A BANKRUPT'S TROUBLES

Otago Witness, Issue 2894, 25 August 1909, Page 37

A BANKRUPT'S TROUBLES

FAILURE TO KEEP PROPER BOOKS

L. MORRIS FOUND GUILTY.

Louis Morris, a bankrupt, was on the 17th inst. charged before ihis Honor Mr Justice Williams and a jury of 12, of whom. Mr O. R. Smith was chosen foreman, with having- failed to keep proper books of account, and sufficient to set forth his business transactions and disclose his true financial position. Mr Solomon, K.C., a»d Mr W. L. Moore appeared for accused, who pleaded "Not guilty." Mr Macassey, in opening the case for the Orown, said acousedi was indicted undear the provisions of the Bankruptcy Act, 1908, fey which a person adjudged to be a bankrupt was deemed to have committed a crime, a>nd was liajble to two years' imprieonmehf, with ox without hard labour, if he failed to keep such books of account as were usual and proper in the business carried on by him, and failed to sufficiently sat 'forth his business transactions and disclose his financial position. Accused in this case" carried on business in partnership with .vlr -Baker as wholesale- drapers, but some four or five years ago the partnership was. dissolved, ana Morris carried on the business- on bis own account. On the Ist of May; he filed his petition in bankruptcy, and was adjudicated a bankrupt, and on examination of his affairs it was found that no proper books had been kept. There wtere practically no entries in the ledger, there had been no systematic attempt lo keep cashbook3, no journal, and the whole of the books were incomplete. As to what constituted complete and proper books, he would read a statement — the law laid down by Lord Justice Lindley in a case deoided in England some years ago. Learned counsel read this, and, continuing, said that was an authenticated statement by the learned judg-e'as to what constituted proper bookkeeping. He wished also to point out that this case was not based upon fraud ; that was to say, the Crown had not to prove that- these books were not kept for any special purpose of defrauding the creditors. The act imposed on obligation that boolre should be kept. Whether these books had not been kept owing to fraud or carelessness did not matter. The law required that books must bo kepi, and if they were not an offenoc had been committed under the act.

Ernest George Lilley, accountant, said he had acted a» bookkeeper for the firm of Bakes- and Morris for five years, alf=o in that capacity since Baker had gone out of the business — in ?J1 about 10 years. He used to keep Baker and Morris's books in his spare time and ho was allowed to keep most of the books at bis own honie as he - had " other work to do in tibe^ daytime. When Morris purchaeed Baker's interest in the business aibout five years ago, Morris engaged witness at a salary of £2 pear week," efiill on " part time "—i.e., wit-ness-did other work as well. After about six 'months witness, at Morrls'6 request, gave him his whole time art a salary of £5 per woek. This agreement was made on October 7. 1905. Owing to other work being put on witness by Morris, because of the poor state of the laiAer's finances, the books became neglected— they were allowed to slid©. Witness's other/work was ordinary clerical work, including the invoicing, etc., and he had to find money to parry on the business. That included the discounting of bills and the procuring of bills-y-in fact, th© financing- of fhe business, which was extremely arduous work. Mr Maoassey: Did Morris know the state of the books ?^r-He did. Ho knew all about the neglected state' of the bocks, about their being allowed to slide. Did you ever have any conversation about it?— Yes, we both agreed that it was unfortunate that we could not keep the books ud to deite. We had discussed tha advisability of getting someone to write up the bocks, because Morris agreed that the worries I had on his account over monetary matters were such that it was almost an impossibility for me to write up his books. In the end we agreed that on account of the sfe>fc» of the business it was not advisable- to get in an outsider, owing to the financial position of the business. Stock was never taken during the time he was with Morris. He understood he took partial stock, but never complete stock. He would say that the books produced were proper books if they were properly kept. ' They did not &et forth accused's business transactions or* disclose his financial -position. Mr Solomon : Who purchased these books? W<ho jjave >ou the order to the stationer for them?— Well, .1 suppose I did. Mr Morris could purchase them if he wanted them. Did you' purchase euoh books as you required? — Yes.' You have got five cashbooks here? — Yes. Mr Solomon pointed out that in the cashbook for 1909 only one page had been used, and in that for 1907 only eight pages out of the 123 contained in the book had been used Counsel asked why new books had been bought, seeing that the old ones were almost empty and were practically unused.

Witness replied that he and Morris had often discussed the backwardness of the books, and witness said that he would tryto bring things up to date and make a fresh start. He was to write up the back business, and the empty pages in the books •were kit for that purpose. This decision to moke a fresh start was come to on many -different occasions.

Mr Solomon : By-the-bye, are you a sober man? — I think so.

Did you not tell Mi6s Waddell. the forewoman in the business, that if anyone asked for you, and you were the worse for liquor, to say nothing about itT— (No answer) Will you swear you did not &ay it?— (A pause). It is rather awkward, is it not?— l have no recollection of it.

Will you deny that you told her that?— Yes, I wall deny it. Isn't there in Mr Morris's papers balance ehaets-for the years 1903-07-05 and 1906 in your handwriting? — Yes. Showing that the business was solvent. Did you receive your salary of £5 a week regularly ?— Tea. After Mr Morris assigned his estate what happened to you. Did you have a meeting of creditors? — I did. How much did you owe? Witness objected to answer, and his Honor Jdid not consider the question relevant. Mr Solomon: Well, you had a meeting of creditors and made a composition - Yes. I offered to assign my estate, but they would not let ma

Did you owe Morris's estate any money? — There were some advances Morris made me for which he held cheques.

Are there an) entries of moneys you received ? — No.

Here are cheques for £6 6s lid, £4 19s lOd, £1 17s 6d, £3 15s, £1 fe 6d, £5 5s 9d, and £2 4s — cheques of youfs unpresenited found in the cash register. Do they not represent moneys you received from the estate? — Certainly they do

Are there any entries of these in the books? — No, because the books axe not complete.

Further cross-examined, witness said that he believed year after year that the estate was solvent. After the estate was assigned witness said it would take a long time to make up the books. He promised to bring them up to date, and tried to do so. For a considerable time the books of the firm were not kept at all. Mr Solomon: And you, an accountant, receiving £5 a week, were satisfied to let things remain in that position? — I had no option.

You could have resigned? — No, I could not, because I was so mixed up in it.

Did you not know it was a grossly improper state of affairs that books of a large business like this should not be kept at all? — It is a regrettable thing. It is more than that — it was a most disgraceful thing.— Of course, it was. And yet you consented to remain in your position? — Morris did not want me to go. You not only allowed yourself to remain in that position, but you allowed balancesheets to go out year after year, <made out by you, which presumably correctly set out Morris's position? — I did , not make out the balance sheets. Morris did. I did the writing and accused supplied the figures

And you, as an accountant, were prepared to allow balance sheets of that sort to go out' in your handwriting showing the position of affairs, when you did not know whether they were true or not. Is it not a fact that you resented Morris interfering with' the books at all? — No. Charles Hadnelcf Statham, accountant, gave evidence as to the books handed over to him by Lilly The books produced would have been the right books to keep if they had been kept properly entered up. The books had not been kept at all. They did not set forth the business position nor disclose the financial position. To Mr Solomon: It would be utterly impossible to balance the books. No accountant could make them up.

Frank H. Statham, accountant, gave corroborative evidence.

Walter Septimus Fisher. Official Assignee in Bankruptcy, said that Morris was adjudicated a bankrupt on May 1. 1909, on his own petition. Witness received from Mr Statham all the booke relating to Morris's business since Baker left the business except the invoice book. Accused told him on more" than one occasion that Mr Statham had taken charge of all his books and documents. Witness then detailed all ' the books and papers handed to him. Cross-examined : Bankrupt informed ■ him that his accountant assured him thai s his books were being properly kept. He complained principally of the financial books, •not the factory books, which were kept by accused himself. He complained of the books kept by the accountant. Mr Solomon : Is it not a fact that you did not ask Mr Lilly to give you assistance because the report from Mr Statham of him was so unsatisfactory that you thought it was no good employing him?— Witness: That is so. Alexander Johnston C. Brown, accountant, said the cash books were kept in a spasmodic and desultory way, and the ledgers and journals and all books were kept the same way. If tho books had been entered up they would have been sufficient for the business. As it wa*, they did not disclose tho position. This closed the caso fer the Crown. Mr Solomon, addressing the jury, eaid there was no necessity for him to call the accused, because his position had been placed before the court quite clearly by the statement he had made to the assignee at the time he became bankrupt. Mr Morris had been in business in Dunedin for many years, and had paid close attention to his business. He had kept, either by himself or under his immediate supervision, books of that part of his business i relating to the manufacture of goods, and they had heard from the assignee that, «=o far as these books were concerned, he had no fault whatever to fird with Mr Morris. Mr Morris some years ago bacame the sole proprietor of the business, which was growing, and carried it on in j such a way that no one could cast a stone ! over from the firm of Baker and Morris at his integrity of puri>ose. Ho took a skilled and expert accountant whom he had reason to bslieve understood his business and could be relied upon to do his work properly. In 1905 a- written agreement was entered into between these parties whereby Mr Lilly should have complete control of the clerical part of the business, and received £5 a week. Since then Mr Morris believed, and was led to believe by Lilly, that he (Lilly) was carrying on his books in a proper way, that they were being kept by him as *an accountant, and that he was being supplied yearly with a balance sheet showing how his business was being carried on. Even supposing that Mr Morris honestly believed that Mr Lilly was carrying on his duties when he was not carrying them out, he (Mr Solomon) was not going to suggest that that would absolve Mr Morris from a technical breach of the act, but in order to arrive at a true conclusion it was essential the jury should hear the version of this business as laid before it, by the bankrupt and the version put forward by the accountant, and com© to a conclusion as to which was speaking the truth. In order to find out whether Mr Mori is kept proper books' it was nece c saj - y to find out I what books he did keep, and he (Mr Solomon) thought he could show the jury that there was the gravest doubt in the world whether the jury had actually had laid before it the books Mr Morris did keep. But for Mr Lilly's e\ idence there would be no evidence whatever of what books Mr Morris did keep, and the Crown, of course, felt that unle« the iury was prepared to belie\e Mr Lilly's story that the.«o were Hie only bcoks kept, the jury was bound to acquit Morris. There was very sjood reason to believe that there were other books than these. Year after year Mr Lilly had prepared balance sheers, showinp assets and liabilities. In these the ttock-in-trade and plant were matters within the knowledge of Mr Morris, and, so far as they were concerned they were estimated. But as to debts owing to and by the firm Mr Lilly was the only one who had any know-

ledge of them, and they could only have been got at by a reference to the books, and if the books produced were the only books Mr Lilly was face to face with this position : that he supplied a statement, and had no books from which to prepare a balance sheet. The Jury would find they had before them balance sheets showing that the business was in credit £1500 or £1600. Mr Lilly had told Mr Morris and the principal creditor that it would take him about a week to make up a statement when it was impossible for anyone to make it up from these books. Mr Lilly was indebted to the firm, and yet there was not a scratch of the pen in these books to show it, and there was an obvious motive for finncealment. The jury was asked to brand this man a criminal simply because he had placed too much reliance upon another man.

His Honor, in summing up, said that even if a man entrusted his business to a skilled accountant, who let him down, he was liable under the section under which Morris was charged. The section was a stringent one, but its object was perfectly clear — viz., to compel business people to take steps to ascertain their exact, financial position, — it being well known that most bankruptcies were due to people being ignorant of their financial position. The law sought in this way to prevent the enormous losses that occurred by bankruptcies. Accused might have taken the greatest care in the world, and might be & perfectly honest man, misled by his accountant, yet if be had failed to keep proper books he was liable under the section. Of course there -were degrees of culpability, and if it were shown that a technical breach only had been committed the offender might be dealt with lightly. The jury had to satisfy themselves that accused came within the section in the way he (his Honor) had indicated. The books produced manifestly and admittedly did not sufficiently get forth the accused's business transactions or financial position. No one on earth could make out a proper statement from them. For the defence it had been urged that these were not the only books, and that it had not been proved that proper books of account had not been kept, the only evidence to that effect being that of Lilly. But when books of account were produced from the office, it was for the accused to adduce something frorri which it could reasonably be inferred that there were other books kept, such as would comply with the act. When a man went bankrupt the burden was on him to show that he had kept proper books, and he had to show it either by direct evidence or reasonable inference.

The jury retired at five minutes to 3, and returned at 25 minutes past 4 with a verdict of "Guilty."

ONE MONTH'S IMPRISONMENT.

Louis Morris, who was found guilty of failing to keep proper books or accounts, was brought before* hi 3 Honor Mr Justice Williams on the 18th instant for sentence. He gave his age as 34- years. Mr S; Solomon, K.C., who had defended him, urg«id on his behalf that he wae a young man with a young wife and family dependent on him, and they were practically penniless. This class of offence had already J>een dealt with iy hie Honor in the case of Rex v. Robertson in 1907, when Mr Hanlon, on behalf of Robertson, had applied to his Honor for probation. In that case the accused, who went into hoteikeeping after having been a schoolmaster, knew very little aibout keeping accounts, went insolvent, and was convicted for failing to keep proper books. Robertson's character had been good, and there was no suggestion of fraud, but on application being made on hie behalf for probation his Honor had said that probation might not properly be applied to such a case. Learned counsel then read 1 his Honor's remarks before sentencing Robertson, wher<?in his Honor said that if he admitted accused to probation it would have theeffect of nullifying the statute. Mr Solomon concluded by saying- that he felt there was nothing he could add on behalf of a man placed in «uch a position ac accused. Mr Macassey, who appeared for the Crown, said ho had discussed the matter with the Official Assignee (Mr Fisher). Of couree, the statements of Lilly and aceu*sd were absolutely in conflict, and the assignee thought that Morris urust have had come knowledge of the state of the books.

His Honor : I don't see how he could help having some knowledge of tha state of the books. They had had advances, and from the necessity of this financing he must have known ths state of the business. Looking at the position in which Lilly was placed, it is reasonable to suppose that at first, he did not know, but later on he could hardly help knowing. His Honor, after .a. pause, went on to pass sentence as follows: — A person who carries on a busines of the kind and extent that accused carried on is bound to keep proper books, to show the nature and extent of his transactions. He cannot get out of that obligation by delcg-ating- the performance of it to a subordinate. If he does so d«t'egat« it, it is his duty to see that his subordinate does his duty. I can quite imagine that in the first instance, looking- at the arrangement made between accused and Lilly, he, knowing that Lilly was a competent man, le-ft things to him, and really did not look into* the hooks. But later on it must have b&e-n manifest, to the accused that things were not goin^ 1 on as they should be, and that t.here were* difficulties in finance. Under such circumstances it ;s; s impossible to believe that he did not become aware that the booko were not kept as they should have been Ido not suppose — in fact, it is not suggested — that there was any intention not to keep books, in order to create a fo>, r , for the purpose of hiding any delinquencies ; but it certainly sememe to m-3 that there was a breach of duty on the part of the accused, of which neither legally nor morally can he> excuse himself by putting the whole of the blame on his subordinate, thoutr'h I have no doubt that a part of tho blame was attributable to the subordinate. The observations that I made in Robertson's rase certainly ap,ply to thp present case. The punishment is inflicted in a case of thio kind really as a warning to other persons engaged in trade that they must keep their books in order, so that in the even'; of bankruptcy it ma 3' be a«certained how that position has come about. It is a ca^e. as I said in Robertson's case, which is strictly anolopous to contempt of court or breach of a by-law. On tho othe*- hand, however, to treat a ca c o of this kind .'.s an ordinary prison offence, and put the accufvd in prison dre^s and to hard labour, would, in the absence of fiaud, be quite a wrong thins to do. I shall jou-ss a sentence

of one month's imprisonment, accused to be treated as a first class misdemeanant.