THE COLONIAL BANK.

New Zealand Mail, Issue 16, 13 May 1871, Page 6

THE COLONIAL BANK.

[Melbourne Abgus, April 20.] Celebrated as Melbourne justly is for the sensational character of its bank meetings, that of yesterday surpassed every preceding effort. The climax has surely been reached at last, for it is really impossible to go any further in the wrong direction. Disclosures of the most damaging nature, implicating the entire administrative force of the Colonial Bank, were made, accompanied, of course, with deprecatory expressions of regret, but still with an apparent unconsciousness of the great discredit they reflected. Every objectional phase from carelessness to criminality, was depicted, not upon mere rumor, but from the authoritative statements of the chairman of the shareholders’ meeting. Mr Hugh Glass was openly charged with fraud in obtaining advances upon fictitious securities, and the entire managing staff of the Colonial Bank—directors, auditors, manager, and solicitor—were acknowledged to be unequal to the task of keeping the bank even reasonably correct. To Mr Glass they lent £200,000, and the bank’s solicitor says that up to the day of Glass’s failure, he was not aware that he (Glass)owed a penny to the institution. This seems to imply that such mortgages as were taken over Glass’s properties were not registered until the crash came. In some cases it is alleged that the so-called securities had no actual existence.

The absence of the general manager, Mr Adam Burnes, through ill health, to some extent shields him from strictures which he could not have escaped had he been at this time resident in the colony. If the director* are not themselves responsible, as Mr Cohen avers, for the correctness of statements made to the shareholders, we may perhaps be pardoned for assuming that the manager is. How, then, does it arise that the manager did not verify the securities taken against the immense advances made to the highly favored Mr Glass? If the securities were not verified, the manager was culpably careless. If the manager did test them, and knew on the 30th September last that they were deficient, then a harsher term would be applicable to the concealment of the real state of the bank’s affairs. “ The bank,” says the chairman, “ had a lien upon wool and a certain number of sheep, and when the bank came to realise upon the securities, they found that the sheep had never existed.” No severer criticism than this upon the bank’s management need be expressed. And here arises another puzzling contradiction. Mr Cohen says that this lien on mythical sheep was taken in the beginning of 1869, and that at the beginning of 1870, they knew that the wool was not on the station. The loss waß thus known to the directors more than a twelvemonth since. Was not this astounding discovery sufficient to

show them that a rigid personal investigation of Glass’s securities was demanded of them ? And yet they appear to have been satisfied with the manager’s assurances. In fact, Mr Cohen comfortably disposed of directorial responsibility. His view of the duties of a board of directors is candidly put forward. « When borrowers,” he says, “ ask for money, the directors are consulted, and after their assent to a loan has been given, the working out of the details is left to the paid officials. At the end of each half-year, when the liabilities and assets come under the purview of the auditors and the manager, the directors have no right to and do not interfere.” To whom, then, we ask, are the shareholders to look ? Or are they to fatuitously submit to this theory of general irresponsibility. On Monday last we pointed out that the declaration of dividend simultaneously with writing off 10s per share of the bank’s capital, was virtually declaring dividend out of capital. The chairman of yesterday’s meeting appears to assume the correctness of this proposition. He says: —“ It was thought that the fairest way to meet the difficulty was to pay a dividend out of the shareholders’ capital, and write off 10s per share,” &c. To avgue that the dividend came from any other source would have been absurd. And without now entering upon Mr Cohen's English precedent, we must bring him face to face with the 18th section of the Act of Incorporation of the Colonial Bank, vizNo dividend shall in any case be declared or’paid out of the subscribed capital for the time being of the said corporation, or otherwise than out of the net gains and profits of the business.” There is here no limitation of the net gain to such being the net gain of any particular half-year. What are net gains ? If there be any meaning in language, net gains are the profit realised after deducting working expenses and losses. And thus regarded there was no net gain at 31st March, and a declaration of dividend is, therefore, clearly against both the letter and spirit of the bank’s incorporating act. Quotations were read from the bank’s deed of settlement, which, even if they favored the view that dividends out of capital were technically permissible, are not conclusive ; for the acting manager and solicitor of the bank are doubtless aware that a deed of settlement is only valid where’it harmonises with the act of incorporation. Where there is a conflict, the deed is simply a dead letter. Mr Gurner was, we think, correct when he said that any shareholder could obtain an injunction from a court of equity restraining the payment of dividend.

By threatening the involvement of the bank in a further dilemma through their retirement in a body, the directors forced the adoption of their report upon the meeting. The report, which has now received the sanction of the proprietors, embodies a dividend declaration at the rate of eight per cent, payable to-day; but as the chairman has promised to take counsel’s opinion npon its legality, should that opinion be adverse, a fresh complication will ensue. That the shareholders should have permitted themselves to be coerced in this way does not say much for their moral courage. The retirement of the board, judging from the past, and from the estimate they put upon their, responsibilities as a mere council of advice, might not have been irreparable. Some of the directors have not been long in office, and their liability to criticism is proportionately less. To anything which detracts, even inferentially, from the ability and efficiency of the directors and officers of the Colonial Bank, these gentlemen can triumphantly reply that they have received a vote of thanks from the shareholders for their services ; and this is a fitting sequel to the report of yesterday’s extraordinary proceedings. We can scarcely imagine that shareholders who spoke as M essrs Gurner, O’Brien, and Zeal are said to have spoken,’ could have joined in the congratulatory vote.