IS THE ASSIGNMENT VOID?

Taranaki Daily News, 4 December 1926, Page 23

IS THE ASSIGNMENT VOID?

UNION BANK AS DEFENDANT EMBEZZLEMENT BY EX MANAGER. EUHO OF STRATFORD SENSATION. WEST COAST TIMBER RIGHTS. The arrest of a bank manager at Stratford last year on charges of embezzling and his bankruptcy subsequent to his imprisonment were responsible for involved litigation before the Chief Justice (the Hon. C. P. Skerrett) in the Supreme Court at New Plymouth yesterday. The Deputy Official Assignee asked that a deed of arrangement between Wiliam Kerr, now undergoing sentence, and the Union Bank of Australia and others should be set aside as void under the Bankruptcy Act. After lengthy argument lasting throughout most of the day, decision was reserved. Briefly summarised, the position was that early in July, 1925, it was discovered that Kerr, then manager of the Union Bank at Stratford, had been embezzling the bank’s funds and using them to acquire valuable timber rights on the West Coast of the South Island. J. H. Robson and T. A. Sullivan had an option over these rights, and R. R. Binnie was induced by Kerr to lend £lOOO to enable a purchase to be made. Some of the bank’s money was used for the same purpose. On the discovery of the irregularities a' deed of arrangement was executed on July 9, at the instance of the bank, between the bank, Robson, Sullivan, Binnie and Kerr. Under this deed it was provided that the timber rights should be transferred to the bank, which was empowered to sell them on any terms thought fit and to apply the proceeds (1) in payment of costs incurred by the bank over the trouble; (2) in payment of moneys stolen (including other moneys than those used for the purchase of the timber rights) together with interest; (3) a payment to Binnie of £lOOO with interest at 10 per cent.; (4) in payment of £lOOO to Robson; (5) in payment of out-of-pocket expenses to Sullivan; (6) and any surplus was to be divided between Robson and Binnie. Shortly afterwards Kerr was arrested on various charges of theft and sent to prison. On August 12, 1925, he was adjudicated bankrupt, and as a result the Deputy Official Assignee now attacked the deed and asked that it be set aside as being in fraud of Kerr’s creditors.

At the hearing Mr. R. H. appeared for the Deputy Official Assignee, Mr. H. F. O’Leary, of Wellington, for the Union Bank of Australia: and Mr. A. Coleman for Robson, Sullivan and Binnie. CASE FOR THE CREDITORS. For about five years prior to July, 1925, Kerr had been manager of the Union Bank at Stratford, said Mr. Quilliam in outlining his case. It appeared that Robson, one of the parties to the action, had acquired an option over certain timber rights in the South Island, and on February 9, 1924, he sold a half interest to Sullivan. Neither Robson nor Sullivan could finance the matter, however, so in the April or May following they interviewed Kerr in his capacity as bank manager with a view to arranging for an advance. After a time Kerr informed them he had arranged finance, but not through the bank. On July, 1924, Binnie lent Kerr £lOOO. Ho had previously refused to purchase an interest in the timber rights. On November 20, 1924, the rights were transferred to Sullivan for a consideration of £6OOO, and he held these rights on behalf of the others. Sullivan’s position did not seem quite clear, Kerr in his affidavit stated that after payment of expenses Sullivan was to share all profits equally with Kerr. Sullivan in his affidavit said it was agreed that he should have a one-sixth share in the profits. So there was some difference of opinion between Kerr and Sullivan over the matter. In the deed of arrangement between Kerr, Robson, Sullivan and Binnie, it was not set out that he was entitled to one-sixth, but that he was to get out altogether, except in regard to moneys expended by him. In liis affidavit Hannah, the bank inspector who investigated the affair, said he had ascertained that Sullivan had a claim for his expenses incurred when investigating and reporting on the timber rights. Robson’s position was quite clear, proceeded counsel. He it was who originally acquired the option. His rights were clearly defined by a deed between Sullivan and Robson executed on November 20, 1924. He was to have a onesixth interest in the profits, and it was provided that moneys paid to him for expenses were to be a charge on the funds and not set against his share of the profits. Binnie’s affidavit stated that he lent Kerr £lOOO, but he went on to refer to his interest in the syndicate. Then in a further paragraph Binnie showed complete ignorance of the.rights of the parties to the syndicate, and of other things relevant to the matter.

Jin Kerr's second affidavit he said that he had read Binnie’s affidavit and he denied informing any person that Binnie held any interest in the syndicate. He had suggested previously that Binnie should purchase an interest, but he had definitely refused to do so. That agreed entirely with Binns's statement, commented counsel, who said Binnie had lent £lOOO to Kerr personally. Sullivan's affidavit gave some support to Binnie’s suggestion of a partnership, because Sullivan said Kerr informed him Binnie had a one-sixth share in the timber rights. Kerr had never at any time told him who held the remaining shares. BINNIE’S PART DISCUSSED. Walsh, the detective who had"investigated Kerr’s affairs, had said Kerr told him lie approached Binnie and induced him to lend £lOOO to finance the purchase. The deed of arrangement itself said in tile recitals that Binnie had contributed £lOOO as part of the purchase price of the Kanciri Sawmill Company, and vet there was no reference to Binnie’s interest of one-sixth, Further on in the deed, however, it was provided that Binnie was to receive £lOOO. with interest at 10 per cent, calculated from the date on which he had lent the money. If Binnie had been entitled to a onesixth share it would have, been set forth in til's document, it was contended, but instead of that the money was treated as a loan to be repaid with interest. After his investigations early in July. •1925, Hannah said he had ascertained

that Binnie had lent Kerr £lOOO, so it was submitted that all the evidence pointed to the fact that Binnie made a loan and that he had no interest in the syndicate as a partner. It was admitted as undoubted that Kerr used the bank’s money in connection with the purchase of the timber rights. His misconduct was discovered in the early part of July, 1925, and he was subsequently arrested on various charges of theft, ineluding theft from the bank, and sentenced to imprisonment. He was adjudicated bankrupt on a creditor’s petition and at a meeting held on August 3 he was called upon to file. The total debts of proved creditors were £997 15s 2d. Assets were given as an interest in a property in Scotland and book debts estimated nt £157. The latter werq found to be not recoverable, but the former was realised for £lO9 as Bd. Actually, therefore, this was the only asset available to the creditors. The timber rights were transferred to the bank by the deed on July 9, 1925, and it was shown in an affidavit by Leitch, chief inspector for the bank, that they were sold by tire bank on September 12, 1925, for £10,900. It was understood that £6OOO of the purchase price had been paid up to the present and that the balance was payable in periodical instalments. The deed of transfer to the bank was attacked on three grounds. They were: (1) That this was a fraudulent transfer to the bank of substantially the whole of Kerr’s property, and was therefore an act contrary to section 26b of the Bankruptcy Act, which held as a breach the fraudulent transfer of property or part of any property; (2) that there was fraudulent preference; (3) that the deed was void as being against the provisions of 13 Elizabeth, chapter 5. Mr. Quilliam said he could produce no evidence of fraudulent preference. He thought perhaps Kerr was governed more by a sense of fear than of fraud in making over the property. He relied mainly, therefore, on the first ground, and would rest his ease on it.

POSITION OF THE OTHERS. . His Honour: You are representing Kerr’s interest, and Kerr’s alone. Mr. Quilliam: But it is necessary to determine the positions of the other parties before I can go on. His Honour agreed. After further discussion he observed that it appeared that Robson was entitled to a sixth share and there remained five-sixths. Mr. Quilliam said Sullivan’s affidavit claimed a sixth share, though this was not clear. Mr. O'Leary: The deed of arrangement does not bear out Sullivan’s contention. In it he abandons this claim and is content with out-of-pocket expenses, That four-fifths of the rights, at least, belonged' to Kerr, was suggested by Mr. Quilliam. Kerr had acquired this proportion partly with the money stolen from the bank and partly with the money borrowed from Binnie. That was shown on the evidence; the rise of no other money was mentioneel or suggested. He admitted the bank’s right to trace the money stolen from it to acquire timber rights for Kerr, but admitted the bank had a charge against Kerr’s interest in the property for the amount of money that it eould show was stolen and used in the purchase. Hannah’s affidavit said that £6.300 of the bank’s money had been paid of the total estimated expenditure of £BOOO in the acquisition of the timber rights. This was made up of £6OOO for the purchase and £2OOO for stamp duties, travelling expenses, etc. Under the deed, contend, ed Mr. Quilliam, the bank had obtained much more than it was legitimately entitled to as a charge for the moneys stolen. The bank’s money involved was £6323 9s Bd. On the assumption that the expense of purchase was £BOOO, Robson and Sullivan were each entitled to one-sixth of £2OOO, the difference between £BOOO and £lO,OOO, and Kerr to £1332 13s 4d, plus £lOOO in regard to Binnie’s loan. Binnie had no interest because his interest in the money had pa ssed. His Honour: That is most unfortunate for him. Still, we have to administer the law. We are not a court of morals. Summarising his points, Mr. Quilliam said the first objection to the deed was that the bank took a transfer of the whole property, whereas it was entitled to a charge only. The second point was that it had obtained payment of defalcations other than those that went into the property. The third was that the deed provided that the bank was to lie paid interest due to it on the moneys stolen by Kerr. Robson was entitled to a sixth share, but he must fall in regard to obtaining a share of Kerr’s part. It was submitted that the whole deed fell and the parties were as they were: the bank was entitled to its charge and the others to their interests. A transaction of this kind might be attacked on the principle that a few people got together under “a scheme of arrangement’' in order to benefit themselves to the exclusion of other creditors.

BANK’S INTEREST DEFENDED. In opening the ease for the Union Bank, Mr. O’Leary said he felt Mr. Quilliam had departed somewhat from the motion to set aside the document as void. He had given no grounds for voiding, or to establish fraudulent preference. So that left the allegation of fraudulent transferrence under section 26b of the Act.' The first question to he considered, proceeded counsel, was whether Kerr had any interest in the timber rights in 1925. when the deed was signed and a subsidiary question was the extent of the interest, if any. There was nothing to attack under the Act. If he did have interests in the rights were they calculated on an expenditure of £6OOO, or on the £lOOO borrowed from Binnie? There was no question—sand it was not disputed by the other side—that £6OOO was misappropriated, £lOOO of it being in the form of a loan from Binnie. Kerr created a fictitious account in the name of Bell, and paid in Binnie’s £lOOO, and out of the same account sent £6OOO to the West Coast. It was apparent. therefore, that £5OOO was obtained from the bank. Subsequent amounts wore stolen by Kerr and used in the development of the rights. It was contended that outside creditors had no merit because none of Kerr’s own money went into the purchase. The £5OOO obtained from the bank acquired for Kerr 25-36 of the interests in the rights. Robson received one-sixth, equal to 6-36, and the £lO9O lent by Binnie acquired the other 5-36. This was on the assumption that the Binnie transaction was alone. It was submitted that the 25-36 purchased with the bank’s money belonged to the bank. It was its own and its position on this aspect wa ; unassailable. The bank was entitled to more than a charge, for Kerr had stolen the money and the bank should take the asset. His Honour pointed out that nil the bank had a right to do was to follow its moms

Mr. O'Leary submitted that if His Honour decided that the bank was entitled to a charge then the amount of the charge was not a matter for the present court, but for determination by subsequent inquiry. The only interest the D.O.A. could have in the deed was the 5-36 whiqh was purchased with the £lOOO from Binnie. Mr. Coleman argued that the Binnie transaction was not alone, but acquired for Binnie an interest in the syndicate as a partner to the extent of one.sixth share. He supported Mr. O'Leary in contending that if the deed was an act of bankruptcy it was done in good faith and was therefore protected by section 82 of the Act.