will appear
the 18th
at the next Criminal
Sessions of the Supreme Court to be holden no the about/ day of January,
199 30 and at every adjournment thereof and there surrender himself (if so required) into the custody of the Superintendent of the Victoria Gaol, in the said Colony, and plead to such indictment as may be filed against him by the Attorney General and take his trial upon the same, and not depart the said Court without leave, then the said recognizance to be void, or else to stand in full force and virtue.
SUPREME COURT. HONG KONG,
...........day of...................................192
We the undersigned do hereby agree to the extension of the within-written recognisance to
..the....day pi....................192 at.......
Taken and acknowledged before me on the day and year and at the place first above mentioned.
Explained by
Sworn. Interpreter
Registrar.
SUPREME COURT, HONG KONG,
...day of........
We the undersigned do hereby agree to the extension of the within-written recognisance to
..the............day of...........................192 at.......
Taken and acknowledged before me on the day and year and at the place first above mentioned.
Explained by
Sworn Interpreter.
Registrar.
SUPREME COURT, HONG KONG,
...........day of...................................192
We the undersigned do hereby agree to the extension of the within-written recognisance to
...............the............day of...........................192
at........
Taken and acknowledged before me on the day and year and at the place first above mentioned'
Explained by
Sworn Interpreter.
Registrar.
Inspector G. Kottran
in charge.
CRIMINAL SESSIONS,
31st December,
Noel Instone Brewer
WITNESSES.
C.D.Melbourne
G.B.Labrum
0. Ezra.
S.H. Ross
Leo Ping Chuen
Li Kung Shan
E.L. Agassiz
Scrip No. 38
Register, folio 14
THE IN STONE BANKING CORPORATION, LIMITED
Incorporated under the Hong Kong Companies Ordinances 1911-1926
CAPITAL:- $10,000,000
Ordinary Shares
$4,999,500 Divided into 49,995 shares of $100 each.
THIS IS TO CERTIFY that SIU VONG TAK
of 351, Des Voeux Road West, Hong Kong is the registered holder
of 100 Ordinary Shares, Numbered 11071 to 11170 both inclusive,
in THE INSTONE BANKING CORPORATION, LIMITED, subject to the
Kemorandum and Articles of Association thereof, and that the sum of
$10 has been paid up upon each of the said Shares, and that a further sum
of (#Nil ) Dollars has been paid upon the said Shares as an advance
against future calls.
Given under the common seal of the Company this 15th day of
August, 1927.
(Sd). Instone Brewer
President.
(sd). Leo Ping Cheun
Secretary.
Note:- No transfer of the above shares, or of any portion
thereof, can be registered unless accompanied by this Certificate.
THE INSTONE BANKING CORPORATION,
LIMITED.
PROSPECTUS AND MEMORANDUM OF
ASSOCIATION
Filed the 18th day of March, 1927
REGISTRAR OF COMPANIES
HONGKONG
Filed this 18th day of March, 1927.
(Sd). Hugh A. Nisbet.
Registrar of Companies.
Copy of this prospectus has been filed with the Registrar
of Companies as required by Section 82 of Companies Ordinance,
The following have consented to be directors:
Instone Brewer, Barrister-at-Law,Bank of Canton Building
Yeung Tat Po
Yau Farin Yip Wing Fong
Chúng Tat Châu
Merchant
Liu Yau Po
Li Shiu Hong
Li Ting Sang
Chas. W. Mok
711 Shanghai Street
31 Bonham Road
26 Lun Kwai Fong
361 Nathan Road
121 Caine Road
64 Bonham Strand
481 Nathan Road
Liu Hing
30 Des Voeux Road, Central 361 Nathan Road,
Auditors will be appointed at the first general meeting of the Company.
Objects of the Company are stated in the copy of Memorandum of Association set out in this prospectus and which forms part of it.
Capital:- Articles 4 & 5 of the Articles of Association are as follows:
4. The capital of the Company is $10,000,000 Hongkong currency divided into 50,000 cumulative preference shares of $100 each and 49,995 ordinary shares of $100 each and 500 founders shares of $1.00 each.
The rights following shall be attached to the shares aforesaid inter se subject as hereinafter provided, that is to say:-
(a) The said preference shares shall confer the right to a fixed cumulative preferential dividend at the rate of 8% per ammum on the capital paid up thereon.
(b) Subject only to the right of the said
preference shares to prior payment of the said cumulative dividend, the founders shares shall be entitled to 15% of all dividends whatsoever that may from time to time be declared and this sum shall be divided among the holders of the founders shares in proportion to the founders shares held by them respectively.
(c) Subject as aforesaid the ordinary shares shall confer on the holders the right to a fixed cumulative dividend at the rate of 8% Der amnum on the capital for the time being paid up thereon.
(d) Subject as aforesaid the preference shares shall be entitled to participate pari passu with the ordinary shares to the extent of an additional 4% per armum on the capital paid up thereon which additional dividend shall not be cumulative.
THE INSTONE BANKING CORPORATION, LTD.
Incorporated in Hong Kong on 22nd February, 1927, under Companies Ordinances, 1911-1926.
FIRST ANNUAL REPORT
OF THE DIRECTORS AND
BALANCE SHEET
HEAD OFFICE:
NO. 25, DES VOEUX ROAD, CENTRAL
HONG KONG.
30TH APRIL, 1928.
Ye Olde Printeris, Ltd.
INSTONE BANKING CORPORATION, LIMITED
INSTONE BANKING CORPORATION, LIMITED
REPORT OF THE DIRECTORS
for the year endig 30th April, for presentation to the Shareholders at the Second Ordinary Annual General Meeting to be held at the Head Office, No. 25, Des Voeux Road, Central, Hong Kong
on Monday, the 18th June, 1928 at 12 Noon.
NOTICE is hereby given that the second Ordinary Annual General Meeting
of Shareholders of the Company will be held at the Head Office, No. 25,
Des Voeux Road, Central, Hong Kong on Monday, the 18th June at 12
o'clock noon for the purpose of receiving the Report of the Directors together
with a Statement of Accounts for the rericd ending 30th April, 1928.
By Order of the Board,
Hong Kong, 9th June, 1928.
LEO PING CHUEN,
Secretary.
The Directors have now to submit to the Shareholders a statement of Profit and Loss Account and Balance Sheet for the year ending 30th April, 1924.
The profit for that period after paying all charges, amounts to $95,875.75, for appropriation, which it is proposed to deal with as follows:-
To write off Depreciation.......
TO BONUSES & Reserve FOR FOUNDERS,:-
Reserve for Founders (including Staff Bonus)
being 15% of Dividend.... Bonus to President, being 4% of Dividend... Bonus to Secretary, being 1% of Dividend...
TO DIVIDENDS & INTEREST:-
Dividend 12,340 Ordinary Shares
($10 per share paid up) 10%..... Dividend 011 2,400 Ordinary Shares ($10 per share paid up) bearing dividend as per Resolution of Directors 24/3/28... Interest on Uncalled Capital paid in
advance at 8% per annum... Interest on allotments in advance at 8%
per annum...........
Balance carried forward.......
$ 16,417.00
$ 1,878.61
500.96 125.24
2,504,81
12,340,00
54,099.06
375.17 66,998.33
9,955.61
$ 95,875.75
Our Shekki Branch was opened on March 23rd, and our Canton Branch is scheduled to open on June 23rd, of this year.
In accordance with the Articles of Association, Messrs. Lee Simpson, Yip Wing Fong, Li Shin Hong, Chas. W. Mok, Jan See Chin (deceased) Chow Kwan Ming, Har Mon Chiu, Kwan Hoi Tin, Liu Hing, and Liu Yau Po retire from the Board.
The accounts have been audited by Mr. Li Tung, who was our Auditor for the past year, and he now retires, but offers himself for re-election.
By order of the Board,
INSTONE BREWER,
Hong Kong, 9th June, 1928.
President.
香港華美僑業銀行有
限公司首届年結册
INSTONE BANKING CORPORA
BALANCE SHEET FOR PERIOD
負債 LIABILITIES
Authorized Capital...
..$10,000,000.00
TION, LTD., HONGKONG.
TION,LTD.,
ENDING 30th APRIL,1928.
資產 ASSETS
Cash in Hand and at Branches Accounts Receivable
已認實收 各戶存款
Issued and Subscribed...
$2,613,260.00 X
164,082.89 221,360.87
Customers Deposits
466,400.25
·按揭来往透支及一切 未收長短期欠項
LOANS, MORTGAGES & INVESTMENTS:-
Overdrafts
.$ 21,524.87
Accounts Payable
209,208.15
PN's and Bills of
發出銀幣 (四月份) 未派股息及花紅
Bank Notes issued (April, 1928)
64,977.10
Exchange
59,580.95
Unpaid Dividends (including Interest
Outstanding and Staff Bonus
19,506.73
Collateral Security Loans
(Short Tern and at Call) 349,630,00
撥入下年餘盈積項
Surplus...
9,955.61
總數 TOTAL
.$3,383,307.84
Mortgage and Long
Term Loans...
266,630.00
Stocks, Shares, and other
Investments...
484,831.80
1,182,197.62
Capital Uncalled ...
1,420,950.00 x
總行及各支行怎辦費
本行產業及傢私裝修
Organization Expenses (Head Office and
Branches
Bank Premises at Hong Kong and Shekki
Less $16,417.00 written off for Depreciation...
總數 TOTAL
41,483.57
353,232.89
...$ 3,383,307.84
盈虧數 PROFIT AND
LOSS ACCOUNT.
進數 CC'r.
薪金息項及其他一切 To Interest, Salaries and General Expenses .$ 31,387.20
Net Profit
進租項利息滙兌信托
By Rent, Interest, Exchange and Trust
95,875.75
$127,262,95
.$127,262.95
$127,262.95
Report of the Auditor to the Shareholders.
I have audited the above Balance Sheet with the Books in
Hong Kong and the returns from the Branches, I have obtained all the information and explanations I have required. In my opinion such Balance Sheet is properly drawn up so as to exhibit a true and correct view of the state of the Company's affairs according to the best of my information and the explanations given to me and as shown by the Books of the Company.
LI TUNG, Auditor.
一九二八年六月六日
Hong Kong, 6th June, 1928.
指行保訛件及上 定實正所經分列 之任式查弟行不 核情列此核報數 數形明結算告目 李員也足詢清所查 以稱楚存香 港表安較部港 政明合對據總 府該且無等行
(SA) INSTONE BREWER,
(St.) LEUNG TAT HANG,
President.
(Sd.) P. C. LEO,
YEING TAT PO,
LEE YIK TIN,
) LIU HING,
Directors.
Secretary.
LI TING SANG,
(Sd.) HO WAH TONG,
Consultative Committee.
踎 華美僑業銀行 A鼷 第弐届股東尋常會通告
銀行訂於一九二八年六 年六月十
五月初一日禮拜一日正午十二点 鐘
東告銀日行 諸行禮 君省總拜 居覽寫
時惠臨指示 一切
一九二八年六月九日
香港華美僑業銀行有限公司董事局佈告書
承董事局命司理廖炳泉啟
列位股東先牛均鑒敬啟者本銀行第二届年會訂於一九二八年六月十八 號即戊辰年 五月初一日正午十二点鐘即禮拜一日在香港德輔道中二十五號總寫字樓 舉 行股東 尋常年會將一九二七年五月至本年四月底止全年數目總結册公佈
台覽計不及一年除一切費用外共獲溢利銀九萬伍仟八佰七拾伍元七毫伍仙 現 議將 此項溢利分配如下
一 拆低傢私裝修數
支本息紅利四共銀
支總行員花紅共銀
壹萬六千四百一拾七元
陸萬六千九百九拾八元三毫三仙
弍仟五百零四元八毫一仙
九仟九百五拾五元六毫一仙
本銀行開始營業爲時不過一年而成績之佳獲利之厚頗抱樂觀差爲我
股東告慰將來生意必日臻佳境前途發展定未可限量尙希
股東先生時錫 南針以匡不逮俾全體總支各行員得以遵循知所垛擇收集思廣益功合作之效本 董事局有厚望焉
附帶聲明 本銀行石岐支行經於本年三月廿三號開始營業生意成績佳又廣州支 行已定於本月廿三號開張茲遵照註册章程每届董事須有十份之三爲告退 但照章程 仍可復選爲下届董事 計開 李轉英 葉榮芳 莫兆池 夏夢樵 廚友保 鄭泗全(已故)周鈞銘李少康闢海天興 等君拾位 本行數目經已由港政府指定之核數員李桐君核安茲他亦遵章告退但本年仍可復任 一千九百二拾八年 六月九號
«=«=X=«=\=X=\=:=
=x=x=x=X=
拾中港行 伍門德設
HEAD OFFICE
25 DESVOEUX ROAD
HONGKONG
司公限有行業僑美華
INSTONE BANKING CORPORATION LIMITED.
Incorporated under the laws of the Colony of Hongkong Victoria, Hongkong.
ACCUMULATIVE
This is to Certify that in consideration of the payment
dollars annually in advance to it at its Office at during the period of years from the date hereof, the
Instone Banking Corporation, Limited
hereby promises
the record
hereof, at the expiration of the said period, upon presentation and surrender of this Bond to the Company at its Office
Hongkong the sum
) Dollars. This Bond is subject to the privileges, terms, and conditions stated in the English language on the following pages hereof, which horoby referred to and made a part hereof.
In Witness Whereof the Instone Banking Corporation, Limited, has
caused this Bond to be executed in its corporate
hereto affixed at
name and its corporate seal to be day of
Instane Banking Corporation, Limited
President.
Secastany.
1. SECURITY HELD IN TRUST: For the security of this Boad aud of all other Bonds of this Series, the Instone Banking Corporation, Limited, agrees to deposit with a Trustee for the benefit of the holders thereof, any of the following securities: bonds or interest bearing obligations of the United States Government or of the British Government or of any Colony thereof, first mortgages on improved real or leasehold estates, first mortgage bonds on improved real or leasehold estates, cash, or certificates of deposit in banks, to an aggregate amount equal at all times to $110 for each $100 of the liability of the Company on all Bonds of this series outstanding less the amount of any loans made thereon.
2. REGISTRATION: This Bond is registered in the name of the purchaser as the record owner, as shown by the Trustee's certificate hereon.
3. ASSIGNMENT: This Bond shall not be the subject of involuntary transfer by legal process or on execution, it being agreed that the transfer, loan, and cash surrender privileges are personal to the record owner and are made solely and exclusively for the mutual benefit of such record owner and the Company. This Bond may be assigned by the record owner after the acceptance of notice of such assignment by the Company and of the payment of a transfer fee of $1.50, but not otherwise. Unregistered Bonds shall not be secured by the deposit with the Trustee.
4. CASH OR LOAN VALUE:
(a) Until the expiration of the second year this Bond shall have a cash value equal to the amounts paid on the second year's instalments; provided, however, in such cases this Bond must be presented for payment within two years from the date of issue.
(b) After this Bond has been in force for two years or more, the cash or loan value shall be as stated
in the following table per $2,000 of maturity value:-
(c) The Company will loan the record owner of this Bond, upon deposit of the same with the Com- pany, its full cash value as determined in the table in paragraph (b) above.
(d) The Company reserves the right to require thirty days' written notice of the exercise of the above option or of any hereinafter set forth.
(e) The liability of the Company on this Bond for the purpose of determining the aggregate amount of securities required to be deposited with the Trustee in respect thereof shall be the cash value thereof as set forth in this paragraph.
5. RETURN IN EVENT OF DEATH: Upon satisfactory proof to the Company of the death of the record owner while said Bond has not been forfaited under the terms hereof, such owner's legal represents- tives may elect to continue payment of instalments until this Bond inatures, or may surrender this Bond and accept in cash the full amount paid hereon together with intesent at the sate of four pare compounded-annually, daduating any posjed of defqult
forest-saloulation.
6. PAID-UP BOND: After this Bond has been in force for two years, the record owner may exchange the same for a fully paid-up Boad, payable at the then maturity date of this Bond, and in an amount shown on the following schedule of paid up values per $2,000 of maturity value:—
9. REPAYMENT TO PURCHASER: The Company reserves the right to call this Bond for payment at any time by paying the record owner hereof the full amount paid hereon together with six per cent. interest compounded annually for the time the Company has had the use of the money less any indebted- ness due to the Company, or by paying the full maturity value hereof at the Company's option.
10. DEFAULTS IN PAYMENTS: Should any default be made in the payments upon this Bond, the Bond may be reinstated by the resuming of payments by the record owner at any time within two years from the date of such default. In the event that this Bond has been issued and in force for more than two years and then a default in payment occurs and continues for a period of two years or more, the Company will, upon written request of the record owner, or may at its own election, issue a paid-up Bond with a maturity value equal to the then Cash or Loan value of this Bond plus interest at six per cent. compounded annually. If this Bond has been issued and in force for less than two years and default in payment occurs, then the liability of the Company hereunder shall cease and terminate and all payments shall be forfeited to the Com- pany as liquidated damages for non-performance.
Unless and until otherwise ordered by resolution of its Board of Directors it is agreed that the Com. pany shall not use in any calendar month more than fifty per cent, of the cash collected by it upon Bonds of this series during each month for the purpose of paying cash surrender values, loan values, death settlements, or cash settlements after the exercise of settlement two or three of paragraph 12. Such items are to be paid in the order of written application therefor. The above provision does not include payment at maturity, which shall be made without regard to current cash collections.
11. MATURITY DATE EXTENSION: No interest will be allowed on this Bond during any period of default or after call for payment. In case of reinstatement by the resuming of payments in the manner herein provided, the maturity date of this Bond and the due date of the remaining payments respectively will be extended forward for a period of time equal to the time each default may have continued.
The term "period of default" indicates the time that expires while instalments are due and unpaid. The term "in force" as used in this Bond indicates the period of time from date of issue less all periods of default. The term "maturity" indicates ten years from the date of issue plus all periods of default.
12. SETTLEMENTS: The record owner of this Boad at maturity may select any one of the following:
A cash payment of the face value hereof, which the Company guarantees to pay. SECOND: Parmit the cash to remain with the Company and to draw interest at the rate of six per cent. per annum payable annually, or if allowed to accumulate, to be componded annually.
Permit the cash to remain with the Company and receive payment of the face value and interest at six per cent. per annum in semi-annual, quarterly, or monthly instalments.
13. CONSTRUCTION: No person has any authority to change any of the conditions of this Bond. The Chinese wording herein is intended only for the purpose of pointing out the salient features by way of reference and is in no way to affect the conditions thereof which are to be entirely governed and construed by the English text.
7. TIME AND PLACE OF PAYMENTS: All payments, with the exception of the initial pay- ment, must be made at the office of the Company at Hongkong without exchange charge to the Company and without notice and are payable annually in advance in cash. Time is of the essence of this Agreement, and each payment must be made on the day it is due, but the owner shall have the right to make paymente sccording to the following schedule per $2,000 of maturity value:--
8. RECORD OF PAYMENTS: There shall be issued by the Company to the record owner hereof
a passbook (or passbooks) bearing the same series number as this Bond, and all payments made by the record
owner to the Company shall be entered therein under the Company's hand, and such record of payments by the owner shall be deemed to be incorporated in this Bond se a part thereof for all purposes,
{ 美圖信托公司) 担保健人 無本銀行储蓄凡舞查百元本行 縱臺百索捨无抵押品存在信托人
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利交供遇如行款上本遏行腩蓄人名蓄,
四提票將年鰮支中數行年合素不」
,可兩願提人列银一方將票或以票
或期 ,供棄瓣借後 手堂巧
二列將本人可及承其人 千銀所銀或其辦
| 此禺票須要信托人證明驚歎人
储款人或因債項數目轉暢控告時
in the presence of
Certificate of Registration of Debentures
OFFICE OF THE REGISTRAR OF COMPANIES, COURTS OF JUSTICE, HONOKONG.
I hereby certify that a Deed dated the 25th March, 1927, providing for the creation of a series of "Bonds or Certificates of Indebtedness," by Instone Banking Corporation, Limited, to an amount not exceeding $100,000,000 was this day registered pursuant to section 95 of the Hongkong Companies Ordinance, 1911.
Given under my hand and seal of Office at Hongkong, this Twenty-eighth day of March, 1927,
Hugh G. Nisbet.
Registrar of Companies.
Certificate of Registration
The undersigned Trustee does hereby certify that this Bond is registered as one of a series, in respect of which the Instone Banking Corporation, Limited, has agreed to deposit securities in accordance with the security clause stated within and pursuant to a Trust Agreement between the Instone Banking Corporation,
Limited, and the Trustee.
SERIES A
INSIONE BANKING CORPORATION
LIMITED.
HONGKONG
AMERICAN TRUST COMPANY.
Trust Officer.
ACCUMULATIVE
of......
Assignment
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and delivers to....
.........the Bond printed on the reverse side hereof and all of his, her, or its rights therein but subject to all of the payments due, or to become due, thereon as well as the terms, conditions and agreements in said Bond set out, which the said assignee by the acceptance of this assignment agrees to make, keep, and perform.
Dated this.....
..day of
in the presence of
Assignor. The above assignment is hereby accepted, receipt of delivery of the Bond acknowledged and all payments due or to become due, as well as the terms, conditions and agreements of said Bond assumed, all on the day and year hereinabove written.
Transfer Accepted
INSTONE BANKING CORPORATION, LTD.
Secretary.
Assigner.
Transfer Registered
AMERICAN TRUST COMPANY.
Trust Officer.
(e) Subject as aforesaid any profits which it may at any time determine to distribute amongst the members shall be divided between the holders of the ordinary shares in proportion to the ordinary shares held by them respectively.
5. Subject as aforesaid the shares shall be under the control of the Directors, who may allot or otherwise dispose of the same to such persons, on such terms and conditions, and at such times as the Directors think fit.
Article 70 of the Articles of Association is as follows:
70. In the event of the winding up the preference shares shall have priority as to return of capital over all other shares in the capital for the time being of the Company; but
any surplus assets, after repayment of capital shall be divided as to 80% between the holders of the ordinary shares in proportion to the ordinary shares held by them respectively and as to 20% among the holders of founders shares in proportion to the founders shares held by them respectively.
It is intended that the Directors shall by resolution at Board Meeting and by virtue of Article 5 allot the founders shares to such persons including themselves - for
such purposes and to such extent as they in their entire discretion declare therein; but without prejudice to the Directors' absolute power of allotment, it is nevertheless the intention of the Directors that they shall allot to a trustee or trustees a certain number of founders shares for the purpose of producing a fund for the benefit of employees
of the Company whether by way of bonus, medical aid, or pension, or otherwise as the Directors may determine.
Voting:- Article 38 of the Articles of Association is as follows:-
38. On a show of hands every member present in person shall have one vote. On a poll every member shall have one
vote for each ordinary share and ten votes for each founders
share of which he is the holder.
Remuneration and Qualification of Directors;- 47 of the Articles of Association is as follows:-
47. The remuneration of the Directors shall be at the rate of $350 per ammum for each Permanent Director: and at the rate of $250 per annum for each Ordinary Director, together with such further sum (if any) as may be voted to them by the Company in General Meeting.
Articles 43 & 44 of the Articles of Association state there in:-
43. The qualification for a Permanent Director shall be the holding in his own right alone and not jointly with any
other person of two hundred (200) ordinary shares in the Company.
44. The qualification for an ordinary Director shall be the holding in his own right alone and not jointly with any other person of one hundred (100) ordinary shares in the Company.
Allotment:-
Article 6 of the Article of
Association is as follows:
6. If the Company shall offer any of its shares to the public for subscription:
(a) The Directors shall not make any allotment thereof unless and until a minimum of one thousand nominal value of the shares so offered shall have been subscribed, and the sum payable on application shall have
been paid to and received by the Company; but this provision is no longer to apply after the first allotment
of shares offered to the public for subscription has been made.
(b) The amount payable on application on each share so offered shall not be legs than 5% of the nominal amount of the share.
Contract må Vendors:- It is proposed to allot the preference shares to such extent as is deemed expedient in consideration of mortgage on improved real or leasehold
estates that the Company may de en it desirable to acquire. No agreements has as yet been entered into in this connection. The Company has entered into an agreement with Noel Instone Brewer of Bank of Canton Building, specified in Clause 3,h of the Memorandum and dated 1st March, 1927, the consideration for which includes a sum expressed to be "$1.95 in respect of each and every G$1000 maturity value of the entire amount of the securities the sale of which is expressed to be guaranteed by the auxiliary contracts of the 9th February and 16th February and 0.50 in respect of each and every 1000 maturity value of the entire amount of the securities the sale of which is expressed to be guaranteed by the auxiliary contract of the 30th November," which sum is approximately sixty-six thousand dollars. It is further intended to purchase suitable premises and to enter into a contract for such either before or after allotment as the Directors may deem desirable. No such agreement has yet been entered into. All relevent contracts whatsoever that may now or subsequently be executed by or on behalf of the Company are (or will be immediately upon execution) available for inspection at the office of the American Bond Corporation, Bank of Canton Building, for the time being, and thereafter at the registered office of the Company, within the customary office hours.
Preliminary Expenses:- It is intended that the sum of $3500 together with the right to subscribe for and be allotted twelve founders shares be granted to the promoters in consideration of their bearing all expenses, and causing all necessary things to be done, up to the
commencement of business by the Company. Preliminary expenses are therefore estimated at $3500.
Commission: No amount has been paid heretofore as commission for subscribing or agreeing to subscribe of procuring or agreeing to procure subscriptions for any shares in or debentures of the Company; and no agreement has been made whereby any such commission is payable; but without detriment to the general powers vested in the Directors by the Articles of Association, it is agreed that the Directors may agree to pay commissions in respect
to this issue to an amount not exceeding twelve and a half per cent of the receipts thereunder.
Director's Interest:- No director has any interest in the promotion of the Company and (save in respect to the
contract referred to in 3,h of the Memorandum of Association and detailed elsewhere herein) no director has any interest in any property that is at present intended to be acquired by the Company. But Article 49 of the Articles of Association is as follows:
49. A Director may contract with and be interested in any contract made with the Company, and shall not be liable to account for any profit made by him by reason of
any such contract, provided that the precise nature of the interest of the Director in such contract be declared to the Board before or at the time when the same is entered into; but, except as regards the agreement mentioned in Article 3 hereof, no Director shall vote in respect of any contract or arrangement in which he shall be interested, and the Company reserves the right to enter into any such
contract accordingly.
No sums have been or will be paid to any Director either in cash or shares - by any person either to induce
him to become or to qualify him as a Director or for services by him in connection with the promotion or
formation of the Company.
Instone Brewer
Young Tat Po Yau Farin Yip Wing Fong Chung Tat Chia Liu Yau Po Li Shin Hong Li Ting Sang Chas.W.MOK Li Shun
Liu Hing
Leo Ping Chuen Authorised Agent for all sugnatures.
Signed by Leo Ping Chuen by virtue of a written
authorization filed with the Registrar on the 22nd February, 1927.
4 Ning Po St. Kowloon
31st May, 1927.
Coy.W.Up 1/29 N.I.B.23
Dear Mr Brewer,
As you suggested we held a directors meeting
with your absent.
The directors thank you for your generous offer and
have resolved to accept Mr.Lee's plan.
Mr Lee will sell 55000 shares to his Peking friends
who will fully pay up them, and his priend Mr.Kwan will
now sign application for these shares as guarantee.
Please to request Mrs. Brewer use the $55,000 to pay
Mr. Lee $7,000 cash and use remainder to pay 10% on shares
and collect the money for these shares from the Peking
purchasers and give Mr. Lee benefit of the 10% and the
Bank benefit of the ninty per cent when collected by her.
Yours faithfully,
(sd). P.C.Leo.
Coys.W. Up 1/29
N. I. B. 22
May 29, 1927.
The Board of Directors
Instone Bank ing Corporation Ltd.
Dear Sirs,
re Agreement Instone Brewer/ I.B.C.Ltd:Sale of Contract
I hereby confirm my verbal statements to the effect that it is apparent to me that these contracts will not under the circumstances be worth the consideration paid by the firm for them. Whether Mr. Lee Yuk Teen's plan of campaign would render them so is a separate matter, though I am prepared to go on record as favouring same. In any the cost of remuneration of Lee
should be bourne from the consideration money of the original agreement.
After due consideration, I have transferred to Mrs. Brewer the sum of $55,000 to be held by her to your order according to whichever course you may consider the more advantageous to the firm. In effect this $55,000 is a voluntary refund to the firm, although no legal claim for it exists. We should be the more careful in dealing with it to search our motives and satisfy
ourselves that the firm's best interests are in fact being cared for.
Yours truly,
Promissory Note No.2
June 10, 1927
On demand I promise to pay to THE INSTONE BANK ING
CORPORATION, LIMITED, the sum of $500,00, being amount
due on first call of 5% on 100 Ordinary Shares, Numbered
5601 to 5700, with interest at 10% per annum until
Li Shiu Hong
121, Caine Road,
Hong Kong
(sa). Li Shiu Hong
8. 6. 1927
ACCEPTED 10.6.27
$9000 @ 8%
PRESIDENT. (Sd).Instone Brower
Hongkong May 28, 1927.
To the Instone Banking Corporation Limited.
MONOLONG.
I hereby make application to the INSTONE BANKING
CORPORATION LIMITED. for a personal loan of $9,000
which sum I propose to use in payment of the balance
outstanding on 100 Ordinary Shares applied for (and
allotted to) me in my name and on which the sum of
$5.00 per share has been previously paid by me in cash.
I agree that this loan if accepted shall be a lien on
the said shares and that in the event of my essaying to
transfer or hypothecate the said shares, it shall be
forthwith repayable without demand.
Yours faithfully,
(Signed) Li Shui Hong
Received from the INSTONE BANK ING CORPORATION, LTD. the sum of $9,500.
(Signed).
Li Shui Hong
INSTONE BANKING CORPORATION LTD.
Honghong, 15th July, 1927.
Permanent
I have consented to act as
Director of the
Ordinary
proposed Instone Banking Corporation Limited, under the terms of the Memorandum and Articles of Association
thereof, of which I approve.
I hereby make application for
1000 Ordinary Shares @ $100 each
10 Founders Shares 3 $1.00 得
of this company, to be allotted to me in accordance with the terms set out in the Memorandum and Articles of Association; and I agree forthwith to pay a cash deposit of
(Signed) Yu Lok Kwan
Address 351 Des Voeux Road W.
1st floor.
Coys.W. Up 1/29
N.I.B. 4.
intld R.W.H.M.
STATUTORY REPORT
(Pursuant to Section 66 of the Companies Ordinance, 1911)
INSTONE BANKING CORPORATION, LIMITED
HONG KONG.
(A) The Total number of shares allotted is 10,080, all of which are allotted in consideration of cash and as paid up to the extent of $10 per share, and upon which a total sum of $775,950 has been paid in advance of calls.
(B) The total amount of cash received by the Company in respect of the shares issued wholly for cash is $876,750.
(C) Abstract of the receipt of the Company on account of its capital, the payment thereout, and particulars of balance in hand as
on 6th August, 1927:
Particulars of Receipts
Hong Kong Capital Receipts
On Allotment &
Calls paid in
Other Receipts
Particulars of Payments Preliminary and
Organization exes.$8,690.83
$100,800
Bonds Issue
69,388.03
Investments, Loans,
and Deposits
793,730.00
$876,750
Other Disbursements 7,092.58
48.245.78
Cash in Hand and at
Local Banker a
46,094.34
924,995.78
$924,995.78
Preliminary Expenses of the Company
Instone Brewer
Yeung Tat Po
Chas.V.Mok
Liu Yau Po Li Shiu Hong Chung Tat Chiu
Li Ting Sang
Liu Hing Lee Simpson
DIRECTORS.
36,Humphreys Buildings 10 Jordan Road 481 Nathan Road 361 Nathan Road 121 Caine Road
26 Lun Kwai Fong 64 Bonham Strand 361 Nathan Road.
Barrister-at-Law
Merchant
Merchant
Merchant
Merchant
Merchant
Merchant
Merchant
Durbam Road,Koesten,
Merchant
Pt. Elizabeth
30 Des Voeux Road Central.
Merchant
MANAGEMENT
Instone Erewer
P. C. Leo
President
Secretary.
Directors.
Hong Kong, August 9, 1927
We hereby certify this Report
In stone Brewer Chung rat Chiu
Filed this 16th day of August, 1927
ad. Hugh A. Nisbet
Registrar of Companies.
PUBLIC EXAMINATION
N. I. BREWER.
IN THE SUPREME COURT OF HONG KONG.
COMPANIES WINDING UP
NO. I. of 1929.
In the matter of the Companies Ordinance 1911 26
In the matter of the Instone Banking Corporation, Limited.
PUBLIC EXAMINATION OF MR. NOEL INSTONE BREWER, A DIRECTOR AND OFFICER OF THE INSTONE BANKING CORPORATION, LIMITED, BEFORE THE CHIEF JUSTICE AT THE SUPREME COURT THIS 6th DAY OF AUGUST, 1929.
The above named NOEL INSTONE BREWER, being sworn and examined at the time and place above mentioned, upon the several questions following being put and propounded to him, gave the several answers
that is to say :- there to respectively, following each question -
Official Receiver:- Yes.
Mr.Brewer, you are a Barrister at Law I think ?
Consequently you have some knowledge of legal matters ? Yes.
You have some knowledge of Company Law? Yes.
In fact, you prepared the Memorandum and Articles of the Instone Banking Corporation, and also of another Company called the Instone Trading ? Prepared entirely by me.
With the
You in fact conducted all the legal business of the Instone Banking Corporation with the exception of litigation ? exception of litigation.
You also have some knowledge of finance and Accounting ?
I think so.
In fact, you supervised the Account of the Head Office of the Instone Banking Corporation and also the Hongkong Office? directly supervised the head office and a customary supervision of the Hongkong Office.
Any point of doubt of difficulty arising in the accounts of either
I claim to of these offices would have been referred to you ? know these accounts thoroughly.
You are in fact responsible? I am the responsible party as far as the books of the Instone Banking Corporation go.
You have been connected with the Instone Banking Corporation from
That is true. its inception to the time it went into liquidation ?
You probably were the moving spirit in the formation of the Company? I would not state that to be true, but I would be glad to give you the full facts.
You took a very large part in the formation the company bears one of your names ? Yes, I took in fact no part in the actual formation of the company, but I would give the facts if desired.
One of the objects of forming the company was to take over the benefit of an Agreement of the sale of certain bond securities which had been entered by you? Quite true. fact, the whole of the idea of the bank emanated from me, but the actual formation of the Company I had nothing to do with that. I canvassed no shareholders nor did I make arrangements. I produced the idea.
The pbjects for which this company was formed included, of course, banking ?
And it also included trustee business ? It was a trustee bank,
that was the idea.
The trustee business was intended to be a very prominent feature of the Instone Banking Corporation's activities? Yes.
And very considerable importance was attached to that branch of the Company's business? It was the sole reason for forming the bank, trustee and bond. That was the initial reason for forming the company.
At the meeting of Directors held on 24th December, 1927 this is your Minute book ? Yes, that is my Minute book (Ex. NIB 1
On the 24th December, 1927, a meeting of directors was held at which a resolution was passed, at which you were to cease to take such an active interest in the banking part of the business, in order to devote your whole attention to the trustee business? I cannot guarantee the date, but I remember the resolution.
They were to appoint a Managing Director to supervise the banking business in order that you might be at liberty to devote your attention to the trustee business? Yes.
In December 1927 the trustee business was still the prominent feature of the bank's business? Yes.
The trustee business I take it that the bank would act as financial advisers to people to look after their money, their property and investments in fact, to act as a highly respectable family solicitor ? In loco parentis, I may say.
In order to establish that relationship between your Company and the people they dealt with, public confidence would be of vital necessity for your bank ? It was existent at that date.
It would be a vital necessity that it should possess the public confidence to carry on a business of that nature ? It
was existent.
Judge:- That was necessary ? That is a matter of deduction,
My Lord.
Do you consider it is likely that if there was any doubt as to the financial stability of your bank, there would be any sort of trustee business? No, except such as came through trusting in me personally even after our bank's stability was questioned, there were those who thus showed their trust in me.
If it had been suspected or known that your bank was not in a
very sound financial condition, the personal confidence in you you would not be sufficient to command business ? a certain amount of confidence in me even now.
There is
The Instone Banking Corporation emorandum and Articles
These are prepared by you were filed on 22nd February, 1927. the Articles and Memorandum as filed by you and they bear among
others, your signature ? (Shown to witness) Correct, (Ex. NIB 2)
You were appointed a permanent director of the Instone Banking Corporation? Yes.
You continued to act as such until the Company went into liquidation ? Correct.
You were also appointed the Company's President?
Under the terms of an agreement dated 1st March, 1927 that is the Agreement dealing with your appointment? to witness). That is the original Agreement (Ex. NIB.3).
The Company was incorporated on the 22nd February, 1927 ? Correct.
Its registered office was situated at 25, Des Voeux Road, Central ? Correct.
And on the 16th May, 1927, it received its certificate to entitling it to commence business? I believe that to be the date.
That is the certificate ? (Shown to witness). certificate.
Yes, that is the
Judge:- Do you want that put in ? Q.R.:- No, My Lord, I think not.
Judge:- Is there any deposit or security required before you could commence business ? No.
The statutory meeting of the Company was held on 16th August, 1927. I will just read from the book "The statutory report passed unanimously by a show of hands" - These are the Minutes
As chairman, yes. of that meeting signed by you as Chairman ?
That is right? That is correct.
That is the statutory report that was filed by you and certified to by you and Chung Tat Chu who was also a director ? Mr.Chung Tat Chu only signed in conformance with the statutory report drawn by me. I am entirely responsible for the drawing up of the statutory report Mr. Chung Tat Chu only signed in conformity with requirements.
That statutory report was presented by you for filing? (Ex.NIB 4).
At the statutory meeting I see by the Minute book, it was proposed by Mr.Leo and seconded by Mr.Charles Mok that Mr.Li Tung be auditor ? Yes.
That resolution was passed unanimously ?
You voted ? I did not, as chairman I did not vote.
You raised no objection ? No, I know of no objection.
Did you know that in fact by a regulation published in a Government Gazette on 19th July, 1920, Government Notification 392 that Mr.Li Tung
it runs as follows :-
(The Government Notification was then read).
At the time Mr.Li Tung was appointed auditor did you know that his appointment had been made subject to that condition ? At the time I had no knowledge of his qualifications or his identity, except that I was informed that he audited 15 companies' books and was a suitable man.
You did not know ? Before the audit I investigated his qualifications. At the time of the statutory meeting I knew nothing of Mr. Li Tung except that his name was brought forward that he was declared to be the auditor of 15 companies.
Later, before he audited our books I investigated his qualifications. That was nearly a year later.
When you investigated his qualifications what did you think of them ? I concluded as you did that he was entitled my first conclusion was that he was entitled only to audit Chinese books. My second conclusion was, on re-reading the Ordinance, that it was not sufficiently clear to justify my upsetting a fait accompli. The shareholders had already appointed him auditor and the Ordinance makes no provision for distinction between Chinese and English auditors whatever, and for the Registrar to purport to make such a distinction is ultra vires. Having these genuine doubts in my mind, I took no steps to alter the position as it stood.
Bo Bo on
Don't you think it would have been wiser to have an audit by a European firm ? I certainly do and if you notice so as I was empowered to dictate who should audit, Messrs Lowe Bingham and Matthews got the job.
You have seen Mr Li Tung - what do you think of his knowledge
He reads of English? His knowledge of English is poor. and writes excellently his spoken English is bad.
Bad, is putting it mildly! The adjourned general meeting was held on the 21st July, 1928. At that meeting one of the resolutions was that Mr Li Tung be re-elected auditor for the coming year. That was after you had a year's experience of Mr.Li Tung. (Ex.NIB 1 shown to witness) ? Yes, quite correct. At that meeting you were content you acquiesced, to Mr.Li Tung's ro-appointment ? At that meeting I did not know some things which I know now. I had just come back you will notice.
You acquiesced to the re-appointment ?
I want to go on to when the Company had to liquidate. you agree with me that one of the main causes of the Company's failure was an absence of working capital ? I entirely disagree with you. At the time we handed over to the Official Receiver we had an agreement whereby creditors would be paid in full and the shareholders would receive a settlement of 75 cents in the dollar. That is not failure though it is a
reverse.
You say you were never at any time short of working capital ? I would not say that. No firm could ever say that.
You were never short of capital We could always meet our obligations until Mrs. Jen See Chin failed to pay her debt on the 1st June, 1928.
You say that you were satisfied with the amount of working capital that you were receiving at all times previous to that date ? I go further we could have had more working capital but I refused.
You had enough working capital at all times up to the time Mrs. Jan Bee Chin failed to pay ? Yes, and I say I could have had more working capital if I cared to receive more, but I refused.
You were perfectly satisfied with the way your money was coming in up to the time Mrs. Jan See Chin failed to pay her debt on the 1st June ? Do you mean me – or others ?
You? Yes, I was perfectly satisfied.
I am dealing now with the directors meeting held 10th March, 1928. The minute signed by you this is the resolution passed by you at the time when you say you personally were Batisfied with the way capital was coming in- "Thet to
enlarge business directors must be required to make full payment for shares; that those not so paying shall forfeit their shares and position; that those paying may automatically apply for and collect annual bonus.
un an imou sly. You still say you were satisfied with the way
capital was coming in? Yes.
Why was it necessary to pass such a resolution about directors forfeiting their shares ? In order to enlarge the business. The business as it stood was in a perfectly capitalised position. They wanted to open two new branches that was a different matter. Because they were doing it against my wish I was stringent.
There was another resolution passed at that meeting that Kr.Cho Sing Chỏ be offered the position of general manager and be required to pay the balance of share, monies. He had not paid the balance of his share monies? He had paid 35%
As a matter of fact, when Mr.Chau Sing Cho was applied to pay the balance of his share monies he refused ?
Yes, you will also notice he did not hurt us in any way. We did not want his money, we wanted him to pay his money because he was offered the position as general manager. We did not want a general manager who had not paid his money. You have jumped to conclusions.
He was of good standing ? Yes, but he was not proposing to act himself; he was proposing a nominee.
At a meeting held on 25th September, 1928, I agree that this was after your limit, 1st June, 1928 the question of going into voluntary liquidation was discussed ?
I was extremely keen on it as soon as I found the Canton Shekki situation could not be leared up.
Is it a fact less than three months after the publication of the balance sheet the directors of the company were discussing the question of voluntary liquidation ? I agree.
And voluntary liquidation was the most frequently discussed subject at your directors meetings from September 1928, until you went into liquidation in May of this year? Perfectly true.
Your first report and balance sheet covered a period up to 30th April, 1928 ? Yes.
That balance sheet as officially printed was presented for filing by you with certain other documents on 9th July, 1928 ? That is true, but it being a half truth, I would like to modify it. I want to say that document as printed was never at any time approved or signed by me.
I did approve
and sign the document you are now looking at, but that document was altered during my absence, and the publication
was done in my absence and the filing was done only when the full publication was affected - it had been done and could not be altered.
Is that your signature. Is that the document you presented for filing? Yes, but apparently my point seems to have been misunderstood (Ex. NIB 5).
Judge:- This is the document that was filed with the Registrar of Companies ? Yes.
Judge:- Then do I understand, Mr.Brewer, that this printed document is not an exact duplicate ? On the contrary may I make my point? I signed a typewritten balance sheet which I maintain is fundamentally correct. While I was out of the Colony a printed balance sheet was made up it was not identical with the typewritten balance sheet which I and the directors signed. There is only one signature to that printed balance sheet and that is the auditor's.
Judge:- Is this not a true copy of the balance sheet which you filed ? Yes.
Is this document a correct copy of the document you signed ? It is a correct copy of the document I filed, but I did not sign it.
Judge: The one he filed but did not sign? O.R.:- I have no evidence of that but his signature is at the bottom of that document NIB 5 and he filed it, My Lord.
Is this the typewritten balance sheet to which you were referring ? This balance sheet was approved by me from the books.
Judge:- That is your signature ? That is my signature, My Lord. I signed and approved one balance sheet. The balance sheet as printed contained in my opinion no material
difference. The question of filing is one that came up in the prdinary course of business. The balance sheet had been sent out, it has been fully published, after I came back a copy had got to be filed.
Judge:- And you signed the filed copy? I did not sign it as a copy I signed it for filing.
Judge:- Does it not seem to you rather a serious matter to file a balance sheet knowing it to be inaccurate ? It
did not, My Lord, because I have on the altered copy of the printing
Judge:- Was it not a serious thing for you to sign a document which you knew to be incorrect ? I do it every
Don't you think it a serious matter to file a document that you know to be inaccurate ? It would be a serious matter if I had filed it knowing it to be inaccurate in a
commercial sense, but I maintain it is not inaccurate in a commercial sense because I relied on the statement of the Auditor, as I have a right to.
The only difference in the typewritten balance sheet which you say you approved and the balance sheet which you now say you disapprove - the only difference is as regards the way in which the items dealing with the Company's capital had been stated ? Correct.
That is the only difference in the whole balance sheet ? Capital, and also some debtors are set out more clearly.
Capital Accounts Receivable and Uncalled Capital.
Do you approve of that? I maintain there were no errors which would be discernable by a reasonable man. There was not a word of lie in the printed balance sheet. There was nothing
I could pick out but I did not publish it.
You were present at the meeting of directors which approved the balance sheet of June 18th, 1928. That is the typewritten document ? Yes, we all signed it at that time.
The general meeting at which the balance sheet was approved was on 18th June, 1928 it says "President was away unwell" ? Yes, that was when I was away.
An adjourned meeting was held on 21st July at which you were present ? Yes.
At that adjourned general meeting at which you were present, a dividend of 10% was declared ? Yes. May I ask you to
put in the signed printed balance sheet, signed by the auditor and by no one else ?
Yes, certainly. This I take it was the first proof ? Yes.
This is signed by the auditor Mr.L1 Tung where the alterat ion in capital has been made ? Yes.
And agreed to by the auditor on whom you say you relied ? The auditor agreed to that and signed it. In fact, he initiated it. My wife made him sign this because he altered the balance sheet in my absence. My wife who was in charge during my absence made the auditor sign it. (Ex.NIB 6)
Why was the alteration made in the capital ? Mr.Li Tung said that Chinese firms always put their capital in that way. He told me that when I came back. He said it was the custom.
Did you consider that as sufficient reason for altering the capital because Chinese firms always did it that way?
No, had I known of the alteration before publication, I would
have stopped it. Seeing it was published I could not withdraw it, and knowing it to be customary, I knew it could not be misleading anymore than mortgages are misleading.
Did you raise any protest recorded in the Minute book against
this new form of balance sheet which you say the auditor made ? No, because I had his signature
Is there any protest in the books as to this unauthorised alteration did you protest ? To whom?
To anybody? To the auditor.
sheet did you draw the Did you before filing this balanc attention of the directors to this alteration which had been made without their authority?
Was it discussed at any meeting ?
Any record of it ? No, they were satisfied because they had not signed it.
Do you agree with me that the statement as to capital in the printed balance sheet is absolutely misleading end incorrect? Judge:- You had better have the balance sheet identified. That is, the balance sheet as eventually printed.
Judge:- This is the printed balance sheet as it was published ?
Yes, My Lord (Ex.NIB`7).
Do you agree that the statement as to capital in the printed balance sheet was absolutely inaccurate and misleading?
would, had my auditor not said it was customary.
You agree it was misleading and inaccurate ? I don't.
You still think it is correct? I am assured by the auditor that it is correct with Chinese firms.
Judge:- This is a British Company ? to the British Consul in Canton.
It was Chinese according
Judge:- Is not this Company registered under the Ordinance ? Yes, My Lord - many Chinese companies register under the British
Ordinance.
I will go back to that typewritten balance sheet (Ex. NIB 8). That is the typewritten draft which was put in an approved of by a meeting of directors and Mr. Brewer says that he agreed that, My Lord.
The draft was drawn up by Who actually prepared this, NIB 8 ? Mr.Li Tung. The actual typing out was done by my wife on my instructions. Kr.Li Tung gave me a draft showing how it ought to be done, and I followed his directions.
What data has Mr.Li Tung to prepare his balance sheet with ? He had three balance sheets. These three balance sheets were
personally checked by me, and guaranteed by me.
Yes, and one
Was that for the Shekki branch one of them ? for Hong Kong, and there is the Head Office one (Ex. NIB 9). This is the balance sheet I got up myself for the benefit of Messrs Lowe Bingham & Matthews when they came, bacause they had three typewritten ones and I got this one up to show it clearly to them.
You accept
Judge:- Let us get the balance sheet first of all. these three documents here (Ex.NIB 9) as balance sheets of the Company, Mr.Brewer ? Yes, and for which I accept responsibility.
Judge:- Now, you are dealing with another, what is that document ? C.R&- I am told it is a trial balance prepared
As a matter of for the benefit of the voluntary liquidators.
fact, that last document is in point of fact, an amalgamation
of these three balance sheets. This was not done until May of
this year.
Is it an amalgamation of these three balance sheets ? It is an attempt on my part to
Does that represent the amalgamation of these three balance sheets ? I don't know.
You prepared it ? All I know about this is that it was an attempt by me to show Messrs Lowe Bingham & Matthews how these balances could fit together he asked me to try I tried that is the answer.
In fact, that is the amalgamation of these three balance sheets ? I did my best to make it so (Ex.NIB.10).
That document represents the balances appearing in your company's books in 1928 ? They are all in there.
The point
I want to make is that that document is not the Company's balance sheet, but one of my own a personal document.
What material did the auditor have when he drafted the balance alect on 30th April, 1928 ? These three balance sheets and the whole of our books.
Now, the printed balance sheet. The first item which I take is "Capital Issued and Subscribed" $2,613,260.00. Your Issued Capital at that date was $1,474,000 ? Quite correct.
That appears in your head office A.1 Ledger, and that is your head office A.1 Ledger ? (Ex.NIB 11). Yes, and that agrees with the typewritten balance sheet.
It does not agree with the printed balance sheet ? No, because the printed balance sheet does not declare Issued Capital - It was "Issued and Subscribed".
Included in that figure 2,613,260.00 is a sum of $1,133,000.00 in respect of which no cash had been received, and no allotment of shares had been made is that right ? Perfectly correct, but I did not put it there.
Is it right ? Perfectly correct - and it is also true that it was subscribed Capital in agreement with the balance sheet.
Judge: You agree that that portion of the Capital was never allotted ? No.
And you had never received a cent of it ? I have carefully distinguished that in my balance sheet.
And you never expected to receive a cent ? I don't know.
Did you expect to receive any money ? I can only say a few months previous, some dimilar shares had been taken up.
Have you ever got ten cents out of this ? Yes.
Out of this $1,133,000.00 ? No, but shares of the same class.
These Application Forms for these shares were received no later than August, 1927 ? (Ex.N.I.B. 12) I will accept your
Do you know where the Application Forms were filled up? They / were brought in to me signed, I don't know.
Do you observe in almost every case these Application Forms had not been properly completed ? It never struck my notice in what way ?
"I agree forthwith to pay a case deposit to the bank of .... thereon". In only one case is the percentage filled in ? It looks true, but you can not build on that.
The terms had not been complied with, and one of the most important things left out? There was an agreement to pay.
Although by the terms of your Memorandum and Articles, 5% had to be paid on application, and it ought to be received in
cash, and you say it was not important ? It is a binding contract with an obligation to pay.
Do you say you had a binding contract to take these shares ? We had accepted it.
But you never did accept ? We cannot allot unless we had 5%
You had no contract as a matter of fact. There can be no binding contract to take shares unless these shares were allotted ? There shares were never allotted but there was
an acceptance by letter asking them to send along their deposit.
These applications were received in August I am still dealing with this $1,133,000. In November 1927, did you
transfer in your books $963,000.00 of that amount from Issued Capital to Allotment Suspense ? We transferred it from Issued Capital to Application for shares.
And then to Allotment Suspense ? You are making that statement.
Well was it so ? The writing says "Issued Capital to Application for Shares Account".
Application for Shares the title has been altered to Allotment Suspense - and this is the first item. So eventually it finished up in Allotment Suspense ? That explains it.
O.R:- It is in A.1 Ledger, My Lord, page 50.
That was transferred to Allotment Suspense A/C ?
Why was that done ? Because they looked doubtful.
They were doubtful in November, 1927 ? But subsequently some of them became good.
Subsequently some became good; but what was entirely had and has always remained bad was this $1,133,000 ? That is what events have proved. We did not know they were bad. For instance
one item there we were corresponding as late as March of this year - we were expecting to get it.
Included in that $1,133,000.00 there is an amount due from a man Kwan Hoi Tin $450,000.00 ? Right.
He had 1000 shares elready forfeited for non-payment? I don't remember when they were forfeited, but they were
forfeited, yes.
You did not consider that good did you? I did not consider
any of them god.
Then 1 won't bother about them any more ? I did not consider any of them good that is why I transferred them to Application for Shares A/c.
Therefore, not considering any of them good and having transferred then to an Allotment Suspense A/c do you think they should have properly appeared in the balance sheet ?
No, but I cannot maintain there was a lie there, and I was given this balance sheet as something already finished.
You agree that to state your Shares Capital in this way under these circumstances was misleading ? It was not misleading for the reasons given that it was circulated among Chinese, and they made their balance sheets in this manner. It would have misled me.
Would it mislead any business man ↑ All I can say is that it would have misled me, I cannot say what it would have done to any other business man. It would have misled me that is why I did not like it.
Judge:- Deducting that $1,133,000.00 where is the surplus ? "The item of $1,133,000.00 has no effect on the surplus which latter is obtained from earnings. The effect of
inserting this amount as a liability has been to increase the assets correspondingly, in the two items "Accounts Receivable" and "Uncalled Capital". This increase of assets and liabilities by an equal amount is the sole d difference between the Balance Sheet as approved by me and the Belance Sheet as printed.
The item on the Asset Side "Accounts Receivable" $221,360.87 ? Yes.
Does $204,800.00 represent calls in arrear ? I cannot take your figures off hand like that but I consider it quite
possible. Because I know that account contains matter that I would never have allowed to appear in that form.
The first two items of- balance sheet NIB 9 - do you agree ? Yes.
You agree that $204,800.00 out of $221,360.87 represented allotment on calls in arrears ? On this balance sheet "sundry debtors" is only $15,000 all the reat must be on calls.
after you have considered
Do you agree with my question these documents that out of that amount "Accounts
Receivable", $204,800. represents allotment on calls in arrear 7 I do not know what that amount represents at all.
I did not put it there. The figure that ought to be there 1s $15,000 or $16,000.00. If you tell me the rest is unpaid calls, I believe you.
You do not know what it is ? I don't know what it is. I believe you to be correct, but I cannot say for sure.
You say you, as President, of the Company, were content to file a balance not knowing anything about that? The point
is that I filed this balance sheet because of the publication that had been done before I filed. There was no further publication. I filed it in compliance with the Ordinance.
Out of that $204,800
these shares
$133,300 of this represents 10% of
had not been alloted ? You tell me so.
Do you agree or not? I can tell you what Mr. Li Tung told me. If you want that evidence you can have it, I know no more.
Out of the amount of $114,800.00 in the head office balance sheet which you say you knew about and approved that figure $114,800.00 is that made up of $133,000.00 being the 10% on these
unalbotted shares ? This is the head office account.
Does it include the 10% on these shares which have not been allotted or not ? Give me the Ledger and I will tell you. This is the head office account. All the allotment on first calls including these transferred to Suspense A/c are in this account.
That includes the 10% on these shares which have never been allotted ? Yes, on all shares whether allotted or unallotted. As soon as the shares were accepted, they were debited with 10%.
Judge:- Does that item include 10% on shares which have not been allotted ? Not allotted, but which were accepted.
Judge:- On which you received nothing?
Do you consider that a proper entry to put in as Accounts Receivable in the balance sheet ? It is not an entry that I would have made, and not an entry I did make.
Do you object to it ? Yes, I would not do it that way, but I cannot tell a qualified Accountant he is wrong I consider it as morally objectionable.
Were you so much in the hands of your auditor that you allowed him to do it ? Not a bit.
Whom did he consult ? My wife, and the secretary. I was absent and to make this balance sheet good my wife made him sign the balance sheet. That is why you have one signature only.
Another item on the Asset side. Uncalled Capital $1,420,950.00 This is down in your balance sheet as a perfectly good asset. Not in my sheet but in the printed balance sheet.
It is a perfectly good asset ? Perfectly good asset.
I do not believe I so replied, but memory does not supply
the correction. In any case the reply stated does not represent my opinion (Compare with paragraph 13 of same page).
Did that item $1,420,950.00 include 90% of these shares which
had not been allotted ? Again I believe it to be so, but I can only go on what I am told by the person who put them there, if
you would like to accept that evidence.
Do you admit that every call on every share which was ever subscribed was included in that figure ? I believe it to be so, I don't know where he got it from unless he got it from that.
You have the whole of your capital on one side of your balance sheet to which you agres therefore, to have your balance
agree you must take that figure ? That is what I say, unless he has taken that figure I don't know what he can do.
On that item 90% of $1,133,000 amounting to $1,019,700.00 represents calls on shares, on which at the time that balance
sheet was published you had no right to make a call ?
is a legal point.
Do you think it could be properly described as a good asset ? I should not so describe it.
Could any other honest man so describe it you know you have not a monopoly of honesty ? No, I have not, but I cannot speak for others.
Here is an item amounting to over 1 million dollars which is bad, in this balance sheet ? I consider it was improperly done. I did not do it, nor was I a party to it.
That document I have just handed to you (not put in) do you agree that the particulars given agree with the totals on the printed sheet ? I cannot possibly agree to it. I will
make no objection.
These details are got from that document (Ex. NIB 10). in hand and at Branches. $164,082.89 on the document I have handed you, you see that item ? Yes.
These items show how that $164,082.89 is made up and they are taken from the document just handed to you - NIB 10 ?
This does not belong to the Company at all.
This document was prepared by you? Yes, but not on behalf of the Company.
Do these items agree showing how this item was made up?
Witness checks) Are they correctly stated ? I have no idea whatever.
I know You say you have no idea how this item was made up ? it was composed from our books, but a year ago I cannot pretend to know This was an effort by me to find an agreement and I believe it to be correct because it worked.
Do you know what the item "Cash at Branches" was made up of ?
Accurately speaking no of course I have a very general idea of what our books were, generally speaking but accurately speaking, no.
Was one of these items Treasury funds ? I presume so.
What were Treasury funds ? Funds kept in the hands of the Treasurer, Mrs. Brewer.
Certain funds were kept by Mrs. Brewer, and certain funds by the
Hong Kong Branch ? Yes.
And this item was kept by Mrs.Brewer ?
Judge:- Were there two officers in Hong Kong ?
There was
a Head Office and a Hongkong Branch.
Judge:- Kept in different places ? O.R:- No, My Lord same
place - same building.
Was that item duplicated ? I don't know.
Are you prepared to say it was not ?
No, I don't suppose I
would notice it. I am not prepared to say it was, or was not.
Are you prepared to say these sums were helf in the Treasury funds ? I don't know; I cannot remember what was held in the funds. I was running this whole business how could I
remember a thing like that.
I am going to put it to you. Item $24,198.06 was part of the item appearing on the other side under Head Office - Hongkong
Branch $30,696.06 ? It does not even sound intelligible to me
but I cannot see any importance.
I take your word
(Ex.NIB 9)
Do you see these items at the bottom here are three items one is $30,698.06 and the other side has
this Treasury funds $24,196.06 - there is a note against this item which reads :
These three items were merely counter entries ? This was written by me about two months ago I think.
Is it a correct statement of fact? I believe it is it is only going back and estimating myself I don't guarantee that to be accurate. I am trying to do my best.
That constitutes your idea of the state of the facts ? opinion there was a duplicate entry made on one side put in on the other.
These duplicate entries on the one side we have Hongkong Branch 30.698.06 end on the other side we have Treasury Funds
$24,196.06, again lower down $4000.00 ? Those are cross entries ? You mean both sides have $30,698.06 which could have been cancelled cut ?
Yes ? I was aware of its possibility only two months ago.
Judge:- Are those questions of yours based upon the balance sheets which have been put in ? O.R- No, My Lord, on my own documents and the document with the foot note as to certain crose-entries: Notes at the foot of balance sheet NIB 9.
(Note: These questions immediately preceding are based on balance sheet NIB 9).
Next item, Mr.Brewer. I want to ask about Cash Singapore $10,000. Is that included in the $164,082.89 - Cash in Hand
at the Branches ? I expect 30,
Judge:- What document is that?
O.R: It appears in NIB 10.
appears on 30th April in your
This $10,000.00 at Singapore also A-1 Ledger ? I am not disputing the amount.
Does it form part of your balance sheet ? I don't know, but I do know that it is part of our cash that existed at that date, and if it is not there it should be.
I should like to know how that cash at Singapore originated?
They Mr. Lim Joe Seng bought some shares, paid for them. were handed to Yong 31 Kie, our agent at Singapore, to hold for expenses that would accrue in Singapore, for which he was liable and would refund as soon as our branch was opened there. $10,000.00 was paid to Yong Si Kie on 21st September,
1927, by Mr Leo Ping Chuen, Manager of the Instone Bank "as advances towards the bank's contribution for preparations to form a branch of the bank at Singapore." This sum will be returned to Head Office by Singapore Branch. "Received Payment - Yong Si Lie" This is the receipt (Ex.NIB 13) in respect of the money that was given for the branch at Singapore. I recognise that.
The branch at Singapore was never opened ? In fact, never opened- not our fault.
Certain steps were taken I believe, with a view to opening a branch at Singapore ? I was down there twice.
Certain expenses were incurred ?
Which had been paid out of this $10,000.00 ? entitled to use this $10,000.00 for expenses, and they were to be refunded by the Singapore branch.
The branch was never opened ? No.
And a portion of this $10,000.00 had in fact been spent by Yong Si Kie before the date of this balance sheet ? I cannot say no accounts having been rendered he was liable.
Had any of this money been spent ? To my knowledge not one cent but to my information, yes.
Had you been informed before the date of that balance sheet that some of the money had been spent ? Before the date of that balance sheet I received no information.
This copy was found in the Copy Correspondence - (letter dated March 8th, 1928 NIB 14 Read). (Mr. Brewer says the date
is wrong it should be 1929).
N.B. In confirmation of my statement re date please check address on letter. If addressed to Cross Street, Singapore, date 1928 were prima facie correct if address "Hongkong" "Present" or "Local" my statement of date 1929 powerfully confirmed.
What you did know was that the money had been paid to
Si Kie for the purpose of opening a branch at Singapore, and the branch was not opened, and you had information that certain money was spent for preliminary work? entirely disbelieve the expenses were $4,000.00 I believe it amounted to a few hundreds.
Did you know that any work had been done in connection with the opening of the branch at Singapore ? I did this work I did not know of anybody else doing it.
The branch would have been opened but for the fact that you
could not get a licence from the Singapore Government ? Precisely.
Why did you give $10,000 to Yong Si Kie if he was to do nothing? Because we believed that we were going to open then I went down there. He got that money - then I went
down about the licence. When we did not get it- there is other correspondence which you have not put in where we kept writing to ask him to send the whole $10,000.00.
I have not seen it. That was not a proper statement
$10,000.00 Cash at Singapore"? This was cash in the proper dictionary and commercial sense and the only heading you
could put to that is "Cash" I have taken the trouble to
lock the point up.
Have you received any of the $10,000.00? If I received it it would not be "at branches".
Have you ever received it ? No.
Has the Company ever received it ? No. It is in the Company's
hands, the company could transfer it but it could not receive it.
But on the contrary
it is in Yong Si Kie's hands ? Mr. Yong si Kie is the Company's agent.
Would you like to draw a cheque or bill on it. think it would be honoured ? I don't know.
Would it here been ? I did not try so I can not say. If it were not, it ought to have been. of the agent not to honour it.
It would have been dishonest
"Cash at Branches Canton
In your journal page 28 (NIB 15)
$33.909.12" - do you know if that is included in the $164,082.89 ? I suppose so with my own eyes.
it was real cash
I saw it
Where did it come from ? Shekki.
It should have been debited to the cash held at Shekki ? I presume it was.
Was it ? I presume 80 - I don't know.
That is the Shakki balance sheet which had been put in already. (Ex. NIB 9) If Canton was owing shekki this $33,909.12 that would appear as an asset in the Shekki balance sheet ? That sounds reasonable.
Well it does not it does not appear in the balunce sheet why does it not ? I do not know. Try Mr. Rodrigues he signed that. I must have known the answer but this is a year ago.
Can you suggest an explanation why it does not appear? have no suggestion to make. $33,909,12 - why is it not in the balance sheet ..... the answer to that is that Shekki has not charged Canton for it, and Canton has told us they have it. That has occurred. We get a letter from Canton quicker than we get it from Shekki,
I suggest to you that it still appears in the Shekki cash ? Very probably it does.
This item is duplicated? Is that a serious point which has arisen?
I am suggesting that the case cannot be at Canton and Shekki ? How could our balance sheet balance if we put it twice ?
There is no entry about this $33,909.12 bulance in the Shekki book, the only entry to substantiate it is the entry in your journal ? But the money was there.
How do you know the money was there ? I have seen it.
It was transferred on the last day of the financial year ? Just about.
My suggestion to you is that it is a duplication, that you did not get both the cash at Canton and at Shekki ? not in a position to contradict
To substantiate that suggestion I say that had the cash
been transferred by Shekki it would have appeared as an asset in the Shekki balance sheet which it does not ? You may be perfectly correct, but I don't see that I can help you any further than I have done.
I take the next item on the printed balance sheet. These items, I think, are also included in your typewritten balance sheet "Loans, Mortgages and Investments". These four items "Promissory Notes, and Bills of Exchange, " "Collateral Security Loans (Short Term and at Call)" "Mortgage and Long Term Loans," and "Stocks, Shares and Other Investments."
They are included in the typewritten balance sheet which you approved ? Yes, everything is identical, therefore, it is
correct.
I want to go to the item - "Promissory Notes and Bills of Exchange $59,580.95. To the extent of approximately $31,000.00 this item was loans to shareholders and Promissory Notes ? Yes.
These loans were made to shareholders on Promissory Notes, either because they could not, would not or did not pay their
calls or allotments on their shares ? Either one or other of those reasons.
In respect of all those loans to shareholders on Promissory Notes amounting to $31,000.00 no cash passed ? Cash passed
over the counter.
Penultimate and lagt paras.
This answer is inaccurate.
Memory is not sufficiently pronounced to permit of my denying this reply. But if so made the words do not convey my intended meaning.
What sort of cash ? Cash in the dictionary and commercial sense. No money ever passed in Hong Kong in excess of $2.00
Judge: No cash passed ? Yes, it did.
Judge:- Did money pass? No, My Lord.
They were merely cross-entries in the books ? No, that is a lie!
(Judge reprimands Mr.Brewer for his language and attitude - for which Mr.Brower apologizes and withdraws his previous remark).
They are cross-entries ? No.
Answer :- They are cross-entries but not merely cross entries.
What is the difference ? That is a cash transaction because the intention of the parties was to deal in case
there was a material difference made in their relationship another and legal relationship was identical, as if cash had passed.
What is the difference ? That is a cash transaction because the intention of the parties was to deal in cash there
was a material difference made in their relationship
to another and legal relationship was altered identically as if cash had passed.
Was this the nature of the transaction the shareholder came to the company to borrow money. You say "You can have a loan on a Promissory Note" the loan was given on the shareholder signing a promissory note and no money was
advanced to him using the word "money" in the ordinary sense. But the result of the transaction was that the amount of the promissory note was applied in part payment of either his allotment or call money in arrear, and he appeared in the Company's books as owing the company that money was that the substance of the transaction ? No, I shall give you the transaction. The transactions were this
I did not want to be over-loaded with a lot of capital. I had applications before me for 2 million dollars worth of shares, and I refused to allow shareholders to pay more than 10% of their money, unless they would agree to provide
the bank with money instantly available on demand, by borrowing to the extent to which they paid in excess of the 10% called up thereby placing the benk in a very advantageous position. Incidentally this is not my invention- but will be found in any decent book on Political Economy dealing with the subject of Banking.
This is the head office Loan Ledger (Ex NIE 16). I am taking this as a typical case - Li Ting Sang, June 10th, was granted a loan on a promissory note for $500 ? Yes.
And on the same date, June 10th in the Shareholders Ledger Mr.Li Ting Sang is credited with having paid $500.00
in cesh on account of his shares ? No, that is a different date One is the 16th, and the other is the 10th (Argument about date- and Judge settles it by pointing out to Mr. Brewer he is looking at the wrong item and Mr.Brewer recognises his mistake and agrees).
Do you agree ? Yes.
Do you agree that this was the form that the transaction took in all cases ? They paid us cash, and we paid it back.
There are similar entries in regard to all these other Promissory No te transactions to the extent of $31,000.00 ? Yes. May I be permitted to make another remark, in direct reference to Mr. Li Ting Sang. He is our Compradore, He was
not in need of money. He made a deposit in respect of his Compradoreship. If there were one man who did not need this $500.00 it was he- but he took it to oblige me, because I wanted cash available on demand for the bank.
Judge: Was there any security taken for these Promissory Notes or was there any collateral security ?
In every case the man has paid his $500.00 Until he pays we give
him no loan.
O.R:- On the subject of Mr.Li Ting Sang's financial position on Jan. 1st, 1929, he was owing the Company $9,188.00 ? He is in credit with the Company on other
eccounts.
Has he ever paid it ? He has never been asked to.
Never been asked to pay ? actually came to the crash
As I have said, until we there was never one man asked to
pay money because my whole object was to get rid of the money
they were ready to pay before the emergency, and they were not ready to pay when the emergency arrived.
(Court adjourned to 2.15 p.m. Tuesday 6th August, 1929).
2.15 p.m. Tuesday, 6th August, 1929.
Do you agree, taking a fairly approximate figure, that the total amount of the actual cash received by the company in respect of subscriptions for shares never exceeded $200,000.00 ? I do not agree.
What do you say the amount received in actual cash was ? If you refer to cash as actual money I should say $3.00, if
you say cash in the commercial sense, the sum of $900,000.00
Apart from loans made to shareholders which were applied in payment of allotment and calls on shares and in making shares fully paid up, and apart from the amounts in respect of these loans, the actual Cash received by the company I think the answer to your never exceeded $200,000.00 ? question is that it is impossible for me to differentiate
the between specific loans from the cash received
allocation of our money is quite independent of the money we receive. Whether it is received for loan to one per son or another, I cannot see how the cash total is altered.
Do you agree that apart from loans made to shareholders by the Company on Promissory Notes and on these receipt
forms, which I will produce later - apart from these amounts which were applied in payment for the company's shares, either first call or making them fully paid up, apart from these amounts advanced by the company on loan, the actual Cash received by the Company in respect of the shares never exceeded $200,000 ? Apart from the loans made to share- holders! They are not cash received they are cash paid out.
They were applied the so called proceeds of those loans You have the wrong order. The cash coming were applied ? in you don't call loans going out cash coming in.
No I don't, but the cash had to come in before you could make the loan. The point is that the cash never came in ?
The loans could not have been made if the cash had not come in.
You had no cash in the Company's premises ? direct legal significance.
It had a
Legal significance ? Yes, and a very important one.
In the month of June, 1927, the company purported to grant loans to the extent of $619,000.00. Do you suggest you had that amount of cash in hand ? What I say is that so much money came in and went out.
Define actual
You say that you had the actual cash ? cash, and I will know ahat you are talking about. what cash is, but you are not talking the same language - may I define cash?
If you wish to do so ?
Judge:- How many shares were applied for in this company ? Something over $2,000,000.00
Judge:- How many shares ? 26,000 shares.
Judge:- Now, how much money I am using money in the sense of cheques or matters of that kind was sent with the applications of those shares ? None.
Judge:- Absolutely no money was sent ? No, payments were made later.
Judge:- How were the payments made ? Payments were made apparently in bank notes..
Judge:- About how much roughly ? I think I could tell if I had the books before me (Books handed to witness) there is no differentiation made in our books between one form or another.
Judge:- Put it in another way how much money is advanced on these Promissory Notes ? The sum of $349,000 was advanced
to people who paid in advance of call.
Judge:- Advanced to people in order that they might pay their shares ? That is not the right order. They were desirous of paying in full, but it was
Judge:- As a matter of fact you supplied the cash wherewith
they took up their shares ? No, wherewith they paid in advance of call.
Judge:- You supplied all the cash wherewith these shares were paid for ? All the cash that was not called up. paid us entirely for the call on shares.
Judge:- You supplied all the cash? We supplied 90% of the cash for the payment of these calls ?
nothing for the payment on calls.
No, we paid
Judge:- You took Promissory Notes for the amount advanced for this 90% ?
Judge:- What was the security given by the people who signed those Promissory Notes in respect of this transaction? Cash.
Judge:- Cash ? They paid 90% that they need not pay.
Judge:- You advanced all that, and took Promissory Notes from them. If you go to a bank and ask for a loan, they require security. What security did you have? Deposits - they are not compelled to pay that money. They made a deposit in om bank.
Judge:- How did they make the deposit ?
deposit? By coming along and making it.
Judge:- They paid in cheques ? same time.
No, it was all done at the
Judge:- By book transaction ? Of course.
All that you depended on therefore was the responsibility of these people who signed these Promissory Notes ? Our security was cash. They had paid that money and they made a deposit, of that money, and were entitled to borrow on it for
the full amount. I can show you how the bank is greatly advantaged by such a procedure.
Judge:- That may be I will explain how the
EX.NIB 15 The Journal. Cash book page 81 of the Journal. Coming to your cash book the total amount of cash received for shares up to the 31st May, 1927, was $27,000.00
do you agree? I should not think so, up to May 30th ..$37,000.00
(Argument about $10,000.00 received from promoters).
but how about the public's advantage ? general public is advantaged.
There was $500.00 from a Mr.Starling? That was actual cash.
Actual amount of cash received by the company by 31st May was $37,000.00 ? Correct.
That was before you granted any loans ?
The first loan according to your records was granted on June 10th ? Yes.
The balance of cash which the Company had in hand according to this cash book at the end of May was $9,330.00 do you agree? Yes.
According to your cash book you received no cash that month with the exception of $800 from a man called Leo Ping Chun, until the 29th "Compradore part salary $5000.00 was that
Cash ? Actual bank notes.
You then received some $11,000.00 odd from bond holders
You then received further compradore security ? What was that ? Bank notes, as far as I can remember.
Do you mean this man put up actually $45,000.00 in cash? $50,000 altogether.
That is what he did ? That is what I believe.
Do you swear that you are on oath you know ? I know I am on oath as far as I can remember, it is actual cash.
And then the next item in your Cash book is "Allotment and First Call $62,500 - advance calls $640,000.00" ? Yes.
That is about 7 lakhs. Now a very great proportion - almo st the whole of that amount which is down in your cash book as Cash was in fact the result of loans made by the company to shareholders on Promissory Notes and Allotment Receipts ? I can specify it more accurately. The allotment and first call would have been paid in bank notes. The advance on calls would have been payable in cash, but returned to the payee under the system that I have devised for the benefit of the bank.
At the beginning of June you had cash in hand $9,330.08 ? Yes, if the book says 80.
During the month of June ypu purported to make loans amounting to $619,000.00 ?
I put it to you that you had not in June any money to make these loans ? If I had not the money, I could not make the loans.
Had you the money in hand or not ? I say that the money came into my hands, and went out again.
It came in what form you say you collected $619,000.00 in the
month of June not in bank notes nor in coin in Promissory Notes ? Ultimately. The intention of the parties has to be considered. They intended to pay us
cash, and we intended to lend them cash.
Judge:- As a matter of fact, when you purported to make these advances of over $600,000.00 · out of what did you make these advances ? Out of payments by shareholders.
In what form did they pay ? They paid by They would have paid in cash if I had been willing to accept. They paid all their calls in bank notes.
Judge:- The expectation of their paying up what they under took to pay is what you call cash? No, My Lord. They came in prepared to pay bank notes.
$600,000.00 worth of bank notes ? I don't know. The first ones to come in came in to hand me the full amount of
their shares. There was $2,800,000.00 worth of shares out. I did not want to receive that amount of money with inexperienced bank officers. I said I would only accept money in advance of call if the man making it would take out a loan upon which I could call in 24 hours.
Judge:- How did they pay. They had come along and said "I want to pay this money" ? I gave them a cash receipt, and there and then made a loan.
Included in this 6 lakhs was there a loan of $432,000.00 advanced to Mrs.Brewer ? There was, but as you are aware there is a full explanation of that.
I would be glad to hear it that was not paid in Cash ? No.
It was included in your cash book ? It followed the custom of the bank.
That was advanced on no security ? She was trustee of those shares and advance of call and took out e loen
On her having paid.
she paid her money in in respect of that.
You seriously say Mrs. Brewer paid $48,000 to the bank ? Not in bank notes - she paid it in exactly the same way as was laid down. There is a long story leading up to it which I will give if you desire.
I put it to you during the month of June you received no actual cash when you lent 6 lakhs you received actual cash for shares $16,400.00. I will take that to represent the amount of bank notes received, and the rest was proceeds of there loans made by the company? Bot the proceeds.
I put it to you that nothing was ever received by any of the shareholders except a promissory note ? If nothing
was received by the Company, we could not pay anything out.
that was
The Company made loans against Promissory Notes the beginning and end of the transaction? I disagree.
In the month of July, 1927, you granted further loans to your shareholders to the extent of $142,000.00 ? Very likely, I think it is probable.
Would you like to look at any book ? If you wish me to make it definite.
(Journal handed
I would like to have it clear please ? to witness) Loan in July amounting to $142,000
Yes, that is right.
During the month of July I put it to you, you actually received no money or cash or what you prefer to call it, $5,250 - do you agree ? No.
And that the rest of the cash which purported to have been received was in connection with these Promissory Notes and Receipt transactions ? You can easily divide it - where you have allotment, it is Cash- where you have advance call
This is your Application Allotment book. There is a short entry for July Ex,NIB 18. The Application Allotment book during the month of July - there is $5,250.00, I put it to you that actual cash received by you in July was $5250.00 ?
That is not true.
You received $12,000.00 in cash ? In bank notes, and $135,000.00 more in cash.
The $135,000.00 which purports to have been received in cash was the product of your loan transactions, with your own
shareholders ? The loans were the produce of this cash.
The result of these lom transactions with your shareholders did not alter in any respect the amount of cash held by your
company? Yes.
It may have altered your books but not the psoition decidedly. Before these payments and loans were made we had no claim against our shareholders, for anything more than the money called up. But so soon as they had paid their calls in advance and paid their money, we could demand them to pay at any date – therefore the cash position is altered, because we
can command the money. When the loans were made we could command the money but before the loans were made we had no right to demand it. We would have to make calls and go to a lot of trouble.
You actually purport to have advanced in loans to your shareholders a total of approximately 7 lakhs ? I think that is right.
And that appearing in one form or another is a perfectly good asset in your balance sheet ? It must be about $400,000.00
There was $432,000.00 for Mrs. Brewer which I w ill deal with later I say 71⁄2 lakhs appeared as perfectly good assets in one form or another, in the balance sheet ? They do, because they
Without any qualification or any comment or provision for doubtful debts ? There was no need for such.
There is outstanding on these Promissory Notes and Receipts at the present time something in the neighbourhood of 4 lakhs ? Still outstanding ?
Yes ? I should think that to be likely.
If you regard them as good debts why did you not collect them ? Because I did not wish to collect them at any time before the closing of our branches, and after the closing of our branches we could not collect any. I collected a little.
An absolutely insignificant amount ? Yes, and it made me enemies.
Your company was very urgently in need of money when you went into liquidation? Ever since July of last year.
You have been urgently in need of money since July of last year. I think the first five months of this year you have been carrying on your business at a loss ? And that has been reported to the directors several times.
And your need increased day by day? Yes, on the other hand we always had before us what we had actually achieved.
Your need of money was so urgent in fact that you could not raise the necessary fees for solicitor and counsel to fight an action that was coming out in this court? Perfectly correct and we had a good case.
I want to go back to the balance sheet again under heading "Mortgages, Loans and Investments". I want to go to the item Short Term and At Call $349,630.00. These are items we have just been dealing with. $345,630.00 out of that amount represented loans to shareholders ? I think you are
right. I think all of it did.
What was the collateral security held on those loans ? Cash that the shareholders had paid without any obligation on their part to do so.
But you have no cash against this. You never had $200,000.00 ? If I did not have the cash, I could never had made the loan.
I am just putting in one receipt to show the form these transactions took. (Ex.NIB 19).
Do you consider that that is an appropriate way to describe these transactions in your balance sheet as "Collateral Security Loan Short Term and at Call" ? I can think of no better way of terming it even now.
Judge:- Collateral security is very material is it not?
Judge: In your case it was simply intention to pay when called on ? Yes, My Lord.
When these loans against call in advance were made, a receipt was signed by the applicant in that form acknowledging the receipt of a certain sum of money and at the end of the note it says "I agree that this loan if accepted shall be a lien on the said shares etc
In this form I believe all
of them were conducted ? That is the form laid down. Whether there was any exception I do not know, and would you note that each one of them contains a receipt for cash.
penultimate paragraph. This answer if made (which I doubt) does not convey my true meaning.
Yes, I observe that it is a receipt for cash. When did you first begin to have any doubt about the soundness of these assets ? In the case of one or two individuals quite early; in the vast majority of them, I had no doubt in respect of them until we had to lean upon them.
Did the directors of the Company make an arrangement, to which you were a party, that in respect of debts due from shareholders it was optional for them to take out bonds maturing in ten years ? I entirely agree.
Were you prepared to enter into that arrangement ? It was just
what we wanted.
You were to issue bonds on which a small amount was payable each month as long as those payments were kept up you
would not call in the loan ? That was the intention behind' the whole system, because that brought us in a revenue steadily, instead of a whole lump sum.
The point being to give shareholders 10 years to pay for their shares? Yes, and we would have constant money coming in.
Do you think a loan payable in that time is correctly described as a short term on call ? No, had the bonds been taken out they would not be described that way.
Was no advantage taken of this offer? By one man only.
Can you suggest any reason ? No, I have always tried to point out the advantage of it and they could not see it. Right from the start I have been at them all the time. I would certainly have done it myself.
Next item. Mortgage and Long Term Loans $266,630.00
that was
a cross-entry in your book ? I think you are right. It is difficult for me to make a definite statement on that point. I did not know it at the time this balance sheet was made out.
I say it was not a mortgage or long term loan. It is just a cross-entry? I say that if I made this myself I would have found it, but reasonable inspection would not have discovered that, because it is an error on both sides.
I am going to put it to you further - that this asset of $260,000 did not exist ? That is quite possible.
It was merely a cross-entry ? It was not deliberately done. The balance sheet was made out by the auditor. I subjected it to a reasonable inspection, but I don't think it is unreasonable to overlook a double entry; that should have been wiped off, but no reasonable inspection could have discovered it.
How can you bring yourself to describe an inter-branch transaction as a Mortgage and Long Term Loan it is a large item? It is not in amount of $1,000,000.00. I probably ought to have discovered it but I did not because that balance sheet exists in the Hong Kong branch and the Head Office.
By no possible stretch of imagination could they be described. as they are described it is not a mortgage? That is the way they appear in the Branch book.
An ordinary business man looking at this would assume that it was a perfectly good asset? Quite, it should not be there. I did not stop it.
Now, the next item. "Stocks, Shares and Other Investments". $484,831.80 $415,000.00 of that amount represents shares in the Instone Trading Co. ? Yes.
That was a private company?
The two original shareholders were Mrs Brewer and P.C.Leo ?
Mr.Li Yuk Ting?
The Memorandum and Articles of that Company were prepared by
you? By ne.
Filed on April 17th, 1928 ? Yes.
Certificate of Incorporation dated seme day 17th April,1928. That is just 13 days before the expiration of the period covered by your balance sheet ? Yes, this company had no secretary.
Any staff at all? did any business
No, it never started business. It never it intended to.
It had no assets with the exception of some shares in the Instone Banking Corporation ? It had shares in the Instone Banking Corporation.
For which it paid nothing? For which it gave shares.
Its own shares ? Yes.
$415,000.00 which
No cash was ever paid in respect of this formed the larger part of this asset - under Stocks, Shares, and Investments ? We paid our shares.
You gave the Instone Trading, Ltd., your shares and they gave you some shares ?
That is true.
And I suggest that their shares as assets are worth nothing ? No, you cannot say $87.00 a share is nothing I paid that much for our shares myself. Brokers were sent out to buy shares up to 97.
And I suggest that their shares as assets are worth nothing? No, you cannot say $97.00 a share is nothing - I was ready to pay that much for our shares myself. Brokers were sent out to buy shares up to 97.
I submit to you that asset was worth nothing? The value of those shares was $97 a share.
Why was the Instone Trading Ltd. formed? For the purpose of running an Import and Export Co. in conjunction with our bank. We had two branches in Shekki and Canter.
Why did it not function ? Because the branches were closed. Shortly after the branches were closed one month after.
Where did the Instone Bank get their shares from ? There is an agreement between the Instone Bank, Mrs.Brewer and the Instone Trading which fully covers the whole transaction.
I have a copy of it here (Ex.NIB 20)? The original is with Messrs Hastings.
Judge:- These shares which Mrs. Brewer had in the Instone Banking Corporation were fully paid up shares ? They were fully paid up shares.
For the purpose of making these shares of Mrs.Brewer fully paid up she was granted a loan of $432,000.00 ? quite correct.
Had it the effect of raking these shares fully paid up? Yes.
Is that a copy of the agreement with the Instone Trading Co. ? To the best of my knowledge this is a true copy.
Agreement between the Instone Banking Corporation, Ltd. of the
irst part, the Instone Trading Co. of the second part and Mrs Dorothy Brewer of the third part ? I would like to mention that on the original both sets of signatures are there. The signatures of the directors at the directors meeting having approved, and of the principals to the agreemont.
(This agreement was road).
That agreement provided that the Instone Trading Co. shall purchase certain shares of the Instone Banking Corporation, and shall pay the purchase price thereof ? Correct.
Nothing was paid ? There was actually no bank notes or coin passed. But if you read that agreement we are obliged to give them something and they are obliged to give us something.
Taking it in my sense of the word, no cash was paid for these shares ? No coin or bank notes were paid in your sense of the word.
Judge: The Instone Trading shares were handed to your company, the Instone Bank, and apparently they were fully paid up shares ?
Q.R: The second clause of the agreement, is:- (clense read) As a matter of fact no cash in my sense of the word, was ever received in respect of that $10,000.00 ? It would have been
received had the Compary functioned.
But as the Company did not function no cash was received ? It could not pay its debts, but there was a reasonable expectation of that money being received.
That $10,000.00 which had never been received was carried to your Profit and Loss Account as part of your trading profit for that rear ? Of course.
Nothing had ever been received ? It was still a current debt.
And if I may say 60 still a bad debt ? No, had it not been for the closing of our company, it would have paid its debts. (Clause 3 read). It never did pay any money ? Clauses 1 and 3
set each other off.
It was not a cash transaction in fact ? The agreement states the intention of the parties.
The intention of the parties was that it should be a cash transaction but in fact it was not a cash transaction
you agree
(Re.Mrs.Brower as director of Instone Trading Co. clause'read). That does not concern us ? It does concern the company,which you will find later.
On June 1st, was Mrs. Brewer allotted $480,000 shares in the Instone Banking Corporation ? As trustee.
Judge:- Trustee for whom ?
Trustee for certain applicants. By reason of the decision of the directors meeting, when they requested that she should do so. People who did not pay their money, but it was certain they would come and pay for their shares.
On the 1st June she, according to the shareholders ledger, paid $48,000.00 ? Yes.
That was not in cash in my sense of the word ?
sense of the word.
Not in your
That was part of the consideration paid to you in respect of agreement A? It was part of the refund to the Company.
Shortly Agreement A (EX. NIB 21) It is correct ? This is the duplicate. On the original there is a certificate of the secretary to the effect that it is the agreement referred to in the Articles of Association.
Agreement' made between the Instone Banking Corporation of the
one part, and Instone Brewer of the other part dated 25th February, 1927.
In short - the effect of that agreement was that the company was to take over from you the benefit of another agreement
which you had entered into with certain parties for the sale of certain securities ? Three other agreements.
And in consideration of that agreement this is your cash journal page 84, on June 1st, $68,453.81 purported to have been paid? It was paid. Here is an item that proves my contention regarding cash. It proves it because I have the right to command by that agreement, cash. I only have to pay this into my account and no one can say me hay. I have a right to put this $68,000 into my pocket, is not cash.
and yet you say it
This amount you say was cash ? I had the cash in my hand and I had the right to use it.
You agree that the cash balance on 31st May the day before this payment was made to you was $9,330.00 ? It is quite likely.
when you
And the Company according to the Cash Book, had not received any cash between May 30th and June 1st say they could pay you $68,453.81? Yes, if I wished I could have put that $68,453.81 into my pocket and gone away.
This agreement of yours with these parties did not turn out as profitable as had been anticipated. The agreement you assigned for the benefit of the company ? They did not wish to work Singapore.
For some reason it was found not advantageous for the Company to take it over ? Yes.
On 28th May, 1927, you wrote a letter to the Directors of the Instone Banking Corporation of which this is a copy? (Ex.NIB 22). That is a correct copy of my letter (Read).
This is your letter? That is my letter.
That is the reply received from Mr.P.C.Leo- secretary of the Company ? That is the reply (Ex.NIB 23) received by me. (Read)
In pursuance of that arrangement was the sum of $10,000.00 in real cash paid to Li Yuk Tin ? $7,000.00 was paid forthwith, and $3,000.00 subsequently paid.
In cash? Hongkong and Shanghai bank notes that was a cash payment by me- that is the receipt (Ex. NIB 24).
$7000.00 of that was paid in cash, that formed part of the consideration due in respect of agreement A which was being held by Mrs Brewer ? That is correct.
And that $48,000.00 was used by her to pay the allotment and first call on the 4800 shares held by her ? That is correct.
So Mrs Brewer was a trustee for these shares ? She must be regarded as a trustee she has no beneficial interest.
These arrangements were made in April, 1927 ? Yes.
This answer if made ( which I doubt ) is unsound. See date of letters previously read. Earliest is dated 28th May, 1927
(page 27 para 14 ).
On the 12th May, 1927, a directors meeting was held - the following resolution was passed "That the shares Nos I - 4800 remain unallotted at present and held in reserve for Mr Instone Brewer or his nominee and shall be allotted to him if and when he make application for same." Why were these shares held in reserve for you or your nominee ? That was just when this point was being decided. Because I was going to take them if I got the whole consideration money and if I did not keep the whole consideration money, I was not.
Were these shares allotted to Mrs Brewer ? were allotted to Mrs Brewer.
Afterwards they
And this reservation of shares was in fact in part payment of the consideration money in Agreement A ? Until it was known how much consideration money I was in fact receiving, I was unable to say how many shares I was prepared to purchase - therefore these particular shares were held up in the allotment until the question of a refund of consideration money had been settled one way or the other.
Mrs Brewer paid the allotment on first call - $48,000.00 was part of the consideration money in that agreement? Yes.
It was not paid in cash in my sense of the word ? No.
On June 28th, 1927, according to your Loan Register, a loan of $432,000.00 was made to Mrs Brewer ? I know it to be true.
Why was that loan made ? In order to fully pay the shares.
Why did you want to fully pay the shares at that time?
read the letter, you will see these shares were to be sold fully paid to the Peking buyers.
By a book entry of a loan to Mrs Brewer, they became fully paid? The process was identical to what had been done with the other clients. You see it is quite clearly set out in that letter, what is to be done.
The Peking people never did take up the greater portion of their shares. 4500 out of 4800 shares remained on Mrs Brewer's hands and those 4500 were the shares of the Instone Banking Corporation which she sold to the Instone Trading Co. ? Correct.
The arrangement with the Instone Trading became necessary because the arrangement with the Peking people did not go forward, and you wanted to get rid of these shares somehow, and so you trans- ferred them to the Instone Trading? That is a reasonable statement.
The effect being an asset in your balance sheet for $415,000.00 that was the net result of the whole of this business that is the origin and history of it? That was the origin and history of it, but it was not done with the intention of putting it in as it is there.
Did the auditor ask you questions about your stocks, shares and investments ? Surely.
Did he know the Trading Company had never done any business? Yes, he asked me what was the value, and I said this company owns so many shares in the Instone Bank, and he worked it out.
There was no market? Yes, I was buying.
You were the market ? There was a syndicate it was not my to money paying for it. They were very anxious to corner - get the majority of the shares in the directors hands, and in consequence were willing to buy sufficient shares to do so.
Judge: Do I understand you were President of this syndicate ? To the extent that I sent out brokers to obtain any Instone shares up to $97.
Judge: You obtained none ? I obtained 100 only.
Judge: You used the word "corner" ? We wanted to get a work- ing majority of directors. This was just before the general meeting when we were electing new directors.
From this balance sheet, an ordinary business man reading this would form the opinion I take it, that the Company on the 30th April had good assets to the extent of over I million dollars. That is what the balance sheet means? No doubt. I do not know what a Chinese business man would think.
I am not talking about a Chinese man- this is an English firm? Yes, but all our customers are Chinese that is a materiai point.
Most of the Chinese would not be able to read it possibly.
I put it to you that that statement was entirely false and mis- leading? The whole of the headings "Loens, Mortgages and Investments," is entirely misleading? I think that paragraph is perfectly accurate with the exception of $260,000.00 which is a mistake. It was overlooked.
You think your loans to shareholders on Promissory Notes and Receipts were perfectly good assets no provision made for bad debts, and your investment in the Instone Trading Co. could be realised at any time? I consider my loans to share- holders were perfectly good assets, and there would he no bad debts. I consider that the Instone Trading shares were fully worth their money because they possessed assets more than the amount which they were stated to represent in our books.
Judge:- The assets depending upon the Instone Banking Corpor- ation shares ? Which had a market value.
The bank premises Hongkong and Shekki- less $16,417.00 written off for depreciation $353,232.89 - bank premises appear in your balance sheet as a perfectly free asset that is to say not encumbered ? On the contrary - mortgage appears on the other side.
Can you show any item in the balance sheet by which anybody reading the balance sheet for information could deduce the
fact that the bank premises were mortgaged to the Hongkong University for $150,000 ? (Ex. NIB 8 shown to witness) It says here "Specialty Debt".
That may mean any debt under seal ? "Specialty Debt" is the phrase your Registrar used in commection with mortgages.
It does not say on what premises the mortgage is secured? No.
There is nothing to show in the balance sheet that the bank's premises were in fact mortgaged? I say that the setting out of "Specialty Debt" separate from the rest to any person with a general knowledge of law or book-keeping
That would not convey that impression to the ordinary business man ? It is not meant to. I am following the
Government system.
Why not put in "Mortgage on the bank premises" ? Because it is not customary. The Government would not ask us to
distinguish specialty debts if that was not the appropriate term to use. That is my idea and the auditor had a different idea "Specialty Debt" is a term used by the Government.
The auditor took it out of your balance sheet
and it was included in the item "Accounts Payable" ? That illustrates the difference between the Accounting mind and the legal
You don't suggest that the printed balance sheet discloses the fact that there is any mortgage on the bank premises? It does not to me.
Nor to me nor to anybody else? But I think my term is excellent.
You agree that a specialty debt might be any debt secured under a bond ? I agree, true, but the word "specialty debt" at once puts a person on his guard, that there is a debt over and above an ordinary debt.
The premises of your bank Hongkong Central, was purchased for $249000 ?
From a man called Tau Wai ? Yes.
Alias Yau Farin ? Yes, I think so.
25, Des Voeux Road,
One of your directors ? Yes, I believe one of our directors.
Judge:- Was that a long leasehold ? O.R: Yes, I believe 999 years, My Lord.
You know Yau Farin purchased these premises originally from the liquidator of the Oriental Commercial Bank for $205,000.00? I did not at the time, but later.
You knew at the time this balance sheet was published ?
Did you ever ask Yau Farin if he made a profit of $35,000 from the company of which he was a director ?
It was difficult for me to do such a thing, I dislike the man.
You bought the premises over from Yau Farin for $240,000 ? Yes.
Sometime subsequent to that you received an offer to purchase the premises?
Yau Farin.
He came with
From whom? It came through the same man came to me. I know the offer to be genuine.
$10,000.00 cash and asked me to put it in my pocket, and sell the building for $240,000.00 so it was a genuine offer.
It is not peculiar, I understand, Rather a peculiar offer ? in Chinese business, But it was one to which I at once said "You are prepared to pay $250,000.00 I will put the offer to the directors".
It was a firm that wanted
On whose behalf was the offer ? to start a banking business and thought our premises would be very suitable for the purpose.
Do you know what the firm was ? were made for them to amalgamate.
I don't, but I know offers
It would be about March about When was this offer made ? a fortnight before writing up the books.
It was considered but it was
The offer was not accepted ? refused they thought they could get more.
Judge:- Did you not want the premises to carry on your
- Myself I and the directors own banking business? Myself
were all agreeable that smaller premises were more suitable for our purpose they lost a good opportunity by being too greedy.
Jan. 12th. It appears in your Journal NIB 15
- page 16 That shows the transaction - head office- A-1 Ledger. NIB 11 page 41 That is the writing up of the premises.
We wrote the premises at Vaults were kept separate ? $240,000.00
Premises
by $35,000.00
So you have written up although the premises were never disposed of at that figure, and on the strength of that you carried $35,000 as a profit to your Profit and Loss Account ? prepared to justify that action.
Yes, and I am
Although the profit of $35,000.00, like the profit of $10,000 in connection with the deal with the Instone Trading
The two profits was never in effect realized by the Company ? are not parallel, but it is correct to say that there
there was no cash received, but was a profit on this
that is a profit. I will we had an appreciated building justify it if given opportunity,
The point in respect of this $35,000.00
the appreciation
in value and also the $10,000.00 - the point of
similarity I want to put to you is that no profit was in effect actually realised in respect of these two transactions? One is a debt that afterwards proved bad, and one is the appreciation of premises, at which price they cannot be sold now.
This profit was not in fact realised
To my mind, yes.
Za Kufer
You never got $240,000 for the premises ? premises valued at $250,000.00
But we had
Somebody made you an offer for $250,000.00 of which the Company did not take advantage which profit was not realized ? But the point is that anybody who refuses a cash offer for anything does in fact buy at that price.
It is a question of book-keeping which I am not going into. All I am putting to you is that in fact this profit which you depose to was never realised. You never got it ?
My pp point is that although the offer was refused the value of premises was properly put at the price offered.
If you refuse a cash offer for shares that stand at 60 to night and are 20 tomorrow morning are you justified at
putting them at 60 ? Not after, but as long as those shares remain at 60.
This profit was not written down ? It was written down later after the crash.
Where was it written down ? In the books of the company.
It stood in the balance sheet ? At the time that balance sheet was made the building was worth $250,000.00, when the building value decreased the decrease was also posted to Profit and Loss.
In a different year ? That cannot be helped
diminished.
the price
In the meantime you used the profit which you did not realize, to a pay a dividend ? You don't have to realize a profit
to pay a dividend, you have to earn a profit to pay a dividend.
it had to be in
The Shekki property was never in the bank's name ? company could not hold property in China the name of one of my directors.
It was put in the name of a director ? It was put in the name of a director.
Who is in possession of the Shekki property now? I have no idea.
Who has been in possession of it since your branch closed ? Li Yuk Tin has been in possession of it for a considerable portion of the time.
The Company's title to that Shekki property was not a good
title ? It was intended to be.
In fact it was bad ? I don't know that is a question of law not of fact.
Is it a fact you have not had possession of the shekki premises since your Shekki branch was closed and the bank has been unable to deal in any way with the shekki property ? Quite true. It would be more accurate to say we have not since the death of Jan See Chin.
The price of the Shekki property was $83,000.00 ? would be right. It was actually $107,000.00 Chinese money which worked out in Hongkong exchange to $83,000.00
Payment was made for the Shekki property by the bank as regards $70,000.00 by two deposit receipt ? Jan See Chin refused to have any dealings with this property unless we paid him cash, but having received cash, he agreed to put $70,000.00 of it on deposit. He insisted on that because of the legal inference.
Was $60,000.00 of this money satisfied by the issue of two deposit notes ? Subject to what I have just said, yes.
He was not anxious to have cash but would sooner have a deposit note on account of the legal consequences? He said "I have got to have immediate cash for my building although I am willing
to myself put some of that money on deposit". I can show you the abortive agreement.
The additional $10,000.00 was satisfied by the issue of 100 fully paid up shares ? He used $10,000 to purchase 100 fully paid up
And the actual payment which you gave him in cash was about $3000 ? The point is this that this transaction proves that your use of the word cash has no sense in the ordinary language.
Judge:- Reprimands Mr.Brewer and asks the same question of him? No, there was no money whatever received in notes, because all he did was to put the balance on current account which he drew out from time to time Ho money passed over at the transfer.
Judge:- So really what happened was this:- He had the premises at a certain value and you took them over (Discussion between Judge and witness - could not hear ).
The only point I want to make is. No cash passed in respect of
this transaction ?
Judge:- What Mr.Brewer says is there was the transaction they have something definite of significant value and that value was
divided between the figures on the deposit note and the amount which was placed to his credit on current account with the bank.
And the issue of 100 shares ?
Customers' deposits on the Liability side of the Account $466,400.25 You never had that amount on deposit, or anything like it ? I don't know why you should think so does not my balance sheet agree ?
I don't know about your balance sheet. As far as I remember, agrees. Customers' deposits $466,400.25. This is where you got the branch transfer ? You never had that amount on deposit ? Did that include $260,000 which you admit was an inter-branch entry which should not have appeared ? It was not supplied by
The effect of this entry on an ordinary per son's mind would be to make him think that customers' deposits were $466,400.25 if
the bank has on deposit nearly half a million, they must be doing a substantial business ? Well we were, I saw no reason to disbelieve those figures seeing them on the books.
You say you were doing a substantial business on current account, at the end of April, 1928 the amount on deposit was $14,011.71 ? Most of it was mine.
So your current account business was not substantial refused current accounts.
Fixed deposits $103,650.00 that included the $70,000.00 in respect of the shekki property ? Yes.
Judge:- That represents money?
The point I was suggesting was that no money had been deposited. It was a payment for property.
There was
Judge: He got that from the bank and deposited it. no need for the money to pass it does not represent money's worth. It is on a different footing to the loans to share- holders.
You had in Savings Bank - $12,294.33 ? I take your word for
My Lord, it is included in the $466,400,25 deposits. You had not a very large current accounts, not a very large Savings
account you had these deposits what banking business were you carrying on at that time. You say you had a substantial business - what was it ? Bonds. Two bonds a day would have paid all our expenses. Trustee business which was not large but was developing. We had our branches in Shekki within a couple of months we put out $100,000.00 worth of notes on the market. We were doing quite a large volume of business. Canton
was on the point of opening.
At the time of the balance sheet how long had Shekki been opened ? 20th March.
Just over a month? Yes, and if you look at the balance sheet you can see the volume of business we were doing.
You agree your volume of business in Hongkong - your business was negligible? In hongkong we never intended to do a large
volume of what you call banking business.
What did you want ? We wanted our honds and trustee business. That was the only thing I wanted from its inception.
Judge:- By bonds do you mean these bonds the same as I have here? Yes.
Judge:- How many were issued did I understand you to say one only? No, My Lord - thousands.
What I am putting to you is that this balance sheet is a balance sheet which might be published by a banking company doing an extraordinary successful and large business- that is the only conclusion any one of ordinary intelligence could arrive at by looking at this balance sheet. They would say this company is sound financially, possesses good assets and is doing a large amount of banking business? All of which is true.
There has been no difficulty about the share capital which has been subscribed to the extent of $2,600,000.00 whereas that was not the case ? That was the case.
Half the shares
133,000 had been transferred to Allotment Suspense Account because in November, 1927, you were doubtful about them ? Quite true I have already explained to you, I
was not responsible for this balance sheet.
Also the balance sheet is absolutely misleading as regards the assets, in that the assets and the liabilities conceal the Company's principal weakness, which was at all times lack of working capital - that fact is studiously concealed
in this balance sheet ? Without desiring to be repetitious, I can only say I was assured by the auditor that it was not misleading.
Did the auditor dictate to you what you should do Did he run your company? No, I told him here are our books put
them together and make out a balance sheet. If there is anything wrong with my book, I accept full responsibility.
Do you agree that this is a proper definition of a balance sheet: "Now, a full and fair Balance Sheet must be such a
Balance Sheet as to convey a truthful statement as to the Company's position. It must not conceal any know cause of weakness in the financial position, or suggest anything which cannot be supported as fairly correct in a business point of view" ? I agree that is the kind of balance sheet I would like to issue for my company.
Do you agree that this balance sheet is misleading? I agree that to an Englishman reading this balance sheet, it is utterly misleading, but there is not a word of untruth in this balance sheet and there is nothing to justify my asking for them to be returned after they were published.
Judge:- Do you not think it was an important matter to have recalled this balance sheet when you found it was misleading? After considering the matter whether I should send out and cancel the balance sheet as I found there was no lie about it, although it was misleading the auditor advised me it was the customary way among the Chinese and
let it go at that.
Judge:- As a result of this wisleading balance sheet - if you knew it was misleading at the adjourned meeting why did you declare the dividend ? The dividends were genuine and had been earned.
(Mr. Brewer explains to Judge).
You call tilat a faked entry on your liability side, and yet you incurred the responsibility of taking that balance sheet and causing it to be filed by the Registrar
signing it without saying a word - is that so.
is that so. Take this balance sheet with the item which you acknowledge was faked ? Faked, was the wrong word My Lord, I meant misleading.
Judge:- What is the difference between something which is misleading and something which is a lie ? A great deal of difference.
I am putting to you the Statutory Report NIB 4 filed by you on 16th August, 1927, paragraph B says the total amountb of cash received by the Company was $876,750.00 ? That is the correct figure.
I put it to you that under two lakhs of cash had been received by the company at that time the statement was filed ? That statement is true.
That statement is not true.
Was 7 lakhs of this $876,750.00 or a considerable portion of it, was that passed to these shareholders on loans,
promissory notes and by means of these Receipts ? A very considerable portion of that cash was issued to shareholders.
I put it to you that with regard to "Particulars of Payments, Investments, Loans and Deposits $793,730.00" in your
statutory report, the banking company could no more have lent $793.730.00 that I could ? But they did it.
I put it to you that both these items in the Statutory Report were false and misleading? I say they were perfectly true and to put any other words to describe them would not be correct.
Why did you not utilize the ordinary machinery of the Company's Ordinance for collecting your share Capital ? Because we did not want to have too much money we thought we were going to get $2,800,000.00 loaded on us, and I got cold feet.
wise after the event.
I suggest to you that the reason was that you found that Subscribed Capital was not coming in as it should have come in, you only received $27,000.00 up to the end of May. You then decided that this procedure would not do, and on the 10th June you started issuing this enormous series of loans ? The reason why the 10th June was chosen was because that was the date on which we were ready to issue the share certificates.
You don't suggest that $27,000.00 is a very large subscription of share capital ? We got applications for 2 millions.
Applications but no money? We had every reason to believe it
was coming.
Whether it was coming or not coming it did not come in, and on that day you had $27,000 on the 21st May ? No.
In response to subscription for shares $27,000.00 was very
in significant ? We had written accepting them - we are bound to take their money.
You expected it in June, you went on expecting it in July? Peking is a long way away.
You gave up expecting it when Mrs. Jan See Chin did not pay any money? I gave up expecting some of it in November, 1927.
Five months before the publication of your balance sheet ? I readjusted my ideas entirely. I was willing then to take money and not try to get rid of it.
You were talking about your Profit and Lo ss and paying dividends. $35,000 was the increase in value of your premises ?
Quite correct.
And $10,000.00 was the unrealised profit made in connection with the transaction with the Instone Limited ? I think a debt is a realised profit otherwise it is correct.
With regard to the dividend of 10% you never paid it ? According to your version of cash, we never paid anything.
What you did was to credit the amount of the dividends to the Shareholders Loan Account as regards interest? That is right
As a matter of fact if it had been a question of paying out a Cash dividend you could not do it ? We could have paid the
dividend but not the interest on the uncalled capital
dividends were only $10,000.00.
You could not run to $100,000,00 in interest for uncalled capital? No, on your version, it was simply book entries.
One other item in the Profit and Loss Account "By rent, Interest, Exchange and Trust Trading"- have you the items in the printed balance sheet ? Yes.
$127,262.95 ? Yes.
In arriving at that figure you have credited yourself with interest on your loans ? Yes, of course.
Turn to the other side the liability side, to "Interest Salaries and General Expenses" - you have not in arriving at that figure charged the interest which the company had to pay on calls in advance ? No.
In fact, you have charged interest on one side and you omitted to charge interest on another side ? Because it is interest on capital it is never put in Profit and Loss, it is put in the Appropriation of Profit and Loss it is the same as the
dividend.
You have treated interest and uncalled capital, $54,000.00.
say that should appear on the debit side of your Profit and Lo ss Account. Your profit is no profit at all? That is not true, because where you deduct a thing it makes no difference to the balance, whatever account it is deducted from.
OFFICIAL RECEIVER:-
That closes my examination, My Lord.
Chief Justice adjourns the case at 4.45 p.m., stating that the Court will sit on the 7th at 10.a.m. when Mr.Brewer will be given the opportunity to give further evidence if he desires).
Wednesday, 10.30 a.m., 7th August, 1929.
Official Receiver requests to be allowed to put in book of Head Office Register of Loans and Investments
(Ex. NIB 25).
MR. BREWER.
I was President of the Instone Banking Corporation and occupied the position of Managing Director for approximately
two years.
During the majority of that period Mrs. In stone Brewer was Treasurer of the Company.
Throughout the whole of the period concerned there was not one cent of money misapplied or unaccounted for, there were no swollen salaries, no secret profits, no unnecessary
expense of any type, the business was run on an economic basis and can compare favourably with the running of any other business in this Colony or elsewhere.
The point I wish to make is that the management of the Company was conducted in a thoroughly honest and proper manner.
The object of the company originally was the formation of a trustee bank.
I had come direct from the study of Trustee banks in America, and had put up the idea of its formation and it was so formed.
An agreement was entered into there has been no suggestion that the agreement was not a proper one I will not dwell on that but that agreement declared that certain contracts were to be purchased for cash. The agreement stated "for
cash" because the directors of new companies, to my knowledge, are frequently lavish with shares. No one is wantonly lavish with cash. Therefore, I refused to enter into a contract whereby I would sell my rights for shares. I
insisted on cash in order that a proper valuation should be arrived at by the directors.
Then it came to the question of how should that agreement be entered in the books. I was responsible for the book-keeping. I did not personally enter up the books, but I gave instructions
as to how the book-keeping was to be done.
I had new a discretion.
It is possible to argue that no cash in fact passed. this agreement was satisfied by the giving of shares.
possible to say that cash did pass and that cash was used to purchase shares.
I had a discretion. It was not a question of leaving out an entry or fraudulently putting in an entry - it was a
question of discretion of how an entry was to be made in the book.
I decided this by asking the question "What is the intention of the parties" ? and whenever a question of book-keeping has arisen I have decided that way by asking that test question "what is the intention of the parties". In these particular transactions, as soon as I had asked myself that question, the way clarified. The agreement stated "Cash must be paid". If cash were not in fact paid then the
agreement had never been satisfied because, had the item been entered in the book as being satisfied by shares, you
must necessarily assume at law the legal fiction of a letter of agreement, permitting satisfaction by shares.
By asking myself what is the intention of the parties, and ordering these transactions to be entered as cash, I at once
obviated the necessity for any legal fiction. The agreement could be left as it stood, it required cash to satisfy it - the books stated that cash had been received in satisfaction, and all the documents and receipts here out the fact that
cas had been given and cash was utilized.
But as I would stress, it was purely a discretion on me to decide which of two entirely proper methods should be adopted.
Then the next point was the question of capital.
Before the company was formed I was asked by the intending shareholders what capital would be necessary. I was quite
clear in my mind on that point. In America there are literally thousands of trustee and private banks.
Judge:- We cannot go into that - Stick to the points on which you have been examined. You have been given a great
deal of latitude, you must not make speeches.
I have been asked whether the capital of our company was
inadequate and whether that was not a reason for failure. To my knowledge there are many banks profitably operating on a capital of less than G. $25,000.00. It was therefore, my aim, from the start, that our capital should be $50,000.00 Hongkong currency. When the desire to purchase the building was included in the aim, my estimate was increased by the value of the building, making the capital $150,000.00. In this I was in disagreement with my co-directors who desired
a big capital and in consequence, I agreed and did incorporate the company and had a large authorised capital in
order to allow for the possibility of later expansion on the lines they wished, the idea being that an agreemen
experienced banker manager was to be brought in and take charge and run a banking exchange along their lines when they wished to do so. While I was in charge of the capital
I insisted that the capital should not be excessive.
When applications arrived at 2 million odd dollars worth of shares and the experienced bank manager had not appeared
I being left in full responsibility - I was genuinely purturbed by the possibility of the excess money coming into my responsibility. I had no doubt whatever as to the genuineness
of these publications, or of the existence of this money, because it had been a direct point of contention between me and my follow directors as to whether a large capital should or should not be accepted. Not being willing to accept such a huge sum with inexperienced helpers, and myself inexperienced in banking, I sought every method to avoid such a responsibility.
There were two obvious things to be done. One, having a call of 10% only and accepting only 10% and refusing to allow any further monies to be paid in above the 10% - the disadvantag of that was apparent in that when the manager was appointed and I was expecting his appointment daily - it would take him a month to comply with the formalities necessary for a further
call; and he would presumably be a high salaried man, and a month's waste of time would be of importance.
The other method would be to accept all the money and pile it
up in a current account in another bank to wait for the manager's arrival to use it. The disadvantage of that being that it would be a waste of interest.
Consideration gave me a third method which did away with both disadvantages.
By permitting the shareholders to pay not only the 10% called up,
but also the money uncalled and then insisting that the shareholder himself make use of that money on behalf of the
bank by re-borrowing it - putting the manager, when he arrived, in a position where he could inmediately call up that money, and at the same time it prevented the bank from losing any interest or having unused money on its hands.
By this method the monies of the bank were safely utilised,
and were yet ready and available when required. Owing to a misapprehension I must amplify the word "safely" in this connection.
10% of our shares were called up. A man who had applied for $10,000.00 could be asked to pay 1,000.00 and no more. If he paid $10,000.00 he had paid $9,000.00 more than his shares required him to pay, therefore that extra $9,000.00 was in fact a deposit. Every bit as much as if he had come and paid over the counter into the Deposit Account. It was not
share money. If he borrowed against that deposit, as is the custom of every bank to lend up to100% on such deposit account
If he borrowed against that deposit the worst that could happen
would be that his loan became a bad debt in which case at the very worst the bank would be in the identical position as if he had paid his call and made no further payment. was not possible for the bank to suffer any loss by reason of
that bad debt.
On the other hand so long as it was a good debt the bank had a very real advantage in the possession of money on immediate demand, instead of available only by extreme formalities.
When it came to the question of book-keeping; these items (again here I had a discretion) it was not a question of
"sould these items be left out or should I put in items that ought not to be there, it was a question of my having to put in the books these items in some method or another.
It is possible to look at these transactions in two ways. is possible to say that because no actual coin of the realm changed hands that therefore there had been no such transaction- that that ought not to have been in the books. Un the other hand, it isequally possible to say that these were cash transactions, that the money was in fact handed over for one purpose and was in fact handed back for another. my test question "What is the intention of the Parties".
I applied it became clear.
Then It was obviously the intention of the share- holder, to pay for his share in full. the intention of the bank to lend cash recoverable on demand, It was equally obvious recoverable as a loan, the intention of the parties was clear. That being so I instructed that these items be entered as cash items and having made the decision it became quite clear to me that I had acted correctly. Because, as did occur, did we at my time wish to bring an action to recover these loans, and did our books or our statutory report or any official documents filed by us, did these documents declare that no money had in effect been given, that these were not cash
transactions, had that been done, then it would have been a good defence to any action so to recover the money. The bank would have been estopped from maintaining that we had ever made the loan if our books and documents had not declared the fact that they were made.
There was a balance sheet issued, and filed by me. Prior to the printing of this balance sheet there was an earlier balance sheet got up, it is NIB 8. That is signed by me, and my
co-directors. To the best of my knowledge at the time it was a perfectly accurate balance sheet. I have since become satisfied that there are errors in that balance sheet which are entirely due to branch items having been included, where in fact they cancelled one another and should not have been
included.
That balance sheet was prepared by the auditor of the company at my request, my having stated my ignorance of the method of drawing up a balance sheet for public requirements. balance sheet was made up from three, what I may call branch
The balance sheets. They are three balance sheets entirely agreeing with the books of the firm, and to my mind entirely accurate, and having no errors whatever in them. From these original balance sheets given by me to the auditor, a typewritten balance sheet was produced i.e., NIB 8. That balance sheet I checked and signed as did my co-directors. This is the only balance sheet that I myself have signed or my directors.
There are two errors in this balance sheet. These two errors as I say, are due to the auditor having left in branch items which in fact cancelled one another and should have been omitted. But they are neither errors that a reasonable man
exercising ordinary care would have noticed in the balance sheet.
In this balance sheet signed by me the actual items are set out with great clarity. Issued capital is distinguished from subscribed capital. Authorised capital is set out, the share calls outstanding are set out, as to whether they are uncalled, on allotment, or what they were; the sundry debtors in this balance sheet include no items which should not be there and the items set out are clearly showing their relative value.
This balance sheet was submitted to a directors meeting and was approved and passed unanimously as being the balance sheet for the firm for the period ending 30th April, 1928.
At the next meeting a printed balance sheet was submitted to the meeting. I was not at that meeting as the records show.
This balance sheet is not identical with the balance sheet I signed. The alteration was done without my knowledge nor in my presence, nor while I was actively engaged in the business of the firm.
Mrs. Instone Brewer who was in charge during my absence was fully aware that the auditor had been requested by me to draft the original balance sheet, and in consequence, permitted the auditor to make the alterations in the balance sheet as printed, but compelled him to sign the printed proof, the original proof of the printing he was
required to sign as showing that the alterations were made on his own authority and none other. That original printed proof has been produced in evidence. It is signed by one man only, and that man the auditor. That printed proof is the same as this balance sheet. The balance sheet which I signed is not the same and it is significant that the
features to which the greatest exception has been taken are the very features in which the balance sheet which I signed differs from the printed balance sheet.
During my absence this balance sheet was submitted to the general meeting of the shareholders. It had passed the directors in my absence. During my absence the other was printed and sent out to the shareholders in compliance with the Ordinance, submitted to them at a general meeting - at which general meeting I was not oresent, but at which general meeting the shareholders approved the printed balance sheet which was accordingly distributed to such persons as we had
intended sending our balance sheet to so that before I had become aware in any way that my balance sheet had been significantly altered, before I saw this printed sheet - it had already received its maximum publication.
After that this printed balance sheet received no further publication, save the one copy which I filed in accordance with the requirements of the Ordinance.
Now, here again I say I was faced with a discretion. not a question of my deciding to issue a misleading balance sheet. It was a question of decision here whether I was justified in recalling this balance sheet, or was I justified in letting it stand. It is a matter on which honest Englishmen might well disagree, because it is a discretionary matter. The balance sheet had already been issued. My personal interest lay in the withdrawal of the balance sheet.
I had mentioned before that there was at or about this time an attempt to acquire shares of the Instone Bank by a syndicate who were acting under the belief that my statement
Ja 3 lug
After they saw the balance them that my statement
My own personal interest
of the existing capital was true. sheet I was never able to convince of what the capital was, was true. was hurt by this balance sheet. That inclined me rather to lean over backwards.
Then again, by withdrawing this balance sheet it would unquestionably work a hurt to the firm a greater hurt than if the balance sheet had never been issued. So that, unless there were a real reason for its withdrawal, it should be allowed to stand. A real reason for its withdrawal would exist were the balance sheet untrue or misleading.
I examined both questions. It was not untrue I of my own ability was able to read through and decide there was nothing literally untrue. The statement "Issued and Subscribed" was a perfectly accurate description of the capital it was not in fact untrue.
"Accounts Receivable" was an accurate statement in point of fact, because each one of these accounts were in fact accounts receivable, though the likelihood of their being received was remote. So that first point went by the board. There was nothing in the alterations that was directly untrue.
The next point was where it is misleading. I have already given in evidence that I would find such a balance sheet misleading, but the auditor who had prepared this balance sheet was Chinese. He was a man who audited the accounts of many Chinese firms.
He was a man better acquainted with the custom of the Chinese balance sheets than was I. He assured me it was the custom amongst Chinese book-keepers to set out capital in this manner, and moreover, produced other balance sheets which on the face of it, bore out his statement.
He likewise assured me that this balance sheet would not be misleading to anybody who was accustomed to receiving the balance sheets of Chinese firms in this Colony, and by Chinese firms I do not mean firms not registered under the Ordinance, but firms which although registered under the Ordinance yet the management is Chinese.
Having been assured by a man whom the Government had registered as competent to audit books, that this balance sheet is not in fact misleading, I concluded that I was not justified in taking active steps to recall it because that is customary cannot be misleading. I have an assurance that this is a customary method of doing it and if it be customary then it cannot be considered misleading, although a persen unacquainted with the custom might be misled but that applies to all legal documents, and balance sheets are on a somewhat similar footing. Now, the other point in the balance sheet. Having explained how I was not responsible for this balance sheet, I will give evidence only in respect to errors occurring in the balance
sheet which I did in fact approve.
In this balance sheet signed by me, the two cross-entries i.e., two branch entries which could have cancelled out, appeared. In the one case it is a question of cash at Canton. I would like to give further evidence on that, because the questions left the situation in a very misleading state, as if our books had put down cash that did not exist or put it down twice other words that something had gone wrong with our cash. point of fact, there is nothing of that sort in the position at all. What the error, if error exist, is this.
There was cash at Canton, that we were notified that Canton
possessed this cash and they did in fact possess it.
Shekki had sent the cash to Canton. Shekkd did not notify us that it had gone through. There is no question of cash having gone astray or duplicated entries of cash. The result is that there are two branch entries in the accounts which would have cancelled out. Instead of showing the cash at Canton existing, it is against the Suspense Account because itis cash held in suspense. We were not aware that Shekki had sent it there.
It has been pointed out to me, and I quite agree, it could have been avoided by proper book-keeping, but it is quite an
ordinary error and not one that a reasonable man would notice from a fair inspection of the accounts.
It has been suggested that the profit has been wrongly dealt with. I take this rather seriously to heart.
The first point made was that interest on capital should be dealt with in the Profit and Loss and not in the Appropriation of Profit and Loss. That is a point of book-keeping in which I do not know whether the authorities disagree, but I do know some agree with me - but it is made important by the statement that in so dealing with the interest on capital, it could affect the right to declare a dividend.
If an item of expense is subtracted once and once only, I cannot see how i could affect the resulting balance,, whatever account it be deducted from.
There were two criticisms made in respect of the profit, as to whether the profit had been placed unduly high. One was the point that the value of the premises had been written up to $250,000.00 consequent upon a cash offer having been made and refused, to that amount.
That this is paper procedure is a point on which I should be at all times glad to submit authorities Palmer Company's Precedames part 1, is unambiguous on the point that this is an entirely proper method of procedure.
Then again was a profit of $10,000.00 the sum required to be paid by the Instone Trading Co. in respect of work done in its organization. It was I who did that work. Had an outside solicitor and outside brokers been employed for that purpose it would have been necessary to pay them money. I have done the work my employers the Instone Banking Corporation were equally entitled to receive the money. For the work done the amount was not excessive because it included not merely the Incorporationof the Company, but also a considerable number of interviews with intending shareholders in the Instone Trading. There was a great deal of talk and as one might say brokerage.
That this money was not, in fact, received in hand at the time of the production of this balance sheet is not a matter of importance because a good debt is rightly qualified in the same manner as a profit already in being. If you have sold goods to somebody and the cash has not come in, you do not say the profit has not been made.
The point is, was this a good debt as to whether it would be a profit, and at the date concerned - April 30th, 1928, the directors of the Instone Banking Corporation had every reason to believe that the Instone Trading Co. was and would be a most
solvent concern, capable not merely of meeting its obligations but of making large profits. These said directors were aware of the individuals who had promised their support. The shares of the Instone Trading Co. were fully taken up in theory, i.e. everyone of them had been asked for, there had been no allotment in the legal sense of the term, they had been allotted, in the point of being reserved for various individuals, but the Instone Trading was closed within one month after its inception and not before it started business. There are many letters which can prove the business of the Instone Trading did in fact start, correspondence with manufacturers will show that there was a genuine idea behind the Instone Trading, but before actual business could come into being, the Canton Government intervened in the affairs of the Instone Bank by closing the branches in Canton and Shekki on the grounds that we were not a British Company and that registration under the Hongkong Ordinance did not make us British.
As a consequence of the closure of our branches the Instone Trading was unable to do effective business in fact, the whole structure upon which it had been built was cut away by the closure of these branches, because it was intended that Shekki, Canton and Kongmoon and other places should open up branches where the Instone Bank had branches, or was to have branches, and they would be in a position to mutually assist.
These points I adduce simply to bring out the fact that we supposed a debt from the Instone Trading Co. of $10,000.00 to be a perfectly good debt, and being a perfectly good debt, we were entitled to take it in account of Profit and Loss, as earnings it being the amount of Instone Brewer's earnings, who was employed with the firm, and therefore the firm was entitled to his earnings.
The question of the shares in the Instone Trading at one time belonging to Mrs Brewer of some importance. To get that clear it is necessary to go right back to Agreement A.
In Agreement A. the company cash certain contracts that contracts in respect of the
declared that it would purchase for had been entered into. They were sale of bonds.
After the company had been incorporated for some period it was felt by some of the directors that they had been unwise in pur- chasing an agreement in respect of Singapore. In consequence, I volunteered to refund the major part of the consideration money and that they should in turn give up all rights in respect of this Singapore contract. This was done. Although I would point out that I was under no obligation whatever to revise such an agreement. That in itself shows that I am capable of taking into consideration a moral consideration rather than a legal liability and also my act in making this refund necessitated taking $7,000.00 out of my own scanty savings.
The $55,000.00 thus refunded was put up to the directors. "What do you wish done with this" and the reply came back - "Of the $55,000.00 we want you to pay $7,000.00 cash to Li Yuk Tin because he has promised us he is going to Peking to dispose of certain shares. We want to give him $7,000.00 for his expenses and we want to pay him 10% when he delivers the goods." So they asked me to pay Li Yuk Tin $7,000.00 out of the $55,000.00 and to use the other $48,000.00 and hold the shares which Li Yuk Tin had promised to sell - because the date for closing the share list was near. They wanted these shares kept in existence. So they say $48,000.00 is 10% of $480,000.00. Mr Li wants to sell half a million ask Mrs Brewer to use $48,000.00 to pay 10% on $480,000.00 and hold the shares, paying Mr Li 10% when sold and 90% to the firm.
Corporation.
In other words, Mrs.Brewer is holding the shares without any beneficial interest, because as soon as they are sold 10% is to go to Mr.Li and 90% to the Instone Banking
There being no beneficial interest whatever to Mrs. Brewer in respect of that. But it was of course necessary that the shares should be in some name or they
could not have been held alive.
Mrs.Brewer held these shares the whole $480,000.00. $30,000.00 of them were, in fact, taken up, and in respect of this $30,000.00 Mr.Li received $3,000.00 and the Instone
Banking Corporation received $27,000.00
In respect of the 4500 which were not taken up these were shares that we, during March, 1928, transferred to the Instone Trading. Why transfer. to the Instone Trading ?
Because these shares, in fact, belonged to the Instone Bank. There was not other correct way of looking at it.
A result of the circumstances which had come into being makes it quite clear that since the original $55,000.00 was a refund to the bank that was the bank's profit, and anything purchased with that $55,000.00 was the bank's profit, and that whoever held what was purchased with that $55,000.00 was a trustee for the bank.
These $450,000.00 worth of shares were the bank's property. It is incorrect for any company to purchase its own shares. It would not have been deliberately done in this case, but I have explained the circumstances which came into being.
These shares were standing in the name of Mrs. Brewer, by transfer she was held as trustee. By transfer to the Instone
Trading they in effect likewise became trustees for the Instone Bank.
I have dwelt rather fully on that there has been quite a suggestion in respect to these shares largely because
rs. Brewer is involved in it, but as I have pointed out, she has throughout acted at the express wish of the Directors, without any profit to herself, in an entirely honest and competent manner.
The whole point of my additional evidence has been put forward that in every case it has been a question of a discretion in every separate case that has arisen. In every case it has been on
Judge:- That is not evidence.
The only other point that I would wish to give evidence on is that the bank was conducted in a competent manner, and that its shares had a real value.
I have already given evidence of trying to purchase them at $97 for $100 share in the middle of 1928. But even after the unforeseeable disasters at Canton and Shekki, after the morass of liquidation into which bad fortune has plunged us, even after this, the value of the company was maintained at a high figure. It was not because we had not a large capital that our company was a failure, but because I had insisted on keeping the capital at a sufficiently low figure to enable all of it to earn money. There was no waste of money, no money lying idle, nor at any time prior to the Canton and Shekki disasters, was there a shortage of money to the extent of making us look for it. It was a competently run firm.
The calculations of our requirements were well made and consequently as most of our money was earning, as soon as our money was earning, the firm was in a good condition and those who knew its internal affairs, including myself, were those who were most appreciative of the value of the firm. So much so that even after the firm had closed, that it had apparently got to the ultimate of disaster, those who know the inside of the firm (Judge intervenes) .... I, who knew
the inside of the firm, realised its value and was able to persuade others that the value was existent and I persuaded
them to enter into agreement to re-open the firm and to pay all creditors in full. The agreement was duly signed and stamped and a preliminary deposit made.
Under that agreement not only would creditors be paid in full, but certain assets were set aside for original shareholders of the company
the calculated value of which can be shown to be in excess of 75 cents in the dollar. The firm was competently and honestly run from its inception.
(Sd). Instone Brewer,
13th August, 1929.