba and C. P. Brown held 5000 shares? —Yes. Air Cohen then directed attention to the new share register. “When was it re-written?” ho asked. Bankrupt: I don’t know. Air Cohen, reading from the share register: Barna Chhiba and C. P. Brown held jointly on thirty-first of July .1928, 2000 shares on which 12s -Id still .ijiku!,/. u.aeUlcd; on November 5. 1928 they held 3000 shares on which the uncalled capital was 12s 4d a share? Bankrupt: Yes. Air Cohen: What is there to show on any share register that on the thir teenth of September 1929 Barna Chin ba was the holder of 5000 fully paid up shares? Bankrupt: The resolution shows that. I refer you to the minutes. Air Brown: Surely the register speaks for itself. Air Cohen: Who w r as the secretary of the company at that time?— Mi Orchard. It was elicited that when the transfer of shares to Air Barna Chhiba took place Air Orchard resigned the position of secretary and that no secretary had been appointed since, but that Air Brown had assisted the company to keep its records. Air Cohen read the resolution at the end of the minutes which, stated that it had been resolved that 6200 shares be called up and, further, that an interim dividend of £6200 on the appre eiated value of the property be paid on December 21, 1928. Air Cohen: Was Afr Brown a director at that time? Bankrupt: Yes. Afr Brown: I say that I don’t remember that at any time was I elected a director. Afr Cohen: Is not the effect of this resolution to pay an interim dividend of £6200 that it annihilated all the uncalled capital? Afr Cohen: At this time you owed mortgages to the extent of £18,000?No sir. £21,000.

Mr Izard produced a copy of a balance sheet at this stage which was handed to the D.O.A. The D.0.A.: £21,050 it says here. Bankrupt agreed that that was right. Air Cohen asked whether bankrupt knew that it was not permissible under the Act to pay an interim dividend except out of the net profits. Bankrupt: I suggest that when property is worth £5OOO at one time and it reaches to £lO,OOO that appreciation in value of £5OOO can be regarded as profits. Afr Cohen: But the profits have to be ascertained. Proceeding, Afr Cohen asked bankrupt if the balance sheet produced was that of the company. Bankrupt: I haven’t seen it before. It is not a signed balance sheet. Questioned as to whether the com pany had complied with the statute ami had had drawn up and audited a balance sheet every year, bankrupt referred Air Cohen to an auditor. Air Cohen: But I ask you as chairman of directors, The D.0.A.: You must answer that question. Do you know if there has been an audit? Bankrupt: No, I don’t. A Balance Sheet. Mr Cohen (again referring to the balance sheet before him): Can you see anything which would lead you to think this was not the balance sheet? Bankrupt: It is not t.gncd. I could not say whether it is the balance sheet without the books. It is likely to be.

Air Cohen, again quoting from a document, referred to the liability under share capital as £lO,OOO less £6200 uncalled capital, and that the balance sheet did not show the transfer of dividend on December 21. Air Brown: There is nothing to show that that is the balance sheet. Air Cohen: Then where is the balance sheet? The D.0.A.: The books will show it. The D.O.A. (reading from the ledger) : The ledger show’s uncalled capital at March 21, 1928 as £6200? Bankrupt: Yes. The D.0.A.: And that the last call of capital unpaid was paid on August 10, 1928? A sum of £660. Afr Cohen: Is there any record in any of your books or share registers before the meeting that this resolution of December 21 was ever recorded? Bankrupt: Apparently not. Afr Cohen: If this resolution is in defiance of the Companies Act the shareholders are not entitled to be credited with a dividend of £6200. Bankrupt: The intention of the resolution was as it says. Air Cohen: If it were illegal then it could have no effect. Air Treadwell: That is purely a point of law. How r can he answer it? It is a legal question. The D.0.A.: But it is perfectly obvious. Mr Izard: It is Air Cohen’s observation. The D.O.A. did not think that the question should be asked bankrupt. To Air Cohen bankrupt said that he saw the transfer of shares from Barna Chhiba to Lucas. Air Cohen: Had you seen this trans fer at the time you entered into a deed of covenant on September 13? About that time. Air Cohen: Before or after? —I can’t remember. Producing another document Air Cohen said that it was a record of a transfer of shares to Lucas. “But it is not signed by Air Lucas,” he said. Bankrupt: It doesn’t seem to be. Air Cohen: Did your company pass that transfer? —We didn’t hold a spec ial meeting to pass it. Djid they pass it?—The shareholders knew about it. Air Kecsing: Did you, as chairman of directors, approve of the transfer? —I did, but I don’t know’ whether it has been entered or not. Air Cohen: Is Mr Lucas entered on the register as the owner of 5000 fully paid up shares?—He doesn’t appear to be. Air Cohen: What interest had you in this deed. Why should you covenant to pay Lucas £2OOO? —Because I wanted to find a buyer for Barna Chhiba’s interest because he had helped me when I wanted to find a purchaser for Air Patterson’s shares. Afr Cohen: Was that in November 1928? I can’t remember. Afr Cohen: Why did you put Air Lu cas’ name on the register when he had

not signed the transfer?—Through want of knowledge of the articles of association. 1 should have known, if what you say is correct. To Air Kecsing bankrupt said he ap proved of the transfer of shares from Chhiba to Lucas but could not recol lect the transfer from Patterson to Chhiba. Bankrupt was questioned regarding shares transferred from AlcNab to him self in February 1928. Air Kecsing: Were the shares your own property or wore you holding them in trust for somebody? I could tell yoi. if I saw the agreement. Air Kecsing: Did you authorise an application to the registrar to strike the company’ off the register?—l un derstand an application has been made. When was that done?—l could not say. Was it in 1927? Bankrupt thought it would be about then. He understood that the com pany had ceased business. Air Keesing: At the time the application was made did you know that there was an unsatisfied judgmen* against the company?— 1 thought that the judgment, at that time, was paid and satisfied. Air Keesing: I understand that at the same time as the transfer of shares was put through to Chhiba. or Chhiba and Brown, you transferred 2000 shares to Chhiba yourself. Did you agree to a transfer of those shares?—l suppose 1 did. Air Cohen: Is there no means of find ing out whether this company did have an audited balance sheet. Can’t we have some finality about the matter. Air Brown said that all the books asked had been produced. They had been handed over for audit, but he was perfectly certain that no balance sheet bad been adopted by tho company. Air Izard: Is there any record of a transfer from Brown to Chhiba of intecst in the 5000 shares?—l don’t remember a transfer. Afr Brown: Have you ever had an interview with Mr Lucas about his shares? —I have only met Air Lucas on one occasion a month or a fortnight, after the time he got tho shares. Air Brown: Let us know what took place. Bankrupt: He came to the garage and discussed the purchase of a car. Air Brown asked bankrupt about the balance sheet which had been produced and received a reply that he had never seen it before, nor had it been adopted by tho < 'mpany.

Air Treadwell: About Aliss Johnston, Mr D’Arcy. Do you know who Aliss Johnston is? —I have never met Aliss Johnston. To Mr Treadwell: Ho did not know that she earned her living cleaning out offices and that sho had saved a little money. He knew sho had property on Durie Hill and that she had exchanged it, through agents for 900 shares in Kingsway Ltd? Air Treadwell: In some way or other this woman gets rid of her property on Durio Hill and gets 900 shares in Kingsway and as soon as she hands tho property over £6OO is raised on it? — Yes.

What became of that £6oo?—lt was paid into the bank to the company’s account. And the position is this lady has lost her property and is the “happy” possessor of 900 shares in Kingsway. Did you, or your co-directors know of the sale? —I had nothing to do with tho transaction although I approved of the sale. I did not know Aliss Johnston or anything about her. Mr Treadwell: And the inducement to part with her property did not come from you or your co-directors? — No sir, absolutely. Air Treadwell: You realise that this woman is in an unfortunate position?— Yes, I see that. Mr Treadwell: Is there any hope of the money being made up to her? —I sincerely hope so. Air Treadwell stated, in fairness to bankrupt, that Aliss Johnston wished i it known that he and his co-directors knew nothing about the transaction. Air Izard: As a matter of fact you benefited by the transaction to the extent of £9OO? —No, certainly not. Air Izard pressed bankrupt that it had relieved him of his liability to the company. The D.0.A.: If this transaction had not taken place you would have had a further liability of £9OO to the company. Bankrupt maintained that there was no personal benefit to him. Mr Treadwell: The unfortunate position is that Aliss Johnston has got the shares? —It is unfortunate, yes. Air Treadwell: And I sincerely hope that if you are ever in a position to do so that you will pay the money back to her?—l sincerely hope so. Air Cohen: About Air Lucas, do you remember meeting him on Saturday, September 7? —That may have been the time I met Mr Lucas. I have no idea of dates. Further questioned bankrupt said that he did not remember taking him to Afr Brown’s office in his car. He recollected meeting nlm on one occasion by accident. Air Cohen: Did you know that he went to Mr Brown’s office to sign a document in reference to 2000 shares? —I knew Air Brown had seen Air Lucas and that Mr Lucas was interested. Air Cohen: That is not an answer to my question. Dx> you remember taking Mr Lucas to Brown’s office to sign a document?—No. I met him purely by accident and we discussed the sale of a car.

Air Izard: In June J 930 you had the Eatox lease in the Avenue. What was done with that?—lt was sold to the Eatox Company. I sold it at valuation. Afr Izard: Did you consider the valuation in 1930?—I think that at that time it was impossible to put a value on anything. Air Izard: Surely you cau answer. Was the valuation a fair one at the time you sold? —I was unable to estimate what bank shares were worth or anything else. The D.0.A.: But you wore a vendor. Bankrupt said that the price the property was taken over at was £18,750 in March or June, 1930. Air Izard: That price was on a valuation five years previously? —Three years previously. Air Izard: What did you give for tho property —I can’t remember exactly. It was about. £2OOO for the lease. How much money did you spend in improvements?—About £7OOO or £BOOO. 1 am not certain. How much did you give for the Aramoho property?—About £16.000, £17 e--000 or £lB,OOO. Did you spend any money on ini provements?—Yes. About from £2OO to £5OO. You raised £l6OO on first mortgage? —Yes. I think we paid a little money when we took over. Then you raised £2500 on it?--No; £lOOO additional which has since been reduced to £2500.

What rate of interest were you paying?—Ten per cent. That was a pretty high rate to pay? —Y es. I think you have been concerned in various other matters apart from those being ventilated here. You had an interest in Arcade Motors? —Yes, I had about a third interest. Why didn’t you have your name on the register?—l was associated with the Eatox at the time and 1 thought it better not to have my name appearing as running motor cars, too. What difference could it make to the Eatox? —I thought it better to keep them apart. 1 know gentlemen of high repute who have done the same thing. You were interested in the Home and Colonial Stores?—At one time. You did not make a profit on thc. c stores?—No. What did you start them for? —It was a grocer’s shop and I started them to make money. Did you start them for the purpose of getting rid of butter and tea? —No. The Home and Colonial Stores were a failure?—They made no money. Kingsway Limited was a failure?—■ Because of the abnormal times. The Eatox was a failure?—lt has done well at times, at othc|s it hasn’t. Did it ever pay a dividend? It made money at times. Air Izard: Yes you have drawn money out of it; a large affiount of money and you were in debt to the company at the time of the sale and owed it £6OOO? —Approximately. And ;i: sale got rid of your liability. Bankrupt said that the purpose of the sale was to enable Mr Philips to get out and concentrate on farming and to enable bankrupt to pay off liabilities incurred jointly between them. Did you pay any of them off? —Yes

But you incurred liabilities of a larger amount. Air Izard: What was your position in 1929?—The surplus was between £40.000 and £50,000. Mr Izard: All on paper?—There was no gold in the country. Air Izard: And no cash? —But I had realisable securities and if I had sold them I wouldn’t be here now. It is a pity you didn’t sell them. Bankrupt said that he had a statement to show that his position at any time in 1929 recorded a surplus of be tween £40,000 and £50,000. Mr Izard: As a result of your bankruptcy you have lost £B5OO from Brown and Buckley? Bankrupt replied that it was impos sible to put a value on anything. Air Izard: Bu* they lose £B5OO. Bankrupt replied that they had security and if they liked to hold on to it they might make something. AL- Izard: Aliss Johnston has list £9OO, and Lucas has lost £2OOO. Bankrupt: All tho shareholders of the company have lost. But Lucas was the only one who put any cash in? —Good Lord, Mr Izard, the assets were all built up by cash. Mr Izard: The Bank of Now South Wales lose £13.000 under guarantees on your private account? Bankrupt: You say these people have lost everything. If anything happens to me they will lose. The bank made tho advances with their eves open. They knew as much about my

position ns T did myself and you must realise that times are abnormal. The D.0.A.: There is no doubt that we arc all suffering as the result of depressed times. At this stage Mr Izard read extracts from a letter from Mr Anthony, of Christchurch, on behalf of Nash Motors, which indicated that they desired bankrupt to obtain every facility to get his discharge. He was down ou his luck. Nash Motors would not be a party to attacking a debenture and they would not be a party to calling up uncalled capital in Kingsway Ltd., and thus forcing new shareholders in. Tho 1D.0.A.: I declare the meeting closed.