The Affairs of the Dee Oil Company, 1893
type: Beyond Scotland - Wales
The Affairs of the Dee Oil Company
PUBLIC EXAMINATION OF DIRECTORS - THE MISSING PRIVATE LEDGER
A public examination of the directors and officers of the Dee Oil Company, Limited, was opened at Chester Castle, on Monday morning, before His Honour Judge Sir Horatio Lloyd. The examination was conducted by Mr. S. Wheeler, assistant official receiver in companies liquidation, London ; while Mr. S. Smith, Chester, appeared for the debenture holders (represented by Mr. L. Voisey and himself as trustees), and Mr. A. E. Caldecutt, Chester, was present on behalf of Mr. W. C. Deeley and Mr. F. J. Warmsley.
Mr. Smith, at the outset, made a statement on behalf of the debenture holders with the sole object of preventing the injury which it was apprehended might otherwise result to the concern of their security. For that purpose he had simply to state that the trade formerly of the Dee Oil Company, Limited, had for the last two years been carried on by Mr. Voisey as the receiver and manager appointed by the court at the instance and in the interests of the debenture holders, that the business had been found to be sound and profitable, and that the proceedings in the winding-up of the company did not affect the trade so carried on by the receiver and manager in any way whatever. It was being carried on under conditions which afforded perhaps the best possible guarantee that all engagements entered into would be punctually met, and that all contracts Mr. Voisey might enter into would be strictly carried out.
The two years' trading had shown a result which had justified Mr. Voisey and himself pledging themselves to the statement that it had led them to believe that if the company were reconstructed the business was capable of development with the prospect of the debenture holders ultimately realising their debt and interest in full, and a deferred advantage to the unsecured creditors and the ordinary shareholders. At a recent meeting of the debenture holders, at the instance of certain large shareholders, they expressed their willingness to concur in a scheme for reconstruction on a certain basis, which was resolved upon, and so far as they were concerned something more would probably come of it. Mr. Wheeler stated that the winding-up order was made in the High Court on the 11th April,, 1891, and a statement of affairs, required by the Act, was lodged on the 14th July of the same year.
The statutory meetings were held in September, 1891, and the order for public examination was made in February, 1892. That examination was attempted to be held in London, but it was then found a very important book called A PRIVATE LEDGER, which was alleged to contain a copy of all the balance-sheets of the company prior to its formation into a limited company, was missing. The examination was adjourned with a view of allowing a search to be made for the book, and a private examination was held before the Chester Registrar in July last with the same object, but unfortunately without any success.
The enquiry had been delayed with the hope that some satisfactory proposal would have been made by the debenture holders to the unsecured creditors and the shareholders of the company. A receiver for debenture holders was appointed on the 3rd February, 1891, in the person of Mr. Voisey, who was still in possession of the assets of the business, and was carrying it on. The debenture issue amounted to £50,000, and £30,000 of those debentures was held by the nominees of the vendor to the limited company.
An application was made on Saturday last in the High Court on behalf of the debenture receiver, he believed, for the postponement of the examination for two months on two grounds,
- (1) that the enquiry was likely to prejudice the sale of the business,
- (2) that the debenture holders were contemplating a scheme of re- construction, under which it was proposed to issue to the creditors and shareholders of the old company respectively, deferred shares in the re-constructed company.
These shares, of course, were subject to the prior charge of the debenture holders. Considerable pressure was brought to bear upon the Official Receiver to consent to this adjournment, but he thought it his duty to decline, on the ground that the debenture holders had already been in possession of the assets for two years, and consequently had plenty of time in which to carry out any such scheme, and, further, that money had been obtained from the public by the promoters of the company upon a prospectus containing statements which were certainly open to The Official Receiver was very desirous of doing nothing which would in any way prejudice the assets of the company, on the contrary he was most anxious to assist in realizing the assets to the best advantage,
Mr. Caldecutt, at this stage, complained that Mr. Deeley had been unable to obtain a transcript of the notes of his evidence at the private examination in July last. If Mr. Deeley was going to be examined on that evidence, he contended that due notice must be given, and in common fairness Mr. Deeley should be allowed to refresh his memory by the evidence he had previously given.
VERY GRAVE QUESTION -
His Honour confessed if he had. made a long statement about matters which happened some years ago, he should like to have the opportunity of reading it over, and reminding himself what he did state. It was, of course, a disadvantage to a man to be examined on things that he could not possibly carry in his mind. Mr. Wheeler said the examination was for the private information of the court, and he did not intend to use it for the purposes of that day.
John Thompson, the first witness, residing at Netherleigh House, Chester, stated that he was a partner with Mr. Deeley in the Dee Oil business from 1875 up to the formation of the new company in June, 1888. The partnership consisted of Mr. Deeley, Mr. Humphreys, and himself. Witness was a sleeping partner, and took no active part in the business, or in promoting the limited company. He was not a director, but he knew negotiations were going on in 1888 for the promotion of such a company.
Mr. John Thompson's losses - In the year 1887 there had been a loss, and prior to the formation of the new company they were being pressed by Parr's Banking Company, who were creditors for £30,000. The overdraft had been fluctuating for some years, depending a good deal on the quantity of stock in hand. The bank held as security an equitable mortgage on some of the freehold property at Saltney, consisting of freehold land with build ings erected upon it by tho Dee Oil Company, at an estimated cost of £70,000. The bank held no security for the loose machinery, plant, stock, or book debts.
The balance-sheets of the company were drawn up half-yearly by Messrs. Edwards, Son, and Warmsley, accountants, Chester. The late Mr. Edwards made the entries into a private ledger, a book with a lock on it, kept in a safe at the office, each partner having a key. Witness last saw the ledger when one of the surveyors of taxes came down from London to make an inspection of the accounts in September, 1888, after the issue of the prospectus of the limited company. The surveyor's attention had been drawn to a paragraph in the prospectus reporting tho company to have been making a much larger profit than the amount they paid income-tax on. The surveyor made an inspection of the private ledger, and since then witness had never seen it. He had made enquiries about it, but it could not be found. It was of the ordinary foolscap size.
In addition to holding the deeds of the property at Saltney, the bank also held some private securities of his own, holding a lien on his shares in the bank itself. The limited company did not take over the liabilities of the old partnership. They did not take over the liability to the bank. The latter declined to allow the overdraft to be increased, and asked that stock should be transferred to their name in order to increase their security. The bank generally saw the half-yearly balance sheets, and he had no doubt they saw that for March. 1887. He was at that time one of the bank directors. The bank never to his knowledge suggested to him or to Mr. Deeley that the business should be turned into a limited company. Just before the formation of the new company he entered into a contract with Mr. Deeley to sell him his interest in the business. On the 23rd February, 1888, he wrote the following letter to Mr. Deeley
A HEAVY OVERDRAFT.
I shall be prepared to transfer to you my interest and share in the business carried on by us under the style of the Dee Oil Company, and to execute such deeds as may be necessary on the payment to me of £15,500, which sum shall be paid to me on completion, as to £7,500 thereof in cash, as to the balance of £8,000 in fully paid-up ordinary shares in the proposed new company, which is to be formed for carrying on the works, and on its being proved to my satisfaction that the whole of the liabilities of the present company, for which I am now equally with yourself responsible, have been provided for or met out of money to be paid to yon by the proposed new company or otherwise. It is understood that for this purpose, &c.
Mr. Wheeler .- Were you ever satisfied in the terms of this letter that the liabilities for which you were as partner jointly responsible were discharged by Mr. Deeley ? — No.
The bank liability of £30,000 was not discharged by Mr. Deeley ?— It was not discharged.
At the date of writing that letter, I believe your capital stood at £37,000? — Between £30,000 and £40,000.
And you were Mr. Deeley's sole partner, Mr. Humphreys having left ? — Yes.
Do you know why Mr. Humphreys retired from the partnership ? — I think it was because Mr. Deeley objected to go on with him any longer.
And you were content at that time to take what you say in your letter in liquidation of your debt ? — Yes, and on being released of all liability in respect of the other debts of the concern.
And you were content to continue your liability and the overdraft of £30,000, and also to leave with the bank the private securities which they had held of yours for some time ? — I could not help myself there.
As a matter of fact, did Mr. Deeley pay you the £7,500 which is set out as the cash consideration in your agreement ? — No. Did he pay you one shilling of that amount ? — Not in cash.
Did he pay you in debentures ? — No.
The whole amount was paid, I understand, in shares ? — Yes, in ordinary shares.
You seem to have been glad to get out of the partnership on any terms ? — I thought there was a future in the concern when more capital was put into it, and I thought the concern could not practically go on without more capital.
And you had this anxiety to get out of the business, although, according to the report which appears in the prospectus, the business was making a net profit of over £17,000 a year? — I have nothing to do with that report.
But you are aware such a report does appear in the pospectus ? — I am aware of that.
And do you know that the report which appears in the prospectus is alleged to be a quotation from a report made by Mr. Edwards, of the firm of Edwards, Son, and Warmsley, accountants ? — Yes.
Can you tell me what net profit was made in this business during the three years which preceded its formation into a limited liability company ? — I cannot trust myself in figures. Generally, the result of the last year was loss. The year before that I have no doubt there was a profit, I should say, of from £6,000 to £7,000 net.
Is it a fact that the result of those three years' trading was of such a character that it frightened you practically into getting out of the business on any terms ? — No, nothing of the sort. So far as my recollection goes there was a profit for the year ended March, 1885, of £8,000 or £9,000 at least, besides interest on capital.
What were your drawings out of the business between 1875 and 1883 ? — My drawings in cash were about £23,000 — about £2,000 a year. And you held half of the total capital in the business ? — I held a great deal more. Did you see the report by Mr. Edwards quoted in the prospectus ? — No.
THE AUDITOR'S CERTIFICATE SHOWING £17,000
Mr. Wheeler then read the certificate as follows : —
ANNUAL PROFIT: I hereby certify that the average yearly profits of the Dee Oil Company, Saltney, for the past ten years, 1878 to 1887, both inclusive, have amounted to £17,155, and in addition to this profit there has been carried to a plant depreciation fund an average yearly sum of £1,725. Those figures are extracted from the company's private ledger, the balance sheets in which have been prepared by me as their auditor for the past eight years.— (Signed) J. E. Edwards, 13th February, 1888.
Mr. Wheeler: I may take it a report of that character from a highly responsible firm of accountants would be likely to carry very great weight with the public ?— I suppose that was the intention of getting the report. I do not know whether you consider me a party to that. No, l am not suggesting that at all.
Had that report stated that in the last year of the company's trading, no profit had been made at all, but that a loss had been sustained, and moreover that for two or three preceding years nothing like £17,000 net profit had been made, would it have been likely to carry the same weight with the investing public ?—Probably it would not, unless some explanation had been given, and other information bearing upon the profits made in previous years.
But I think you know, as a matter of fact, that no qualification whatever of that report appears in the prospectus ? — I believe there is not. Did you on the 16th August, 1838, receive a cheque from the Dee Oil Company for the sum of £7,500 ?— No.
Then if the company's cash book shows that on that date a cheque for £7,500 was drawn to you and handed to you, it shows what is not correct ? — It shows something that I have not the least recollection of.
Did you on the 16th August, 1888, apply to the limited company for shares, and send a cheque for £7,500, the value of those shares ? — I have not the least recollection of it.
Were you a shareholder at the date of the winding-up order ? — Yes, I have never parted with a share.
You held at that time 3,000 shares, representing £15,000 ?— Yes.
No money or debentures were paid to you ? — No. Shares only were given you in consideration of your relinquishing your share in the old partnership ? — Yes.
Were those shares allotted direct to you from the company ? — I cannot remember.
As a matter of fact I got the £15,000 worth of shares, and that only.
THE CERTIFICATE PERFECTLY TRUE.
Mr. Caldecutt : In the report it is stated that a valuation of the company's stock and plant was made by the employees under the direction of Mr. Deeley. Is it not a fact that Mr. Deeley, being a vendor, refused to do anything of the kind, and that you instructed your employees to do it ? — No, I don't think I did.
Who made the valuation then ? — I imagine the valuation has been made by Mr. Hignett and Mr. Charles Deeley.
Is not the £7,500 simply an ordinary cross entry in the books made to satisfy the 25th section of the Act ? — I imagine it is so, but I cannot trust my memory with all that occurred on that day.
That is, they assume you had given a cheque for £7,500 in payment of your shares ? — Yes, I imagine it is given to suit the requirements of the Stock Exchange.
On the credit side of the same ledger there is an entry of £51,800. That was the amount Mr. Deeley was to receive?— l don't remember.
He was to receive a large amount ? — Yes.
Did he, as a matter of fact, get anything ? — He got shares instead.
Taking the balance sheet for those ten years from the figures of that private ledger, and from the information given to Mr. Edwards by yourself, is that a perfectly true account of the profit of the ten years' working ? — I believe it is ; in fact, I am prepared to swear it is.
Witness explained that, as a matter of convenience, he himself took the balance-sheets from the private ledger for the ten years, and sent them to Mr. Edwards. On that statement Mr. Edwards made his report; therefore he (witness) was justified in saying he believed it to be correct. There were special reasons why there was not a profit in 1887, in consequence of the manipulation of certain cargoes of crude petroleum. The Americans were coming in with their finished oils, and that affected the prices. The Income Tax Commissioners surcharged them £1,500, of which £400 only was ever paid.
William Clarke Deeley, Curzon Park, Chester, the vendor to the limited company, who was next examined. prefaced his evidence with the statement : Your Honour, Mr. Wheeler has now said he is not going to examine me on the evidence I gave in July, nevertheless he has evidently made his notes from this document, and I should like to say, with all deference to the Court and to himself, that I do not think it is quite English to ask a man to be examined without having furnished him with a copy at his request. Proceeding with his examination, he said that for some thirteen or fourteen years prior to the formation of the company he was a partner in the Dee Oil Company. Mr. John Thompson and Mr. Humphreys were also partners, the former continuing in the business till the formation of the limited company, and the latter retiring because he (Mr. Deeley) said either he would have to resign or Mr. Humphreys.
While they traded as a private company they had half-yearly balance sheets prepared, formerly by Mr. Tregellis, and latterly by the late Mr. J. E. Edwards. At the formation of the limited company the partnership had no other liabilities than £30,000 overdraft at the bank and some current accounts amounting to £5,000 or £6,000. At that time they handed over to the company the whole property, the deeds of the Dee Oil Company, and the Candle and Acid Works, all freeholds, leaseholds, plant and machinery standing in about 20 acres of ground, and the offices, &c, in London, Liverpool, Barrow-in-Furness, Hull, Cardiff, Newcastle-on-Tyne, and Paris.
The Saltney property comprised the Dee Oil Works, which the Dee Oil Company built ; the, Flintshire works, which belonged originally to the Flintshire Oil Company, and which the Dee Oil Company bought; and the Candle and Acid Works which they built, all of which were valued by Messrs. Churton, Elphick and Co. at £101,148. At the formation of the company that property stood in the books at £79,273 17s. 10d.,
MR. DEELEY'S EXAMINATION: A PROTEST
After writing off depreciation for a good many years. Messrs. Churton's valuation was not made specially for the purposes of the limited liability company, and he did not discuss with the valuers the form the valuation should take. The valuation was made for the purpose of incorporation in the prospectus. The stock-in-trade was not included in that valuation, but was valued at £16,973. It consisted of crude oils, wax scale, fine oils, candles, and fatty oils used in mixing— all good stock.
The agreed sum which Mr. Thompson was willing to take for his interest in the partnership was £15,500, to be paid partly in cash, partly in shares, but that arrangement was afterwards modified by agreement to the effect that as he (Mr. Deeley) had received no money for the property, Mr. Thompson was quite willing to take payment in £15,000 fully paid up shares. According to the prospectus, witness was to receive from the company £82,000 in cash and £33,000 in fully paid up shares, total £115,000; but he did not get a halfpenny in cash. He was eventually paid by £30,000 worth of debenture bond 3 and £51,800 in share 3.
At the meeting of the Board on 15th August witness presented two transfers of the debentures, one for £30,000 to the nominee of Parr's Banking Company, and the remaining £200 to one of his (witness's) sons, who held them still. The £30,000 was transferred to a Mr. Noble, a Liverpool stockbroker, who was the nominee of the bank.
THE BANK'S SECURITY.
The bank held as security for the overdraft of £32,000, at the time of the formation of the company, a legal mortgage on the Dee Oil Works and the Candle and Acid Works, and certain private securities from Mr. Thompson and witness. Witness also transferred to Mr. Noble 5,000 £5 shares fully paid up which were hold by Mr. Noble as the bank's nominee. The total amount of the debentures issued was £50,000, of which the bank held £30,000, and did not give up the private security which Mr. Thompson and he had deposited, "so that the bank gave up absolutely nothing. The bank also held a guarantee from certain persons in respect of a sum of £5,000, and did not surrender that guarantee to the limited company
For some two years prior to the formation of the company the bank was pressing, and the firm was rather hampered for ready money to carry on the business. The bank objected to the overdraft remaining at that large amount. It was very difficult to say if the bank suggested the formation of a limited liability company. Surely you can say yes or no ?— I really cannot say where that suggestion came from, but my own impression was if it was not conveyed to me direct it was something that was communicated to me, from which I had to infer that the way to pay off the overdraft was to sell the business to the limited liability company, and then get more capital into the concern. But whether it came direct from the bank I will not say.
WHO SUGGESTED A LIMITED COMPANY ?
Are you prepared to swear that the suggestion of the formation of the limited company did.not come from the bank ?— I am not prepared to swear one way or the other.
I must press you to say yes or no to that question ?— But I cannot conscientiously do so while trying to speak the truth.
Proceeding, the witness said it was a fact that the bank allowed its name to appear on the prospectus as receiving subscriptions at its various branches. Witness showed one draft prospectus, prior to its issue, to Mr. John Dunn, who was now the managing director of Parr's Banking Co. and the Alliance Bank, London. Mr. Dunn, who was then the general manager of Parr's Banking Company, slightly altered some of the words in the prospectus. After the draft prospectus was shown to the bank, this statement was added to it,
" And it is anticipated from the orders now in hand that the sales this year will more than maintain the average profits, and the profits of the company will increase in a corresponding degree, which it will be seen is equal to fourteen per cent, dividend on the share capital of the new company, after providing for the debenture interest."
You did not think it necessary to state in the prospectus that the firm which was being converted into a limited liability company owed the bank £32,000?— No, I did not think it necessary. All trading concerns owe their bankers money.
Will you answer the question ?— I have answered the question. Certainly not.
You did not think it necessary to state that that money had been owing for many years ? — That is not quite true. It had not been owing for many years. Sometimes it was £10,000, sometimes £15,000.
I understood you to say that this large overdraft, being practically still, was objected to by the bank, which pressed for its being paid off ? The highest overdraft that I can remember was £35,000, and it was then that the bank objected.
I see that in 18S5 it stood at £25,900, and in 1884 at £32,900, so that apparently the witness was right in saying just now that a very large overdraft had for years been due to the bank ? — It all depends on the stock you have.
I think we are not discussing the stock ? — No, but you are inferring a thing which I cannot permit you to infer.
Did you think it necessary to state that the firm who were then converting themselves into a limited company at that time owed the bank £32,000, or that they had owed it for somt years, or that the bank was pressing for the debt to be paid off ? — Certainly not.
These were small matters which would not have any interest for the investing public ? I do not think so, so long as the bank got paid.
The promoters of the company were Chadwick and Company and Mr. Frederick Ford. The only partner of Chadwick and Company that witness ever met was Mr. Walter Felix Orris. 12, Cheapside, who was a company promoter trading as Chadwick and Company. Mr. Frederick Ford was a stockbroker and company promoter, and might be described as the sub-promoter of this company. Mr. Benjamin Ford was the secretary of the Dee Oil Company, Limited, and was the London manager for many years before the formation of the limited company. The Fords were brothers. Witness first met Mr. Orris regarding the promotion of the company in February of that year, and promised him £3,000 for his services in promoting the company. Witness had also to pay £3,000 in cash for advertising the company when it came out.
WHO WERE THE PROMOTERS ?
It was the solicitor acting in the promotion of the company (Mr. Shirreff, of Messrs. Morley and Shirreff), and Mr. Orris, and Mr. Frederick Ford that prepared the prospectus in its present form. Witness could not give Mr. Frederick Ford's address, nor was he aware that all the notices sent to him at the address given in the statement of affairs had been returned. Witness took very little part in the preparation of the prospectus.
WHO PREPARED THE PROSPECTUS ?
But did you approve or did you not approve and initial the last draft prospectus before its publication ? — No. I was not in London. I did initial a prospectus.
Will you swear, Mr. Deeley, that you did not initial the prospectus, a copy of which you have before you now ? — To the best of my belief I did not, because I objected to the words in the latter part of the paragraph on page 2, and I telegraphed objecting.
Then that draft prospectus was sent to you by the gentlemen who prepared it for your approval ?— Oh, dear no, they did not wait for my approval.
What did you mean by telegraphing to London that you disapproved ? — Oh, they sent me down a draft.
And you objected by telegraph. Did you follow up the objection ? — No, Yes. To the best of my belief the prospectuses were out the same night.
But are you prepared to say that you did not initial the draft of that prospectus which is now before you ?— I am not prepared to swear that it is the same. I did initial a prospectus, but that was a week before it came out. It was Mr. Orris who suggested the engage- ment of an accountant to make a report for insertion in the prospectus, and Mr. J. E. Edwards was employed. Application was also made by Mr. Frederick Ford to Messrs. E Her man and Co. for a report, but witness did not know the result of the application, and could not say whether the terms of the report were satisfactory to the promoter or not. Witness met Mr. Thompson and the late Mr. J. E. Edwards at Chester Town Hall, and took the private ledger with him for the preparation of the auditors' report for the prospectus. He told Mr. Edwards what was wanted, viz., a certificate of the profits of the past ten years. Witness had then to leave, and Mr. Thompson and Mr. Edwards remained. He believed Mr. Thompson made out the figures on which Mr. Edwards based his report. The next day Mr. Edwards accompanied witness to London, and gave him the certificate. When Mr. Orris received the report he said it was satisfactory, but remarked "It is a pity you did not show 15 per cent, instead of 14."
THE AUDITOR'S REPORT.
Did you tell Mr. Orris that the average profit of £17,000 referred to in Mr. Edwards' report had not been made in the year 1887? — No.
Was Mr. Orris curious on that point ?— No.
Did you discuss the year 1886 with him ?— Not on that occasion.
You did not convey to Mr. Orris the fact that before the formation of the company the profit was nothing like £17,000 net?— Oh, yes, on previous occasions.
What did you convey to him ? — I said we had one rather bad year, and he said " That is nothing out of ten."
Did Mr. Edwards, at his interview with you, ever remind you of the fact that no such profit as £17,000 had been made in the year 1887 ?— Yes, he knew that as well as I did.
And he discussed that with you ? — There was no use discussing it, he knew it.
Did Mr. Edwards suggest that that interesting information should be added to the report ? —No. Did he suggest it was information to which the public were entitled ? — No. Mr. Edwards was paid about £25 for the report.
Before leaving that subject the witness said : Mr. Wheeler, would you allow me to say one word before you go on to another subject ? I think I ought to say in this city of Chester, in memory of the man who gave that certificate, who was respected by everybody for his honesty of purpose, that when I obtained that certificate from him it was never intended to go into the prospectus. He simply gave it for the information of the promoter ; he never have it to go into the prospectus, and I think it is only due to Mr. Edwards' memory that that should go on record.
IN JUSTICE TO MR. EDWARDS.
And it was used for a purpose for which it was never intended ? — Yes. And did he ever protest ? — No, he was too good a fellow. He simply said, " Mr. Deeley, it was wrong," and I said, "If it is wrong it is not my doing."
Did Mr. Edwards say on what ground he thought it was wrong to insert these things ? — No.
He did not suggest that in the form in which it appears it is misleading ? — No, that is all he said to me.
That important book is missing ? — That important book is missing.
THE MYSTERY OF THE PRIVATE LEDGER.
And it is the only book which contains an account of the trading of your firm for ten years before its formation into a company ? — That is the balance statements. You have got a balance book. There is no copy in your possession of any one of your balance sheets ? — No, we never had any.
His Honour : When was this private ledger lost ? — Well, I think, Mr. Wheeler, you are coming to that point, I presume.
The Receiveri; I should like the witness to clear it up now. It is an extraordinary thing that although you have a large number of books, this is the only one that is missing ? — Witness : You have a copy of the correspondence between Mr. Thompson and myself upon that point. There is one important part. Mr. Thompson, when it was missing, said he could find somebody who could put his foot upon it, and I asked him to do so, and that person turned out to be a myth. Mr. Thompson's opinion is he never had the private ledger after the commissioner of income tax came down. Now, I am positive that he had that book — mind you, I am saying it with all respect to Mr. Thompson, because each of us is in the same boat, and I hope he won't take any offence because I will say it in the politest language possible— that he did have that private ledger twice after that period, once to take out some facts and figures, and the second time he wanted to get it we were obliged to for income tax on the Redonda phosphate business.
The last recollection I have — of course, it is only a recollection, I do not say I am right, I do not wish to infer that I suspect Mr. Thompson in any way, the book is missing— the last impression I have of that book is that I sent it to Netherleigh House, and my impression was that it was then to be sent to our solicitor, Mr. John Tatlock, and that is the last I know of the book.
The Judge: When was that about? It was only last year, sir.
Wasn't it last year that we had the correspondence ? Mr. Thompson : No, the year before.
Witness : The year before, it may have been 1891, sir.
The Receiver : The winding-up order was May, 1891.
Witness : I will give it you from one of your own letters. Your letter to me is dated 22nd April, 1892, to which I replied. But have you seen this book since the date of the winding-up order ? — No, certainly not. At least I will not say that I have not seen it for two years.
Have you seen it since the date of the winding-up order in May, 1891 ?— No, I don't believe I have.
I wrote to you on the 14th May — I now beg to reply to your communication of the 22nd April and the 9th inst., and to show you I have not been idle or that I have had any wish not to comply with your request for the production of the private ledger of the Dee Oil Company, I beg to hand you herewith the correspondence which has taken place between my late partner, Mr. Thompson, and myself with reference to this book. Since Mr. Thompson left England I have further searched in all possible places to find this book withont success, and I now give it up. Mr. Thompson mentioned that he last saw this bock when it was produced by Mr. Roberts, for Somerset House purposes. To the best of my recollection and belief Mr. Thompson had this book at his private residence subsequent to the period he named to work up from it our Redonda Phosphate Company's affairs, which are also contained in this particular private ledger, and consequently the possession of this book was almost of as vital importance to me; and although I am legally advised that you cannot call for private books or papers, still in order to end this matter of the Dee Oil Company I would loan you this book if it were in my power to produce it. That is my letter. That settles the date. Anyhow the book is missing ? — The book is missing.
Never been handed over to the Official Receiver ? — No.
There was only one private ledger ? — Yes.
Each partner had a key to it ? — There were, I believe, three keys.
You had a key ?— Yes, and I think Mr. Humphreys had a key.
He is here now and can answor that. Had Mr. Thompson a key ? — Yes
The book was kept in your office safe and your clerks not allowed access to it ? — Yes.
Did you show the book to Mr. Orris ?— I don't think so. I feel pretty certain I never had it in London.
So far as you know, Mr. Deeley, all the books of the late firm have been found with the exception of this private ledger?— l believe so.
And you also know that that is the only book which is really vital to this inquiry ? — Well, that is a matter of opinion. I do not know that it is vital. It is A MOST IMPORTANT BOOK ? — A very important book.
Containing the balance-sheets from which this report which appears in the prospectus was made up ? — Yes.
This book was produced, was it not. to one of the Surveyor's from Somerset House? — Yes.
Did you produce it to the Surveyor ?— Either I or Mr. Thompson did, but we were both there together.
THE INCOME TAX INVESTIGATION.
What took place at that investigation by the Somerset House official ? — He came down, as he comes down upon every company when they issue these prospectuses, to ask why wo had not paid them the full amount, and we informed him that we three were practically in one co-partnership, the Dee Oil Company and the Redonda Phosphate Company.
Might I ask as a matter of curiosity had you three partners been paying upon a nett income of £17,000 ?— Certainly not.
What had you been paying ? — I can't remember without the books. I will tell you how the surcharge came about. You see we were losing money heavily on the Redonda, and being one, as we imagined, co-partners, the three of us — Mr. Humphreys was equally interested for a time in the Redonda Phosphate Company — he would not allow that. He found from our private ledger that Mr. Humphreys and I had been allowed what we called a management salary before tne division of profits at the rate of each of us £500 a year. That was £1,000 a year, and we considered I still think it was unjust not to consider it so it as part of the working expenses of the firm. Well, he would not allow either the one or the other to put the losses of the Redonda against our profits in the Dee, nor would he allow us to book these management salaries, added to which was a further sum of £200 a year allowed me for what we put down as "entertainment money "— that is my private expenses going about doing the business of the firm. Then came this surcharge. That is how it came about.
At what sum did you return the income of your firm to the Income Tax Commissioners ? I cannot remember. It varied.
Give the court some approximate idea? Well, I should think it would vary from £9,000 to £12,000. l am not sure. '
Tell me the largest amount upon which you have ever returned your income from the Dee Oil Company to the Commissioners of Inland Revenue ?— That I cannot remember. I cannot go back all those years. In the first place I never had anything to do with the books ' I signed the cheques, it is true. take the year 1887, I ask you what amount you returned to the Income Tax authorities and tell us the income for that year t— I cannot without the figures.
But that is rather an important return s — But surely, why you don't let me have the books, and you strangle me,, and ask more ques- tions when you have got the information in your books. ??
But the books are here and at the omce of the Official Receiver, always open to your inspection ?— I was told I was not allowed to see it
Did one of your clerks? - . I cannot undertake to say. You might as well ask the price I paid for oil five years ago.
I may remind you the books were in your possession for at least eight months after the winding up order ?— They were packed up.
They were in your possession ? — They were packed up by the clerks. I don't know they were in my possession. Mr. Thompson will tell you I had nothing to do with the books. I know no more about the books than anybody.
You know nothing about the whereabouts ol this private ledger ?— I do not. I wish I did.
You are quite prepared to swear that ? — I am quite prepared.
You are quite prepared also to swear that you have never given it to any person with a view to concealing it from the Official Receiver? — Quite so.
Will you be good enough to tell the Court from your good memory what was THE LARGEST AMOUNT NET PROFIT yon ever made while you were a private firm . — To the best of my recollection something like £31,000. Can you identify that year ?— I think it must be the year 1884 or 1885, but we had been making our " twenties " regularly.
Was that the sum actually earned ? — Actually.
And the profit available for drawing purposes ? — Certainly, but that profit I am alluding to is after crediting each partner not only with his interest on his capital but taking off a large sum for the depreciation of our property.
You are prepared to say in that certain year that large sum was available for drawing by the partners ? — Yes, certainly.
Will you tell me THE SMALLEST PROFIT you ever made in any one year ? — To the best of my recollection £8,500. What year was that ?— 1886 or 1887.
Now, Mr. Deeley, are you prepared to say that in 1887 your balance sheet did not shew a considerable loss ? — The last balance drawn up, to the best of my recollection, is £7,500, after crediting a loss of £5,000.
What date was that ?— The last year, 1887, after debiting ourselves with the losses on the new experiments we tried in importing- crude oil against residuum.
Then your memory on that period differs considerably from Mr. Thompson ? — Slightly, not much.
Mr. Thompson said in that part of the year (1887) considerable loss was made on the trading? Yes, but he does not understand it the same as I do. We do not look upon experiments which diminish our profits as losses.
If the loss made upon that experiment had been carried to the profit and loss account for that period, the profit and loss account would not have shewed a profit but a loss ? — I meant to show that there was a profit of about £7,500. If we had done as a good many firms do when we made a loss of £5,000, we would have put it in our books to " experimental losses," to what you call " suspense account," and paid it off during the next three years. But that was not our custom. We took our profits and losses as they came.
Do I understand that after writing off the experimental losses, your trading for that period still shewed a nett profit ? — Yes, a large nett profit.
What amount ? — Well, it was thousands.
That is rather a vague phrase. Let me get something like the amount ? — I have told you, £7,000.
Your books were not balanced up to June, 1888, I understand ?— The last half-year they were not.
Why was that ? — There was not time, and then it became unnecessary.
Was it not a fact that the result would have been RATHER ALARMING ? - Certainly not, sir.
But surely the want of time is not a good reason for dispensing with this very important matter of business, the preparation of a balance sheet ? — When I was nearly always in London that half year, and I had nearly everything left in my hand, I had not time to give instructions, and when the company came out it was not necessary to know to a hundred pounds what I had, and then the staff left me.
Why did you think it necessary to depart from a practice which you had thought it necessary to adopt for ten years ?— Because the firm was at an end.
Did not the promoter of the company specially ask you to show him the balance-sheet for that period ending June, 1888 ?— No, certainly not, sir.
What profit did you draw from the business in 1886 ? — I never kept an account of that kind.
Surely that also is an important matter which yon ought to have some recollection about. What was your income in 1886 in this business? — I cannot tell you. I never entered my drawings in any private book of mine.
Was it £8,000?— Oh, I have been very extravagant, but I never drew that amount. But the business according to the certificate was doing an average nett profit after writing off every sum for depreciation of £17,000 a year. Now just think what you ' drew from this flourishing business, making this large nett income in 1886 ?— I daresay I drew about £3,000.
And in 1887 ?— I dare say about the same amount.
Income is a personal matter which affects one ?— lf you go to 1880 I remember getting A WIGGING BECAUSE I DREW £6,000 I remember it was in 1880, because it was the election time, and I got a wigging- (Laughter.)
And can you give any approximate estimate for 1888 ? — No, I cannot.
Was it £3,000 ?-Well, I am only ar-uim* by analogy. I don't remember the sum
Well I should like you to think, if should know if you drew £3,000 or £8,000?— I could keep the firm's cash straight, but I could never keep my own. (Laughter.)
WHY MR. THOMPSON SOLD OUT
I want to know why it was that in 1888 Mr Thompson was content to sell his interest in this flourishing business for £15,000, and his capital amounted to more than double that amount ?— That is very simply answered. We wanted more capital, and the only way we could get any had not any and he did not want to put any more in-was to sell our property to a limited company
Can you suggest that as a reason why Mr Thompson should be content to give up an a business producing a profit of £17,000 a year?— Yes, but there was another reason. We had a verbal arrangement to this effect .- £15,000, and when I did well I waate make some amends for his loss of capital
How do you explain that Mr. 'Thompson was content to get out of this flourishing business for a nominal £15,000, represented by shares in the company, no cash, no debenture ? - Well Mr. Thompson was not content to get out of the company for £15,000 shares, nor was I content to get out with £33,000
Content or not, Mr. Thompson did so ? — Well we could not help ourselves. The capital was not fully subscribed, the deed was done and we had to take what we could get
I understhan Mr Thompson did not event get back the private security lodged at the bank in respect of his overdraft? -To the best of my belief he did not
THE CONFIDENCE OP THE BANK
Why was it that the bank knowing your business was such a flourish one and that their overdraft was perfectly secure were pressing you to form yourselves into a limited company, and to get rid of the overdraft? _ I don't know. All I know is that all at once they seemed to take a view of want of confidence in us, and then they crippled us
A want of confidence in a busines doing £17,000 net profit? The banks do not care for that. They do not want an overdraft
I can't understand the overdraft being so large on a business making such a large annual profit. It surely should have been reduced? - That depends on the markets. I can understand it but any legal man would not.
In further examination, the witness said Mr. Edwards's report appeared in the prospectus and the promoter was perfectly satisfied with it.
The receiver - It was A REPORT TO CONJURE WITH, a report from a respectable accountant that your business is making £17,000 a year net profit after writing off every possible sum as a contingency against depreciation, and so on? - I don't thing you can say that, and the report does not say that. It says the average of the years is that amount.
Supposing that report had set out that during some years past your business had made a large profit, but during the last year of its trading a firm it had made next to no profit, perhaps a loss, woud that report have been so encouraging to the subscribing public? - Certainly not
Therefore I can quite understand the promoters saying that the report was highly satisfactory - In all business there is a good and a bad year, very often you have to take an average
THE DIRECTORATE - Witness, continuing said the promotor found the chairman, Sir John Stokes, who did not pay for his shares which qualified him to sit on the board, as no qualificationsnd for his shares was necessary for three years. Sir john had not one shilling interest in the company when the prospectus was issued or at the time of the winding up order but he had now. The promotor found all directors except one, Mr. Tho. Makin. Sir John Stokes drew £500 a year, and each director £200.
It is a fact that in about three years of trading the directors' fees amounted to £5,500?. -If that is in your statement to the fact
Had Sir John Stokes any special knowledge of this class of business which gave on your Board ?-No special knowledge, but he had special influence.
Was his name valuable as a name which carried great weight with the public ?-I think so
THE PROFITS Of THE LIMITED COMPANY
Witness said they had made nothing like £17 000 profit in the first year of their trading as a limited company. They made practically nothing-only £125, and even that small profit would not have been made if they had written off any sum whatever for depreciation of plant and stock; in fact, there would have been a practical loss. The second year s trading resulted in £13,000 loss, and the anticipated profit of £17,000 was a delusion. During tbeir trading as a company they paid no dividend to the shareholders, but they paid for two years the interest on their debentures.
At the formation of the company in 1888 their valuers made a valuation of the freeholds at Saltney and tho leaseholds in London and other places, also the stock-in-trade, exclusive of book debts. at £115,000. When the winding-up order was made, witness filed a statement returning tho same property as of the value of £36,000, but he did not understand what was required, and he was told to put in that amount to bring up the balance. Mr. Hague Brown, one of the officials, said he had to do that.
The Receiver : I venture to say that is a most untrue statement. The statement of affairs is filed by Mr. Deeley in accordance with the Act of Parliament, which requires him as the manager and director to do so. That statement is prepared by his accountant, and verified by his affidavit, and in that statement the identical property of £115,000 is set down at £36,000, a falling off of £80,000 in three years? - Witness : I applied to the best lawyer here, Mr. Sam. Smith, and Mr. Warmaley and Mr. John Thompson had a go at it, and the whole of us could not fathom the meaning of it, where you call a shareholder a contributory.
The Receiver.- Whether you fathomed it or not, you verified it by affidavit? — I was told to do it, to value the property and fill up tbe statement.
And you always do as you are told ?(Laughter.) — In these matters, when I don't understand, and a Philadelphia lawyer would not understand it. I have not the honour of holding that position, Mr. Deeley ? (Laughter.) — l never could find a man yet who understood it. The public, the witness proceeded, were offered £100,000 worth of shares, and they sub- scribed between £15,000 and £16,000, and on that small return the directors went to allotment, but witness was not then a director. In August, 1890, they required fresh capital, and witness offered to give up to the company 2,000 shares, representing £10,000, and the company were to endeavour to induce the shareholders or the public to subscribe for it.
PRESENT POSITION OF THE CONCERN.
Examined by Mr. Caldecutt : Witness said the present position of the debenture holders and the unsecured creditors and shareholders was that the debenture holders held a meeting last Wednesday, at which the managing director of Parr's Banking Company, Mr. Dunn, who presided, said he believed the company was now so sound and had such vitality that he was quite prepared to admit the creditors for 20s. in the £, giving them second shares to carry 5 per cent, interest. The ordinary shareholders were to be admitted, practically reducing the value almost to any amount they liked, because whether they were reduced from £5 to Is., and they got their interest upon that, it practically did not matter which way they put it. They carried a resolution recommending 10s. The shareholders were then to be admitted, of course the debenture holders retaining all power until, the creditors becoming shareholders, the shareholders redeemed their mortgage. Not only did they do that, but they turned their debenture bonds (which were not a negotiable security to their bankers) into preferred shares ; and they decided that they would not call for their back interest but would capitalise it and take the overdue interest in deferred shares, so that the company should not be crippled. The works were now going on full steam, and he (witness) would like to give £3,030 for the profits this year.
MR. THOMPSON AND THE PRIVATE LEDGER.
Mr. Thompson, at the close of Mr. Deeley's evidence, said : I am not here represented by counsel, but I want to make a slight explana tion about the variance between myself and Mr. Deeley about the private ledger. The only time in which the question of the Kedonda private account was gone into was the time when we met Mr. Roberts at the Saltney office regarding the income-tax that was the only time the profit and loss account of the Redonda Company was gone into. That unquestionably took place in September, 1888 and that was the last occasion on which I saw the private ledger.
ANOTHER DIRECTOR'S STATEMENT
Thomas Makia, one of the directors named in the prospectus, was afterwards examined and said he had known Mr. Deeley before joining the company, and always viewed the Dee Oil Company as a very prosperous concern
MR. WARMSLEY AND THE ACCOUNTS
Frederick James Warmsley. accountant. Chester, and partner of the late Mr. J E Edwards was examined as to his knowledge of the Dee Oil Company's books, but he said he simply used to assist his principal in the audit but never had access to the figures from which the balance-sheet was compiled The examination was then adjourned to London for the evidence of the other persons included in the schedule.
The Cheshire Observer, 11th March 1893