“GALLOPING LOSS”

Dominion, Volume 21, Issue 114, 11 February 1928, Page 13

“GALLOPING LOSS”

ILL-STARRED LOWER HUTT VENTURE

ELECTRICAL CONTRACTOR’S BANKRUPTCY AFFAIRS TO BE INVESTIGATED The operations of a Lower Hutt electrical contractor, who lost £1660 in eighteen months, considerably mystified a meeting of creditors yesterday. One creditor declared that the business had shown a profit for two years, but during the past eighteen months the bankrupt had gone back at the rate of £3O a week. Twenty creditors attended the first meeting in the estate of Otto Feisst, electrical contractor, of Lower Hutt, yesterday. Mr. S. J. Dudson presided m tha absence of the Official Assignee (.Mr. S. Tansley), who was engaged upon a case at the Supreme Court. Bankrupt was represented by his solicitor (Air. C. 11. Barrett, of Lower Hutt).’ Deficiency of £1660. The amount owing to unsecured creditors was shown as JC2501 ss. 4d., while the assets were given as £S36 12s. Bd., the chief items being stock-in-trade £2(it ss. lid., motor-car 4:125, book debts £350 Is. 2d., cash in hand £27 ss. 7d., leaving a deficiency of £1661 12s. Bd. The principal unsecured creditors were: British General Electric Co., Ltd., £'3O4 Ils. 10d.; Electrical and Engineering Co., Ltd., £l9l ss. lid.; Carrick, Wedderspoon, Ltd., £l7l ss. 6d.; Gruar’s Battery House, £76 ISs. lid.; .Natela Radio Co., £6O 13s. 6d.; J. W. Newell, £33 12s. 6d.; L. M. Silver and Co., £-10 Is.; H. Al. Hayward, £236 10s.; Abel, Smeeton, Ltd., £l7 12s. 7d.; D.C. Motors, £lB 13s. Id.; Phillips Lamps, Ltd., £l3 13s. 5d.; J. A. Smyth and Co., £l3 3s. lid.; "Hutt News,” £8 165.; J. Mercer and Sons, £52 ISs. Cd.; J. B. ALcEwan and Co., Ltd., £2O 13s. 7d.; L. B. Scott, Ltd., £33 12s. Gd.; E. W. Mills and Co., Ltd., £l2 10s.; C. A. Odlin and Co., Ltd., £l3 Gs. Gd.; Bass Electrical Co., £ll 3s, 5(1.; United Distributors, Ltd., £25 ISs. Id.; James Stewart Electrical Co., £lO Gs. 3d.; Lawrence and Hansen Electrical Co., Ltd., £176 Is. lid.; A. S. Paterson and Co., Ltd., £4B 17s. id.; Parkinson N.Z., Ltd., £ll3 3s. 7d. ;■ Thomas Ballinger and Co.. Ltd., £96 ss. 9d.; Turnbull and Jones, Ltd,, £54 17s. lid.; Hutt Valley Power Board, £9 is. 3d.; IV. A. McKenzie, £9 7s. 9d.; J. Tonkin, £250; R. Feisst, £7O; A. Watters, £5O; Ernest Dawson, £2B. Bankrupt's Statement. Bankrupt, in his sworn statement, explained that he commenced business in Aglionby Street, Lower Hutt, in October, 1923, with a capital of £250. lie worked from his own house for . about twelve months, starting with ono boy, but at the end of twelve months had four employees. Of the £250 with which ho commenced business, a portion had been ixtrrowed from his brother, Joseph Feisst, of Karangahape Road, Auckland. In October. 1924, he opened a shop in

Ixnver Hutt, under a thrcc-ysars’ lease from H. Al. Hayward, at a rental of £3 per week. In April, 1924. books of account were first opened, and were kept

by Mr. H. E. Tonkin, of Lower Hutt. At this time, Air. Tonkin, who was the underwriters’ electrical inspector, lent bankrupt £3OO, and it was agiced that he (Tonkin) was to receive by way of remuneration for the keeping of the books and interest, on the loan, the sum of £3O per year. In March. 1924, bankrupt borrowed the sum of £5O from his brother, Rol>ert Feisst, of Cambridge. During the first twelve months there was not a

great deal of work doing. Most of (his limo was spent canvassing for work, as people would not have their jobs done until power was definitely in sight or available. Electric power was available in Lower Hutt in February. 1925. For the fifteen months commencing April 1, 1 1921, and ending April 3(1, 1925. business showed a profit of .£605 6s. 2d. The drawings for that period were ,£-4-11 135., approximately £7 per week. His drawings had been £6 per week, and the extra was made up by bonus, which he drew out at Christmas, 1924. For the twelve months ending July 31, 1926. the business showed a loss of £222 18s. Bd. He drew out for for that period .£335, averaging £6 10s. per week, leaving a balance in tb.o capital account of £8 12s. 2d. For the eighteen months commencing August 1, 1926, and ending January 20. 1928. the business showed a loss of £l6OO odd. Owing to the fact that Sir. and Mrs. Tonkin were keeping the books, ami that he understood from them that everything was in order, he did not know what his position was. Tn response ,to repeated requests for a balance-sheet. Mr. Tonkin assured him that things were quite all right, and that a balance-sheet would be furnished. He naturally concluded that owing to the fact that Tonkin had £3OO on loan in the business, he would have advised him immediately if his position bad been as serious as bankrupt subsequently found it to be. Mr. Tonkin , died on or about December 14 last, and as soon as possible after bls death, bankrupt obtained his books, and when ho ascertained that they had not been made up to date, he had this done. As the result of the information thus obtained, and the advice of some of his creditors, he decided to file. He attributed his present position firstly to ill-health of both himself and his family; and second, to increased competition. This increased competition was brought partly about by the Hutt Valley . Electric Power Board’s discontinuing its policy of allottin gblocks of houses to be wired and advertised for tenders for ibis work to be done. Owing to the conditions imposed by the Power Board, it was impossible for small contractors to tender, and consequently he and a few of the bigger contractors obtained this work. After the Power Board discontinued the policy above referred to. and consumers had to make their own arrangements for their electrical installations, quite a number of wiremen who would work from their homes would compete for the jobs, and they were able to cut prices lower than bankrupt was, as they did not have the overhead expenses of a showroom and workshop. Apart front this, too, 1927 was not a good year in the Lower Hutt, as mostof the speculative builders restricted their operations, and the majority of the older’ houses had had their installations completed the year before. A third contributory cause to his bankruptcy was having too large a staff, due to the apprentices’ legislation, which forced him to employ a journeyman to every apprentice. Owing to the fact that business, as far as the electrical trade was concerned, had, during the last twelve months, been fairly slack, it was impossible fir him to assign his apprentices to any other trader. As the result of his venture, he had lost approximately £5OO of his own money, and at the present time had no assets other than those set out in the statement. His drawings during the whole of the time that he had been in business, had been in the vicinity of £6 per week, and ho thought those of his creditors who knew him personally knew that he had not lived extravagantly. "Hutt Electric House." Mr. Waddell (Lawrence 'and Hansen) questioned the bankrupt searchingl.v as to whether or not he hail transferred his business to the Hutt Electric House. Mr. Waddell explained that this new firm consisted of three minors, who had been apprentices to bankrupt, and the fourth member of the firm, ho declared, was Mrs. Feisst. Ho wanted to know what financial interest bankrupt had in the Hutt Electric House. Bankrupt declared that neither he nor bis wife had anv financial interest in tho new firm. The lads’ parents had i supplied the capital for them to start, and if sufficient work was forthcoming, I

the new firm ' bad promised io give bankrupt employment. Air. 'Waddell: Would it be rude of me to suggest that your wife is a dummy in this company for yourself? Bankrupt: Aly wife is a dummy for nobody. How are they getting on financially?“I believe they are getting on all right.” Where did they get their capital from? —"From (heir parents. You seem to have the Hutt Electric House on the brain.” Air. Akers: Is it not a fact that you have an equity in your father's estate? —"Yes, but I have drawn out my share, which has ‘gone west’ in tb.e business.” Loss of £5OO a Year. Air. Waddell said that bankrupt had lost £2<>oo iu four years, which was n steady loss of £5OO a year. Where had Hie money gone to? Mr. Dudson said that £l4OO had been’ lost since 192 G. Air. Akers pointed out that bankrupt had written to him in September last stating that lie was making £lOO a month in commissions on the sales of radio sets. Air. Waddell declared that bankrupt had been losing money at the rate of £3O a week during the past 18 months, while the business had been showing a profit before this. It was a galloping loss, at the rate of £5 a day. Air. Davis said the loss was abnormal. What was wanted was to investigate the contracts which had been carried out and see if they had been transferred to the books. A motion was carried (hat balancesheetp for 1921 and 1925 be produced. A subcommittee consisting of Alessrs. Akers, Hindmarsh and Cooper was set up to assist the Official Assignee in investigating the estate. The meeting was adjourned sine die.