“MUSHROOM COMPANY”

Sun (Auckland), Volume III, Issue 744, 17 August 1929, Page 18

“MUSHROOM COMPANY”

JUDGE’S COMMENTS ON BUSINESS riETHODS GRAVE ALLEGATIONS Declaring that the. transactions of the building firm of Cecil A. Lee, Ltd., required the fullest investigation on behalf of creditors, Mr. Justice Ostler made an order for the compulsory winding-up of the company in the Supreme Court yesterday. JNCORPORATED on February 25, 1928, with a nominal capital ot £B,OOO, the company went into voluntary liquidation in less than a year with a deficiency of about £14,000. The petition for compulsory windingup was presented by John Burns and Co., Ltd. Appearing for that firm, Mr. M. Reed outlined the three allegations on which the petition was based. First, omission to register a mortgage, as a result of • which £14,000 worth of credit was advanced to Cecil A. Lee, Ltd., the creditors acting on the assumption the assets were all free. Secondly, the liquidator, A. J. Lennox, had allegedly displayed reckless disregard for accuracy in advising socalled preferential creditors, who advanced credit after the firm was in voluntary liquidation. Also that there would be a profit on completion of the contracts in hand, whereas there was a loss of £6,009. Thirdly, the drawing of a cheque, by Lennox, which counsel asserted was surrounded by very suspicious circumstances. “TRICKS AND MALPRACTICES.” Affidavits were read by counsel, who alleged that Lennox, as liquidator, had been carrying on "tricks and malpractices.” The petition was opposed by Mr. Johnstone, on behalf of J. J. Craig, Ltd. He contended that the supervision of the liquidated company’s af-' fairs by the Court, or the appointment of an official liquidator, was entirely unnecessary. The course sought by the petitioning creditor, counsel claimed, would only result in further wasting of the estate, which had been considerably depleted by the incompetence of the creditors’ advisory committee. Mr. Richmond, representing the .Eden Construction Co., which was aligned with J. J. Craig in opposing the petition, complained of the needless atmosphere of scandal and conspiracy woven around simple facts. He described certain affidavits as deliberately scandalous and unfair and as displaying personal animus. Representing the majority of the preference creditors, Mr. Finlay described his clients’ money as having been the subject of the play. He contended that the compulsory winding-up of the company should not be ordered unless some definite advantage was to be gained. JUDGE’S COMMENTS

In ordering the winding-up of the company, his Honour commented on the fact that in the giving of a cheque for £136 to one of thif creditors, there seemed to be grave question whether that was not fraudulent preference. In addition, continued the Judge, the whole plant of Cecil A. Lee had been suddenly seized by J. J. Craig, Ltd. on January 30, under an unregistered bill of sale, and auctioned at a gross under value to a “mushroom” company, which had been incorporated two days before with a capital of £225. Cecil A. Lee, Ltd., had valued the plant at £6,000, but it had been sold for £I,BOO on March 1.

Further, the Eden Construction Co., Ltd., had given a bill of sale over the plant back to J. J. Craig, and over the leasehold, too, for £2,250. The chattels might have been sold at a fair value, His Honour said, but circumstances suggested they were not. His Honour also commented pointedly upon the haste displayed in the transaction, to the fact that the mortgage was taken for the full value, to the fact that the Eden Construction Co. was able to obtain £6OO a year for hire of the plant and the evidence that the company was formed only for the very purpose of purchasing these chattels. If J. J. Craig and the Eden Construction Co. were '■eliminated the large majority of shareholders in value desired the compulsory winding-up of the Arm. There were seemingly substantial allegations of incompetence and neglect of duty against Lennox. He did not seem to have been actuated by sole regard for the creditors’ interests, concluded the Judge.