COMPANY MANAGEMENT.

Greymouth Evening Star, Volume XXXI, 5 November 1901, Page 4

COMPANY MANAGEMENT.

The Dunedin Scandals

Report on Mr H. E. Easton's Petition.

The report of the Goldfields and Minos Joint Committee on the complaints mado by Mr H. E. Easton as to the manage ment of mining companies was laid on the (able of the House of Bepresentatives on Thursday. The Committee summarised the charges under section heads and points out that the onus of proof must be on the petitioner. The report says—" Some have not been proved, and others are matters that should be dwelt with by the law courts, for where the law provides an ample remsdy that remedy should be taken, as it is not for this Committee to take up the functions of the law Courts." Tha Committee disposes of these charges first, as under: —

(1.) "Promoters receiving secret profits" This charge must refor to (a) salary for office and secretary, and (b) directors' fees. In regard to (a), Mr Hoisted was simply Cook and Gray's servant, and managed the companies, and had nothing whatever to do with the flotations. Mr Holsied managed fourteen companies for Cook and Gray and received on an avorage £75 a year each, or a total of £IOSO a year, and in the books of the companies he debited the companies with owing these amounts to Cook and Gray, and credited the companies with having paid tha various payments thereon to Cook and Gray. Therefore any profits made out of this by Cook and Gray were not secret profits, bui were known to the shareholders, all of whom could have known that Mr Hoisted was only the servant. Neither were the directors' fees secret profits. Therefore this charge has not been proved at all, unless it refers to brokerage, which is dealt with hereafter. (2.) " One promoter being a director aud receiving dirtctor's fec3 yat not attending mooting*": Mr Cook drew director's fees, and attended in some cases only one meeting, and in oShora no meeting* ; but if there is any wrong in this the remedy is with the shareholders, who may elect some one else. A director may do work for his company other than attending meeting*, and the company should not be restricted in their choice of a director.

(3.) " That the Ngahera Company's claim is not huituated where stated in prospectus": The evidence upon this charge is very much more in favor of Mr Cook than petitioner; but even if the chargo was proved, the law on the subject has boon clearly laid down in the Promoters' and Directors' Liability Act, and therefore the Parliament has provided an ample remedy, which should have been taken if any wrong had been committed. (4.) " That, on the grounds of misrepresentation, Mr Gray, one of the promoters of the Goldon Grey Company, and others, repudiated payment of calls on shares upon which th 6 firm of Cook aDcl Gray had received brokerage "; The part of this charge which concerns your Committee is the formation of a company merely for speculative purposes on the sharemarket This is against public policy, and is purely a species of gambling, and should be topped by legislation. All pirties knowingly entering into such a transaction are particeps criminis.

(5.) " The formation of secret ring 3 for speculative purposes only by promoters and directors it a timo when the public were being asked to subscribe money to be used for mining purposes'': The only evidonse we have of this is what is mentioned in the previous paragraph. It has not been proved that what had been done was kept secret from the other shareholders. If, however, it was kept secret, then it would be unfair to the other shareholders, who would be induced to take up shares on the representation of the names of those subscribing. Legislation is necessary to prevent the occurrence of sum a case as that alleged to have taken place in this matter, (6). "Vendors making a profit on liquidation on shares which have cost them nothing" : This has not been proved. % 11). "Shares being 'dummied' and commission received on them " : If this had been done, then a remedy is already provided by law, and therefore the Committee has no further remarks to make.

With respect to tho other charges the report states

(8). " One person or firm being (a) the promotor, (b) broker, (c) secretary, and (d) director, and (e) the registered offices of companies beiDg in his or their offices " : It has been proved that Mr. Cook—or, rather, the firm of Cook and Gray, of which he was the managing partner in Dunedin, and had the sole control there—was the vendor to tho company, also tho promotor, secretarj, broker, and director, and the offico of the company was Cook and Gray'a office. The legislature has given these powers to a promoter, and it is necessary to pass further legislation to prevent these powers being abused, Petitioner alleges that these powers havo been abused—e.g., that a 3 promoter Mr Cook appointed himself broker, and as director and broker ho would bo both master and servant; that as director he a'lowed himself to charge exorbitant sums as broker; and that as secretary he, through his servant (Mr. Hoisted), actually paid himsaif brokerage on shares on which no money was paid at all. There is no doubt that Mr Cook's position as director, broker, and secretary hore came into conflict, 14 is clear that brokerage was very high, and the shareholder.-', when they agreed to take up share 3, did not know that so much of the money they wcl'o subscribing was going

to Mr Cook himself, and not being devoted to mining. Mr Cook admits that in the fourteen companies enquired into he received about £I9OO in brokerage, but he says he had to pay some of this to other brokers ; but taking one only of the companies as an example, and comparing the brokerage with the amount of capital paid, the latter is quite disproportionate to the former—e.g., in the Lres Ferry Company: capital paid, £537 ; brokerage paid, £l5O, of which £ls 2s 6d was ordered paid, by the auditor to be refunded by Mr Cook, as no money had been paid at all for the shares on which brokerage was charged. In most of the fourteen companies enquired into tho brokerage has been as disproportionate as above set and in some even worse. • (9) "Transfers being accepted and passed with money owing from sellers" ; This was dene in some of the cases enquired into, but it is allowed by law, and is very often done by many companies ; but the law should be altered, to the effect that where any money for application, allotment, or calls is dua upon shares, then the same should b 3 noted on the transfer before it is completed.

(10) "Signatories to articles or association not being shareholders": By the Companies Act it requires seven shareholders to form to be a company, but in many of the cases enquired into seven persons 3igned the memorandum of association, but some never became shareholders in the company at all, and so for a period of time tho company consibted of less than seven persons ; yet these who were not shareholders attended meetings, moved and seconded resolutions, and appointed MrCook, MrLeijon, and others directors, apptinted the secretary, and did other business, but it is stated in evidence that they did so on the advice of the company's solicitor. This wilful disregard of the provisions of tho Companies Act is very reprehensible, and may entail loss upon the shareholders who were innocent and ignorant of these breaches. The Committee recommend that in these cases proceedings should be instituted by the Crown to test their legality.

(11)-"The articles of association being so drawn as to override what may be classed as the safety clauso3 of tho Act under which they arc framed, thereby allowing a few holders of shares to obtain almost absolute control of the companies, and the articles of association being so worded as to allow unqualified shareholders to vote."—ln the cases enquired into many of the safety clauses for shareholkers in table A of the Act are negatived such as their voting-power, etc. This may be quite right in regard to private companies, but in public companies, and especially in mining companies where the business on the sharemarket could not be carried on if every intending purchaser had first to search the articles of association before he purchased, the law should be amended so as not to allow these sefety clauses to bo negatived. (12.) "Lees Ferry Company's vendors' shares being used for voting to prevent liquidation, for benefit of promoters ; and that out of twelve companies, with an aggregate capital of £IOO,OOO, floated by Messrs Cook and Gray, eleven must go in o liquidation but for the action taken by the holders of vendors' shares." —The minute book of the Lees Ferry Company shows that on the 26th March, 1901, the vendors' shares were used for voting to prevent liquidation. At this date this company should have gone into liquidation. Tho company was not, and had not been, carrying on the business of mining, and it was not in a financial position to do so, and the only reason for keeping the company in existence would b 9 either for sharemarket purposes or for the benefit of the salaried officers. In this case tho Dunedin Stock Exchange struck the company off its quotation list. The articles of association having negatived the safety clauses in table A, the voting power of the smaller shareholders was reset out in the review of charge (1). That there is no evidence to show that the vendors' shares wero used to prevent other companies from going into liquidation.

(13.) "That minute books show that directions were given to the secietary to invoke the law against bina fide shareholders when promoters and others were owing large sums." —A large number of shareholders were sued in the Magistrate's Court at Dunedin on the 19th April last, while Mr and Mrs Cook, who then owed very large sums to the companies, were not sued at all. The shareholders who were most in arrears in the companies were Mr and Mrs Cook, who, Mr Cook says, were never sued at all. The law should ba more clearly defined, so as to ensure that all shareholders shall be treated alike.

(14) "The Ngahere Company's brokers taking commission on shares on which eo cash has been paid."—Cook and Gray were ordered to refund this money by the auditor. The principle of charging improper iteui3 and the company paying ihem, and these having to bo refunded by order oi the auditor; is not right, and when it happened once Mr Cook and his servants should have seen that it did not happen again, otherwiee it would subject them to grave suspicion. This happened more than once. Notwithstanding Mr Cook blaming Mr Hoist cad in the matter, the minute books of tho company show that he himself is to blame, as ha a 3 director at directors' meeting passed his brokerage accounts as correct and signed the same, and in some cases ordered payment; in others, he had collected application money on the shares sold, and he simply retained the brokerage, paying the balance over to tho company. This trouble is to be attributed to Mr Coo't being promoter, broker, director, and secretary all in one, (15) "Shareholders voting and directors acting when their calls were unpaid."— Mr Cook elicted from Mr Somervillo that he (Mr Somerville) had voted and also acted as director while his application money was unpaid, and he had received directors' fees, and the accounts of his firm had also been paid, while he still owed money for calls. What happened in Mr Somerville's case happened in a much worse form in regard to Mr Cook, which will be seen by looking at tho comparative table of Mr Cook's dealings with tho Eeven companies whose books your committee have, for in all of these companies he had not oven paid his allotment money till it was about nine months, on tho average, overdue, and yet during this time he had acted as director, attended meetings and voted, and even passed some of his own brokerage accounts for payment, as well as his secretary's salary. He had actually passed large sums for payment to himself, and had received them while ho himself was still owing to the company large sums of money. The law certainly requires amending in the direction of depriving a shareholder of the right to vote or act as director until he has paid his allotment money.

(16.) "Improper auditing."—Tho committee desire to point out that in some cases brokerage was charged by Messrs Cook and Gray on application money when such application money was never paid; tho matter escaped tho attention of the auditors.

To each and all of the above charges Mr Cook's chief answer was to point out to the committee the very large number of contributing shares he had taken up in each of these companies for himself and Mrs Cook. That he must have taken them up purely as a mining venture, and not for speculative purposes only, ho said was proved by the fact that he did not sell his shares, and that he stood to lose double the amount the others did if the companies failed. This position wa3 often during

the enquiry impressed upon us by Mr Cook, and it would have been a very strong argument indeed of Mr Cook's bona fides if it was fully borne out, but it does not stand close criticism, for Mr Cook has paid for his and Mrs Cook's shares in tho seven companies whoso books were piit in evidence the sum of £2,140, but Messrs Cook and Gray received £l,B-1113s 9d back from the companies. (17) Excepting the Ross Day Dawn and tfo Town No 2, the companies are practically in liquidation, and practically no calls will be required. (18) Besides this, Cook and Gray had the use of moneys obtained from charges to these companies, for Mr Cook did not always pay his application money when due, and lie did not pay his allotment money till about nine months after it was due, and in the meantime Cook and Gray drew large lees from the companies, as follows: Before paying allotment or calls Mr Cook paid into the Ross Day Dawn £7O, and Cook and Gray drew out £247 10s ; paid into the Wicklow £SO, and drtw oub £239 15s; paid into Lees Ferry £SO, and drew out £232 15s ; paid into Ngahere £SO, and drew out £216 lis 9d; paid into No Town No 2, £SO, and draw oui £232; paid into Tucker's F/'at £65, and drew out £227 53; paid into Golden Grey £56, and drew cut £220 153. Total paid in, £385 ; and drawn out £1623 18s 9d. (19.) Messrs Cook and Gray had to pay for the services of the secretary and certain sums for other brokers, which are not included in the above. (20.) Mr Cook did not stand to lose much if these companies failed, but he had the chance of winning much if they were a success ; and in the latter cise ho was by the flotations to receive fully paidup shares worth £6390, while he would be responsible for contributing sharos worth £7500. (21) The committee recommends that the law be altered on the lines above indicated, and that the law be so amended that all mining companies should be registered under the Mining Companies (22) The question of titles having been extensively dealt with in the evidence, the committee finds that in the case of companies in which the vendors' shares have been allotted the titles are held by the company, but in other companie3 the titles are held by the vendor-, though the company's money has been spent on them.