H.— 30

36

We think it proper to point out that the prospectus was obtained by your Commissioners after the addresses of counsel had closed, and consequently we have not had the assistance of the views of counsel to help in the interpretation of the documents or in applying the information jshown in the prospectus to the facts and circumstances of this inquiry. The copy of the prospectus was, however, obtained from a perfectly reliable source, and we have no doubt that the copy which is attached (see Appendix N) is an authentic document, and one which was sent out by the G-isborne Sheep-farmers' Frozen Meat and Mercantile Company (Limited) or their agents, in a letter dated 24th June, 1921, addressed to sharebrokers as " Circular letter to sharebrokers." We have seen a copy of this letter under the signature of C. A. Delatour, Esq., the then chairman of directors. The test of time must be applied in reference to considering whether or not the public was likely, in 1923, to have subscribed £200,000 on debentures secured over the Waipaoa Freezing-works, because the public in 1921 had found £300,000 on first mortgage debentures over three freezing-works—viz., Kaiti, Tokomaru Bay, and Hicks Bay works. In the year 1921 the general public could not have been so well aware as they were in the year 1923 that the meat-freezing industry in New Zealand was oversupplied with freezing-works. It is also to be noted that|Mr. Thompson, at page 1608, was asked— Will you give me your opinion—knowing the district as you did —of the feasibleness at that time or raising £200,000 on debentures for this concern ?—lt was impossible at that time. Seeing that the shipping venture had entailed an additional heavy financial burden on a company carelessly, recklessly, or imprudently managed, as the evidence disclosed, and seeing further that departure had been made in many ways from the ordinary rules of reasonable business practice, and in view of the company's finances as disclosed by the evidence, we think that there was no reasonable chance of the company raising from any source sufficient money to enable it to pay off its debts, and that it could not have been expected to re-establish itself in a condition of financial stability had the bank not exercised its right of sale of the company's premises. We are of opinion that this company could not have been expected to reestablish itself in a position of financial stability had the bank not exercised its right of sale of the company's premises, and this whether it had been allowed to continue under its own directors, or even if the bank had gone into possession under its security and employed the services of a thoroughly competent and experienced supervisor and controller. The second part of that question is, Whether the bank could have reasonably been expected to allow the company's indebtedness to it to be further increased. In our opinion, in 1923 there was no fair or reasonable margin of security. It is true that during some preceding months the bank overdraft had been reduced from about £350,000-odd to about £303,000-odd, but this had been at the expense of capital which formed part of the bank's security for its overdraft. Mr. Lysnar stressed the fact of this reduction of the overdraft, but the fact cannot be overlooked that while the debt to the bank had been decreased the assets over which the bank held security were depleted to a like amount. One of the main things which has to be considered is, What security did the bank hold in respect of the overdraft % It is quite clear from the evidence that although the guarantors were —on paper —worth in some cases large amounts, cash was not available in any large quantities, and that the value of all lands and stock had decreased largely at this time. We must view this position as if we were back in the year 1923, as if we were back close to the serious days of 1921-22, and close to the financial stringency and stress which we are in this year of 1925, with its more satisfactory conditions, inclined to forget. It must not be forgotten that it was after September, 1923, that the large increase in the value of the staple products of Poverty Bay took place, and that some of the farmers have not yet got back to positions of security. We are of the opinion, also, that the bank could not be expected to depend seriously upon the guarantee. Take one of the directors, whose name we prefer not to