The following is a transcript of a newspaper article that appeared in the Gravesend & Northfleet Standard on Tuesday, 9 July 1907, page 3, giving the verbatim Receiver's Report on the plant. Less complete accounts occurred in many other newspapers at the time, including the Financial News, in view of its importance regarding prospective company law legislation. In the previous month, statutary meetings of creditors and shareholders had taken place, and confirmed a winding-up order.
DARTFORD CEMENT COMPANY
Official Receiver's Report
The Official Receiver in the Companies Winding Up Department of the High Court of Justice has just issued particulars under this liquidation. He observes the winding-up order was made on the 16th April, 1907, upon a creditor's petition presented to the court on 26th March, 1907.
The company was incorporated on 6th May, 1895, with a nominal capital of £20,000 in shares of £1 each, and was formed to acquire and carry on the business of the Dartford Portland Cement Company.
Mr W W Hewitt, who was the promoter of and vendor to the company, was the sole person interested in the business at the date of its transfer to the company. He states that the object of the promotion was to facilitate the raising of working capital.
The qualification of the directors was fixed by the articles at £500 in shares of the company and the remuneration was to be determined by the company in general meeting. No directors' fees have been paid or fixed. Mr W W Hewitt has acted as manager throughout, at a salary, at first of £300. Mr H W J Cheffins has also acted as a managing director since August, 1904, at a salary of £300 per annum.
The purchase agreement, dated 11th May, 1895, between Mr W W Hewitt and the company, provided that the latter should purchase the goodwill of the business, the leaseholds, plant and machinery, stock-in-trade, fixtures, furniture, book debts, and the consideration therefore was the sum of £21,350 payable as to £7,350 in cash, and £14,000 in fully paid up shares. The business was to be taken over by the company as from 25th March, 1895, the vendor to discharge all liabilities up to that date, and the purchase was to be completed on the 24th June, 1895.
Owing to the failure to raise sufficient funds, the above-mentioned agreement had to be modified, and on the 3rd December, 1895, a supplemental contract was entered into between the same parties, amending the mode of payment of the purchase consideration, £21,350, which was to be satisfied by £3,000 in cash and £18,350 in fully paid-up shares. The date of completion was altered to 19th December, 1895.
The business was duly taken over, and the purchase price discharged as follows:- The fully paid-up shares were allotted to the vendor and his nominees on 10th February, 1896 (13,450 shares), 17th March, 1896 (1,150 shares), and 29th March, 1901 (3,750 shares). The £3,000 which was to be paid in cash was credited to the vendor's account, and was drawn against from time to time to discharge his liabilities. No prospectus had been issued, the funds required to finance the concern being raised by debentures. The whole of the issued capital (excepting the seven signatory shares) was allotted as fully paid shares to the vendor and his nominees, as stated in the previous paragraph.
The business was established in 1893 by the vendor and his partner, Mr Russell, and the sum of between £8,000 and £9,000 was, it is stated, provided by them in equal proportions. Mr Russell died in November, 1893, and the vendor subsequently purchased his interest for between £3,000 and £4,000. No balance sheets or trading accounts were prepared prior to the formation of the company, but a valuation of the partnership interest after the death of Mr Russell came out, it is stated, at about £8,000.
The purchase price of £21,350 paid by the company was fixed by the vendor, and was based upon a valuation of the property and machinery of £17,500, plus the cost of the trade implements, stock, book debts, and the goodwill valued at £1,750. It is difficult to reconcile this valuation with the valuation of the partnership interest (referred to in the previous paragraph) made only a short time before.
The purchase price was divided as follows:- Leaseholds and fixed plant and machinery, £17,868/2/1; tools, stock-in-trade, chattels, furniture, etc., £800; book debts, £931/17/11; goodwill, £1,500; benefit of contracts, £250, thus making a total of £21,350.
Funds have been raised from time to time to provide for the cash payment (£3,000) to be made to the vendor, to carry on the business, and to enlarge the works so as to increase the output of cement, These funds were raised principally by means of debentures as mentioned hereunder.
In December, 1895, an arrangement was made with Mr A E Greville (who was appointed solicitor to the company on 19th December, 1895: Note 1) to obtain subscriptions to £5,000 6% first mortgage debentures at a commission of 10%. The whole of this £5,000 was subscribed by January, 1897, and the commission of £500 was duly paid to Mr Greville. Of this £5,000, £2,000 was applied as part of the purchase money in paying off the overdraft at the bank, and other liabilities of the vendor as arranged between the latter and the company, and £2,000 was expended upon the works. In April, 1899, Mr Greville agreed to find subscribers to £2,000 6% second mortgage debentures at a commission of 10%, the whole of which £2,000 was to be expended upon the works. This was carried out, and the commission (£200) was paid to Mr Greville. Further working capital was again provided through Mr Greville, in December, 1900, to the extent of £3,000, upon the security of 6% third mortgage debentures, Mr Greville receiving, as consideration for introducing the lender, 5,000 of the vendor's fully paid-up shares, £1,000 of which were subsequently purchased from Mr Greville by Mr Cheffins for £1,000 cash.
Expensive Borrowing
It will be seen from the foregoing that the company was borrowing money at very expensive rates. Not only was the interest to be paid 6%, but the cash commissions paid to the solicitor for negotiating the three loans amounted together to £1,700 instead of £85, which would have been payable under the Solicitors' Remuneration Act, in addition to which the solicitor received the shares mentioned above in respect of part of which a dividend of £460 was paid (Note 2).
In August, 1902, an issue of £12,000 fourth mortgage debentures was made, the consideration therefore being apparently
- to certain shareholders in payment of a dividend of 10% for which there was not sufficient available cash, £660
- for cash lent by Mr Greville, £250
- goods supplied by ditto, £257
- legal charges by ditto, £33
- Total, £1,200
In order to raise further funds, an agreement dated 21st April, 1904, was entered into between H W J Cheffins, Mr Hewitt and the company, under which Mr Cheffins agreed to purchase £1,000 first mortgage debentures, £1,500 second debentures, and 2,750 of the vendor's fully paid shares, for the sum of £5,000. The whole of this sum appears to have been provided by Mr Cheffins. £4,000 was handed to or paid away on behalf of the company, and £1,000 was paid to Mr A E Greville in exchange for 1,000 of the 5,000 vendor's shares referred to above. In addition, 1,750 shares were transferred to Mr Cheffins by Mr Hewitt, with whom it is stated to have been agreed that he should have second debentures issued to him for £1,500 as consideration for the handing over of such shares.
To carry out the above-mentioned arrangement it was decided, in May, 1904, to issue £12,000 6% first mortgage debentures and £3,500 6% second debentures, with which to replace the old issues to the extent of £11,200, to allot Mr Cheffins debentures for £2,500 in respect of his advance to the company, and to issue to Mr Hewitt in respect of the transfer of shares to Mr Cheffins debentures for £1,500.
In November, 1906, the company being again in want of capital, it was resolved to increase the first mortgage debentures to £14,000. Of this issue £11,750 was exchanged for the old issue (£250 of the latter being paid off in cash), £900 was allotted against cash, and £1,000 was issued as security for a loan of £500. It was further resolved to make a new issue of 6% second mortgage debentures to the extent of £3,500, and £2,600 of these debentures were issued to replace the old second debentures. A further £600 of these debentures were issued to Mr Hewitt in March, 1907, as representing the balance of debentures to come to him in respect of the transfer of his shares to Mr Cheffins, but these debentures have not been stamped.
The total cash raised by the company by debentures is £14,700, and the same has been applied (with the exception of the vendor's purchase money, legal expenses and commission) principally upon the works. The chief motive in borrowing would appear to have been the extension of the buildings and plant, with a view to increasing the output of cement, the directors being of opinion that an increased output would proportionately lessen the working expenses.
The first and second debentures now outstanding amount to £13,550 and £2,600 respectively, the first debentures being secured by a trust deed dated 11th May, 1904, and a supplemental trust deed dated 22nd November, 1906, the trustees under which are Mr A E Greville and his son, Mr H E Greville.
The Company's Trading
The result of the company's trading appears from the audited accounts to have been as follows:-
| Year | Profit £ |
|---|---|
| 1896 | +288 |
| 1897 | +580 |
| 1898 | +815 |
| 1899 | +1021 |
| 1900 | +856 |
| 1901 | -1430 |
| 1902 | +823 |
| 1903 | +697 |
| 1904 | -931 |
| 1905 | -672 |
| 1906 | -28 |
The losses as shown above are attributed in 1901 to the high price of fuel, and in 1904-6 to the low price obtained for cement owing to foreign competition, and the cost of bringing in extra capital.
A dividend of 2½% was declared (but not then paid) in July, 1897, amounting to £458, and on 14th August, 1902, a dividend of 10%, amounting to £1,835, together £2,293. These dividends were discharged as follows:- by issue of second debentures, £660; credited to Mr W W Hewitt's account against debit balance thereon, £1,513; paid in cash, £30; still unpaid £90; thus making a total of £2,293.
No depreciation has been written off the company's property, on the ground that only the bare cost of labour and materials was charged to capital account in respect of the additions to the works, no contractors' profit being included, and that a large sum was expended each year and charged to manufacturing cost in keeping the plant, etc., in a state of efficiency. In August, 1904, to meet the wishes of the auditors, a revaluation of the leaseholds, plant, and machinery was made by Messrs Dann & Lucas, who fixed the value at £28,770, £1,573 more than the figure at which such assets stood in the company's books.
The trustees of the debenture-holders on 14th March, 1907, when the company was again in want of funds, appointed a receiver (Mr H B Shrewsbury) under the powers contained in the trust deeds and debentures, on the ground that the directors had stated that through want of funds they would be unable to continue to keep the works open. The receiver is now in possession of the company's property, and is carrying on the business. No debenture action has been commenced.
The failure of the company is attributed by the managing director to the insufficiency of working capital, and to the competition from foreign manufacturers sending cement to England. Notwithstanding this alleged want of working capital, the directors used nearly all the funds raised by the debentures in extending the works, instead of applying a proportion of such funds to working capital, of which the company had apparently so much need.
The statement of affairs, which was not completed and lodged until the 5th ult., is submitted by Mr W W Hewitt, the managing director:-
Unsecured creditors, £5,714 in the statement of affairs consists of claims in respect of goods supplied, £1,403; coal and coke, £1,730; clay, £687; cartage, £204; lighterage, wharfage and dues, £560; loan, £207; legal and accountancy charges, £51; insurance, £49; unpaid dividends, £91; sundries, £18; bank overdraft, £414; and paid on account of second debentures, £300. The last item and £300 of the bank overdraft (which has been paid off by Mr Cheffins) should, according to Mr Hewitt, be credited against the £600 second debentures he claims in respect of the transfer of his shares to Mr Cheffin.
Preferential creditors, £364 represents claims for rent, £196; taxes £67; rates, £89; and wages, £10.
The leasehold property, plant, machinery, fixtures, and goodwill have been valued in the statement at the figures at which they stand in the company's books.
As the result of the statutory meetings of creditors and contributories, held on the 7th ult., Mr E J Palmer, of Finsbury Pavement House, London, EC, chartered accountant, has been appointed as liquidator of the company, with Messrs S J Brice, E H Keighley, W W Hewitt, H G Watson and J G Wynne to act as a committee of inspection.
At the creditors' meeting, Mr Paton, a creditor, presenting the general view, said they were all of opinion that the affairs of the company had been conducted in the most reprehensible manner from first to last. The business ought to have been wound up at least two years ago; but it had been continued at the expense of the creditors. It was to be hoped that the Government would shortly bring in a Bill to put an end to the raising of money on debentured and spending it on reckless trading.
During the first decade of the twentieth century, it was an almost universal complaint in the industry that fuel prices were too high and foreign competition was unfairly depressing prices. This was supported by the Chamberlain wing of the Tory party, who were calling for tariffs on imports, so that British people would have to pay more for imported goods. The underlying problem in the industry was that its production was inefficient in energy usage, making it susceptible to energy price changes, and consisted largely of obsolete production technology, which made it easy for efficient foreign producers to compete. In the present instance, these difficulties were compounded by a spectacularly incompetent management who greatly overestimated their talents, as was typical of the British industry.