COMPANY’S AFFAIRS

Wanganui Chronicle, Volume 76, Issue 116, 19 May 1933, Page 11

COMPANY’S AFFAIRS

ACTION AGAINST DIRECTOR MISFEASANCE ALLEGED ANDERSON SHOE COMPANY The whole of yesterday afternoon was devoted by the XTanganul Supreme Court to hearing evidence and legal argument relative to a summons for misfeasance issued by the Anderson Shoe Company by its liquidator, Rupert Yeoman Collins, accountant, -of Wellington, against Frank Trcloar, shopfitter, of Wanganui, who was formerly a director of the company. The Chief Justice, Sir Michael Myers, presided. Mr. D. J. Dalgleish (Wellington), appeared for the liquidator and Mr. J. Hussey (Wanganui), for Mr. Treloar. Most of the evidence was taken on affidavit, but Mr. Dalgleish called Mr. Treloar for the purpose of cross-exam-ination. Mr. Hussey aiso put Mr. W. M. Falconer into the box to give oral evidence with regard to interest payments held to have been made by Hugh Anderson, forMcny governing director and manager of the Anderson Shoe Company. The allegations of the liquidator were to the effect that payments of certain dividends by the Anderson Shoe Company, while Treloar was act\ ing as a director, were ultra vires the said company, and * invalid and were a breach of trust, misfeasance or misapplication of the funas of the company, and that Treloar was liable to repay the total amount (£864 3s 3d), together with interest thereon, or to contribute to the assets of the company such money as the Court might think fit. The liquidator contended that Hugh Anderson and the defendant valued the assets of the company and that, he rendered the Court while he was secretary. C.R. Bro. Scott, on behalf of the Court, farewelled Bro. Jarvis and wished him success and good luck in his new sphere. Bros. Thomson and Booker spoke in a similar strain. General business was then concluded and supper was provided by the lady members. MAJESTIC THEATRE “PAYMENT DEFERRED.” “Payment Deferred,” a powerful drama dealing with the story of a murderer who successfully concealed one crime only to find himself apprehended for another he did not commit, will be finally screened to-night (Friday), ftt 8 o’clock. Those featured in the cast are Charles Laughton and Maureen O ’Sullivan. UTIKU GOLF CLUB The following were the best cards returned in the recent medal and bogey competitions:— Medal Competition.—A. M. Ryan 81 —20—61; J. Quirk. 93—28—65 Bogey Competition.—J. Belk, all [square; F. Kelly, 3 down. I The following reductions in handicap [arc announced: A. M. Ryan, from 20 to 17; S. ReitL from 21 to 18; J. Quirk, from 28 to 26

the last paragraph of the minute book showed the result of the valuation. Further, it was contended that the valuation referred to in the minute book was less than the amount of the company’s paid-up capital, inasmuch as the net value of the company’s assets was assessed at £2OOO and the company’t> paid-up capital was £3OOO. That meant to say that the company had sustained loss of capital amounting to £lOOO. It was further pleaded that the capital of the com pany had not been reduced in accordance with the Companies Act, 1908, nor had the loss of capital been reinstated out of profits. Another point raised by the plaintiff was that the accounts of the company had not been audited. Frank Treloar, cross-examined by Mr. Dalgleish, said tnat he had seen the balance-sheet of the company before he had agreed to take shares. With reference to the entry in the minute book, which was held to show the valuation of the company’s assets, witness said that in July, 1927, or about that time, Anderson had rung him up and asked him to call when passing the shop. Witness did call and Anderson produced the minute book and said that the entry (that referred to in the proceedings), was to conform with the agreement drawn up between Treloar and Anderson. Anderson asked witness to sign the minute and he signed it. He presumed that he read it. He had always seen a balance-sheet of the company. Ho had not applied his mind to the question of the assets shown, and so far as he knew the accounts had not been audited. He had suggested once to Anderson that there should be a stocktaking, or an audit, but Anderson had replied that it was not necessary, “so why go to the expense.” Witness had no further say because Anderson was the governing director and had the power. At that time witness held a debenture from the company, was guarantor of the bank overdraft and had loaned certain moneys to the company at call. Witness had asked for occasional independent stock-tak-ings, his reason being that he knew [of a tendency among departmental heads not to write down the price of stock as they should. Anderson’s position was that of manager and owner of the business. In reply to Mr. Hussey, witness said that the portion of the minute which concerned him most was that referring to the amount he had lent Anderson. The books were kept entirely by Anderson and in his own handwriting. Mr. Dalgleish submitted that the minute clearly evidenced a valuation of the assets of the company and that valuation showed that the net value of the company’s assets was less than the amount of paid-up capital. His Honour: The answer, the suggested answer, of course, may be this: That the valuation of the shares was for a particular purpose and nothing to do with the company at all. It was possible that Mr. Treloar was trying to fix that, in the event of him dying his estate would get £666 13s 4d. Does the whole case turn on that? Mr. Dalgleish. I don’t know whether there is to be a question of an interpretation of section 52 of the Companies Act. If there is any loss of capital there are only three courses open to directors. One, to reduce capital in accordance with tne Act; two, to reinstate losses out of profits; three, to obtain the certificate required by the section that there Is sufficient capital to meet outstanding liabilities, before any dividend can be paid out of the profits in any one year. With regard to an amount of £l4OO shown in the books of the company in the “Anderson Loan Account,” counsel addressed His Honour to the effect that that amount was Statute barred for the reason that the account had not been consented to in writing, or that statements had not been rendered at regular intervals as prescribed by law to keep the account alive. Because it had become Statute barred, that account became a loss of capital, counsel maintained. His Honour: Isn’t tnere an admis sion of the account at all in the books? Mr. Dalgleish: If it is in the books

I submit that it is not an admission. His Honour: But surely if the company’s books are Kept Dy the man himself, is that not an admission? It amounts to this, does it not? I lend money to a person in my employ and he keeps the books and shows a statement of debit year by year in his own handwriting. That is surely an admission? Mr. Dalgleish: That is his duty. Mr., Hussey: But there is this additional point, that there are two debits of interest shown in the books. Will my friend admit those? Mr. Dalgleish: No, I am afraid I won’t. Mr. Hussoy then called Wm. Mowat Falconer, to show that, according to the books, interest payments had been made. Witness detailed the amounts, contending that a balance of £72 would be approximately five per cent, on Anderson’s loan account. His Honour: Is there anything else to which it could refer?—No, there is nothing else. Mr. Dalgleish asked whether it did not appear that Anderson had made some payments on his house out of the Shoe Company’s funds. Mr. Falconer: Yes, as he shows it hero, he has. His Honour: But that is rates and n( t. interest. Mr. Falconer: That is so. D’ealing with memorandum of agreement between Anderson and Trelonr, Mr. Dalgleish contended that no outside evidence should be brought to enable the Court to interpret it if the wording clearly set forth what the parties intended. The Defence. Mr. Hussey, in his defence, said it was frankly admitted that there was not the slightest imputation of dishonesty to the part of Mr. Treloar. The whole argument, ho said, revolved round what Treloar and Anderson did at the beginning. Did they make a valuation of assets or did they not? ‘‘lt is all very well to come along to this Court and say: ‘You do so and so; the position should bo this and that,’ ” Mr. Hussey went on. “The condition of trade in 1926 and 1927, the dividend years, was entirely different. My friend says his case is based on the minute, the last in the book. In .1926 Treloar was a lender to the company and to Anderson. The balance-sheet showed capital of £3OOO. That capital has not been altered in the books of the company. That is admitted in the affidavit of Mr. Collins! The profit and loss accounts show that during the years dividends were paid out of net profits. My friend’s claim is based entirely on the minute. If the minute did not exist, it is quite obvious that ho would not have come to Court. It is important, then, to decided as to what the parties were getting at. On July 21, 1926, a transfer of shares from Anderson to Treloar was signed. On the same day tho parties saw Mr. Brown, and ho received instructions to draw up an agreement. It was aot until July 11, 1927, that the minute my friend relies on, was made in the book. When Mr. Brown prepared the agreement he bad all these loans and facts in mind. The consideration in the transfer of shares was £666 13s 4d and that transfer was actually prepared and signed on July 21, 1926, very nearly a year before this minute was made. A sum of £666 13,s 4d was actually paid to Mr. Anderson.” Mr. Hussey stressed that there was no dispute between Treloar and Anderson and they were entitled tu interpret their own agreement. If a third party came along and said that they should have done something else, surely they could say that they had made a mutual mistake in their own agreement. Counsel submitted that before the minute was placed on tho book Trcloar was not a director of the company. Tho minute purported to elect him ono and it must have been before ho was a director that the “valuation” referred to by the plaintiff was made. His Honour: Ho might not have been a director when the agreement was executed? Mr. Hussey: That is my point. It was before the making of that miuute. They made it, but not as directors. And tho extraordinary thing about it is that the same amount, is mentioned as to the value of Treloar’s interest

as that which appeared in the document of transfer of shares. Continuing, counsel said that placing a value of Treloar’s shares was nothing to do with the company, or to establish a loss of capital, but to fix a value in tho event of Treloar’s death. Placing that value in the minute book placed it in a safe place so far as Treloar was concerned. If capital had been written down to less than it was, what benefit would have accrued? counsel asked. Not profits were not paid on a percentage basis. One could have understood it if such had been the case, but not when the distribution was as it had been. Mr. Hussey stated, further, that Treloar had no opportunity, prior to the minute referred to, of gaining access to the books of the company. He was not a director. There was no contradiction of that and no evidence to show that a valuation of assets had been made. Ono could have understood there being a valuation if Treloar had insisted on a special stock-taking and had gone into the books. But fhat was not done. Counsel quoted authorities to show" that, even supposing there had been a loss of capital unknown to defendant, and dividends were paid in good faith, he was entitled to protec-

I tion. Mr. Hussey, quoting from the articles of association, submitted that Anderson, as governing director, had full power. In fact, he was a “Mussolini,” and all the other directors were under his control. Tho title of “director” conferred upon Trcloar was merely a courtesy title. Trcloar did not think there had been any loss of capital. He had never inspected the books. It was Anderson’s business; Trealoar trusted Anderson. It was Anderson’s duty, as governing director, to see that an audit was made. Treloar, in 1928, had suggested an audit. To show how genuine Mr. Treloar had been in tho matter, counsel showed that the debt due by tho company to him had increased by £227 in the years following 1926. Regarding the point raised by plaintiff that the amount of Anderson's loan account had become Statute barrod, counsel referred to the interest payments quoted by tho witness Falconer is showing that it was not barred, as suggested. Mr. Dalgleish, in reply, said that Mr. Treloar knew all the facts in law that established tho dividend payments as ultra vires. It was his duty to know the facts which led to a loss of capital. His Honour reserved his decision.

A cold in the head needs treatment in the head. Inhale “NAZOL.” Treats coughs and colds and all such kindred ailments at the points of infection. Gives prompt relief. 120 doses for 2/6. 60 doses for 1/6.—Advt.