Yesterday a meeting of the creditors of Messrs. Frederick Darlow and Edwin West, trading as Darlow and West, shoe manufacturers, Gordon-street, Rushden, was held at the office of Mr. F. Roberts, chartered accountant, Northampton. Mr. A. C. Palmer presided.

The Statement of Affairs

was:-

Liabilities – Unsecured creditors, British United, £5,651 19s 10d; Shoe Machinery Company rentals, £1,647 7s 6d; creditors partly secured, £1,807 2s 11d; estimated value of securities £1,525 -- £282 2s 11d; creditors for rent, rates, taxes, wages, etc., £80; liabilities on bills discounted £923 7s 10d, of which it is expected will rank against the estate for dividend, nil; total £7,581 10s 3d.

Assets – Stock-in-trade cost £1,453 10s 7d, estimated to produce £1,300; book debts £502 11s 8d, estimated to produce £440; cash in hand, £305 10s 7d; free machinery, plant, etc., estimated to produce £500; total assets, £2,545 10s 7d. Less creditors for rent, etc., as per contra, £80; net assets £2,465 10s 7d.

Deficiency, £5,115 19s 8d.

Creditors

The unsecured creditors over £10 are Baxter’s Leather Co., London, £260; S. Barrow, Ltd., £263; Hugh Brown & son, Liverpool, £53; British United Shoe Machinery Co. (goods account), £246; George Care, London, £18; E. A. Chamberlain, Manchester, £45; Collins and Co., Rushden, £41; J. S. Clipson, Rushden, £55; F. Corby, Rushden, £85; H. Conyers and Co., Leeds, £59; Thos. Collingridge, Northampton, £109; Ellis & Everard, Rushden, £28; Furst and Co., London, £64; Gimson and Co., Leicester, £11; Heinemann, Alsop and Co., Northampton, £629; Lindrea and Co., Bristol, £80; G. L. Michel and Sons, Northampton, £32; Mobbs and Lewis, Kettering, £46; Albert Pemberton and Co., Leicester, £96; J. K. Perkins, Irthlingborough, £55; Phipps and Son, Northampton, £187; Thomas Patenall, Higham Ferrers, £284; W. E. and J. Pebody, Northampton, £20; R. Proctor, Manchester, £57; C. A. Quinn and Co., Northampton, £48; F. Roberts, Northampton, £15; Radburne and Bennett, Rushden, £41; A. E. Rodhouse, Northampton, £1,646; Spencer Leather Co., Northampton, £14; Stock and Son, Kettering, £19; Singer Machine Co., Leicester, £11; Seddons and Arlidge, Rushden, £51; F. E. Smith, Leeds, 329; Chas Sanders, Rushden, £449; Turvey and Son, Nottingham, £34; Wells and Co., Harrold, £73; H. White, Rushden, £20.

The partly-secured creditors are the Northants Union Bank, whose claim is £1,707 3s 11d against which they have a charge on the factory etc., valued at £1,500; Mrs. West, sen., who against a claim of £50 for money lent holds a life policy on the life of E. West, valued at £12 10s 0d; Mrs. Underwood, similar claim, and holding a similar policy on the life of Mr. Darlow.

Deficiency Account

Mr. Roberts said that in April, 1911, he drew up a rough balance, which came out badly, but it was thought there was something wrong with the stocktaking. Another was to have been taken, but the firm were too busy, and none was taken till Christmas last. The deficiency account, therefore stated with the £485 11s 2d deficiency at April, 1911, and to that had to be added the British United claim, various differences in items as between now and then, personal drawings £744 10s 0d and loss on trading £632 10s 11d. The sales from April, 1911 to date were £38,894 2s 9d, and the gross profit was only £2,322 17s 8d, or slightly under 6 per cent. The wages (about £120 per week) were about 20 per cent., and the net discounts £1,784 13s 4d.

Mr. Roberts gave the periodical trading returns for November and December, and said the trading was generally about £500 per week. For November and December the purchases were £2,883, and the sales £3,974. The furniture was claimed by their wives. There were no personal estates.

Considerable discussion took place on the smallness of the gross profit and its reasons.

It was resolved to execute a deed of assignment to Mr. F. Roberts, with Messrs. Clipson, Ledson, Palmer, Sanders, and Warwick as Committee, fourteen days being allowed for creditors to come in or bankruptcy to follow.

At the County Hall, Northampton, on Tuesday, the public examination of Mr. Frederick Darlow and Mr. Edwin West, trading as Darlow and West, boot manufacturers, of Rushden, in bankruptcy, took place.

The summary of the debtors’ statement of affairs of the joint estate is:-

The separate estate of Mr. Darlow shows neither liabilities nor assets.

The separate estate of Mr. West shows: Gross liabilities, £50 16s 9d; expected to rank for dividend, £30 16s 9d assets, nil; deficiency, £30 16s 9d.

Causes of Failure

as stated by the Debtors:- “Expenses in consequence of removal of business from a small factory to a large one; want of capital; advance in the price of raw material and consequent losses on contracts, and liability for machinery leased in consequence of stoppage.”

The deficiency Account filed (dating from 15th April, 1911) is as follows:-

The Examination

The Official Receiver (Mr. Ewen) said Mr. A. C. Palmer had been that morning appointed trustee. It would not be possible to conclude the examination that day.

Examined by Mr. Ewen. Mr. Darlow said he began business in partnership with West in November, 1904. prior to that he was manager in the rough-stuff department of W. Sargent and Co.’s factory. While so employed he saved between £100 and £150. West had a similar amount. He kept the books and superintended the factory, while West did the costing and travelling. The commenced business in Crabb-street, and banked with the London City and Midland. They kept the books they thought necessary, but after a time thought they required advice, and consulted Mr. F. Roberts. That might have been in 1908, but he could not tell the date. A balance-sheet dated July, 1909, was prepared by Mr. Roberts, and was

The First Balance-Sheet

made out in the business. At that time the firm owed the bank £33, and the machinery and plant was put in at £1,160 and the stock-in-trade at £1,057. That was the value of machinery belonging to the firm, and did not include two or three machines, not of great value, belonging to the British United, although the premium on the British United machines might be included. The balance-sheet showed the firm had increased its capital to £652. Later the Bank agreed to finance the firm in the building of the factory, the land for which had been bought at the time of the balance-sheet of 1909. By the time the factory was complete – April 1912 – the firm owed the London City and Midland Bank £1,325. Then the account was transferred to the Northamptonshire Union Bank with the idea of getting

A Bigger Overdraft

than could be obtained from the London City and Midland. When the transfer to the new factory was made, some of the machinery belonging to the firm was bought by the Union Bank, the owners of the old premises. A balance-sheet was prepared by Mr. Roberts in April, 1911, but was not completed. In order that the balance-sheet might be prepared stock sheets were sent showing stock £1,570; the factory and land were put in at £1,430; the plant at £1,794. The plant represented gas engines and free machinery. There was £1,628 owing to the Northamptonshire Union Bank, that being the old overdraft, with the addition of advances, and altogether the balance-sheet showed a deficiency of £485. Mr. Roberts did not tell the firm, and the firm did not ask exactly how much they were out. Debtor was surprised at the result the balance-sheet showed.

The Deficit

The Official Receiver: Didn’t you ask Mr. Roberts how much:- Mr. Darlow: I don’t remember asking him how much.

Don’t you remember it filtered into your mind that it was somewhere about £500:- No.

Do you mean to say you never did know how much the firm was behind:- I did not.

And you went on trading and did a rough turnover £40,000 without finding out how much you were on the wrong side. I put it to you that you did know:- Mr. Roberts said there was a deficit.

And the amount:- I did not know.

The Official Receiver asked the debtor why, as a business man, he went on after being told that there was a deficit. – Mr. Darlow replied that Mr. Roberts advised them to go on and take stock later.

But Mr. Roberts had the stock-sheets you had supplied:- We questioned them: we did not know that they were all there. The firm, he added, balanced things up roughly and thought they were about straight. He now admitted the deficiency.

The Official Receiver suggested that if the debtors did not ask Mr. Roberts how much they were deficient they were guilty of

Another balance-sheet was prepared in Dec., 1912, and that showed that there had been a turnover of about £40,000, with sales amounting to £38,894, and a gross profit of 6 per cent. Had the firm stopped at the time of the balance-sheet of April, 1911, there would have been a deficiency of £3,500, made up of the £500 shown by Mr. Roberts, the depreciation of buildings, plant, and machinery, and the amounts owing to British United.

The trading since had not been profitable. The turnover of £40,000 represented about 120,000 pairs of boots.

The Official Receiver:- 120,000 pairs of boots put on the market at a gross profit of 6 per cent., in competition with other people who are selling boots. You put them on the market after you knew you were insolvent:- According to figures, that is so.

The Official Receiver: Aye, and according to facts. You put these boots on the market in competition with other people who were trying to sell boots at a profit:- Mr. Darlow: Even then it

Admits an Explanation

What is the explanation? – The explanation lies partly in the fact that contracts were accepted at profits which showed above six per cent., but had to be completed when the enormous rise in leather took place.

Doesn’t a wise man, in undertaking a contract, consider what the price of leather is likely to be? – He can’t tell.

Do you mean to tell me the price of leather is not to be taken into consideration when you are making a large contract:- You can’t always foresee that.

Replying to further questions, Mr. Darlow said another explanation of the deficiency was to be found in the large number of returns.

Why? – Because we attempted to substitute for the original price.

When leather went up they knew they were done, the contracts were without adequate margin, and they tried to produce a boot to see if it would pass.

And very properly it would not, and you had the boots thrown on your hands. We all know

they must be slaughtered:- Yes.

If you were not where you are, and were advising other people, wouldn’t you tell them that trading like this is as bad as it possibly can be for the leather trade in general? – Yes. He did not know that until the firm stopped trading and they were liable to a claim for £1,500 on the part of the British United. He had a number of papers from the British United, and read some of them, but did not always understand them. He did not suppose any manufacturer knew all that was contained in the leases. The factory had been sold by the bank, and the British United had removed their machinery, although he told their manager it must not be removed. He did not remember

Signing the Mortgage

to the bank, and he had not received notice from the bank asking for a reduction of the overdraft.

The debtor West, examined by the Official Receiver, said the workpeople were given a week’s notice by note enclosed in their wage bags.

By Mr. Darnell: They did not work the week out. He did not know how many days they did work. Mr. Roberts paid them. “The foremen and forewomen had their wages in full, and only the workpeople and we ourselves didn’t get them.”

The case was adjourned to the next Court.

Mr. A. J. Darnell represented the employees of the firm.

The following were the

Official Receiver’s Observations

1. The Receiving Order was made on the 29th January, 1913, on the debtor’s own petition, and they were adjudged bankrupt on the same day on their own application.

2. The debtors, Frederick Darlow and Edwin West (aged respectively 42 and 41 years), commenced business as Boot Manufacturers in November, 1904, with a free capital of £150 each. They had previously been employed in the boot trade: Darlow as rough-stuff foreman, and West as manager in the upper department. They state that they have personally superintended their business. Darlow having kept the books and generally superintended the factory, and West being responsible for the costing department and travelling.

3. A private meeting of creditors was held on the 9th January last, when a Statement of Affairs was presented, a copy of which was then issued to the creditors. The assets and liabilities differ from the Statement now before the creditors, but this is principally in consequence of the business being carried on until the 17th January, the stock, books debts, etc., having been altered to some extent. No offer was made at the meeting, and after discussion a resolution was passed that a Deed of Assignment be executed, but that unless all creditors of £50 and upwards assented within fourteen days, the debtors should be called upon to file their partition in bankruptcy. The necessary assents to the Deed were not forthcoming, and consequently the debtors, on advice, filed their partition without executing the Deed.

4. The joint Statement of Affairs discloses 37 creditors whose debts exceed £10, and the whole of the unsecured liabilities are for goods supplied in connection with the trade, with the exception of an amount of £1562 6s 6d due to the British United Shoe Machinery Company, Limited, for rents on termination of leases of their machinery, and money borrowed £20.

5. The creditors partly secured are: (1) The Northamptonshire Union Bank, Limited, for £1772 9s 11d in respect of overdraft. They hold as part security a charge on the freehold factory, land adjoining, gas engine, and certain plant, fixtures, and fixed machinery. (2) The other creditors partly secured hold a life policy in the Scottish Union Insurance Company for £500, and certain sample boots. The debtors have valued the Bank security at £1700 but they state this amount has been inserted by them in consequence of being informed that the Bankers have already sold the factory, fixed machinery, etc., at this figure. They, however, consider the value of the security to be in excess of this amount.

6. With regard to the deficiency account, it will be noted that it commences on the 15th April, 1911, this being the date at which the debtors were advised that their affairs showed a deficiency. This they did not admit, but investigation appears to have proved that there was then an excess of liabilities over assets to the extent of £485, without reference to what follows. It will be noticed that amongst the items in the Deficiency Account are included a “claim on the termination of leased machinery £1562 6s 6d,” and a “loss on the freehold factory, land, etc., £1081.” Therefore, if the debtors had given up business in April, 1911, these items would have appeared in their balance-sheet, and although the figures might not have been the same, they would have very considerable increased the £485 deficiency previously mentioned, but the drawings from the business by the debtors (£828 13s 4d) and a net loss arising from carrying on business (£388 19s 7d) would not have been incurred. The turnover since April, 1911, has amounted to £39,000, upon which, I am informed, the gross profit (before allowing for discounts) is under 6 per cent.

7. The debtors state that they did not know of their insolvency until Christmas last, but bearing in mind the facts referred to in the above paragraph, this statement will require explanation.

8. As regards the Separate Estates, the debtor’s wife in each case claims furniture as being purchased by her before and after marriage.

Messrs. Darlow and West - Public Examination

At the County Hall, Northampton, on Tuesday, the public examination of Mr. Frederick Darlow and Mr. Edwin West, trading as Darlow and West, boot manufacturers, of Rushden, in bankruptcy, was continued.

The summary of the debtors’ statement of affairs of the joint estate is:-

The separate estate of Mr. Darlow shows neither liabilities nor assets.

The separate estate of Mr. West shows: Gross liabilities, £50 16s 9d; expected to rank for dividend, £30 16s 9d assets, nil; deficiency, £30 16s 9d.

Causes of Failure

as stated by the Debtors:- “Expenses in consequence of removal of business from a small factory to a large one; want of capital; advance in the price of raw material and consequent losses on contracts, and liability for machinery leased in consequence of stoppage.”

The deficiency Account filed (dating from 15th April, 1911) is as follows:-

Mr. West was examined by the Official Receiver. Handed a copy of the trading account prepared by Mr. Roberts, Mr. West admitted that this showed that between April, 1911, to Jan. 13 the cost of the materials in manufacture came to 70 per cent. He admitted that this was too high, and said there must have been

A Leakage

in some shape or form which neither he nor his partner knew of. He agreed that 60 to 62 per cent. was generally considered enough, providing everything went all right.

Mr. Ewen: You have not been smart enough, in plain English:- Debtor said that that was a matter of opinion, but the figures seemed to show it. They thought they were smart enough, but in having so many men it was difficult. He agreed that in large transactions great care, skill, and experience were necessary, and that the greater the number of men the greater the necessity of these. He thought, however, that if their costing had been carried out to the letter they would not have been in their present position.

Asked as to who was responsible Mr. West said he was prepared to accept the responsibility, as others would have to suffer if he blamed them. He admitted that the wages and royalty came to 22 per cent. and that 20 per cent. was generally regarded as enough. As to

The Costings

he claimed that a recent one pointed to by the Official Receiver would show a profit. He was prepared to submit that costing to a practical man. They had, however, taken contracts which had to be fulfilled, and which, owing to the rise in the price of leather, they could not do at the prices. When the costings were made, the ordinary profit was allowed. They had never sold boots under the costing prices, except in the case of returns.

Pressed on the point, Mr. West stuck to that view, and said he refused an order of 1,100 pairs at a penny less. He admitted that at the ordinary figures of 62 per cent. for material and 20 per cent. for wages and material there would have been a profit. Had he known of the leakage they would have stopped it. They had been doing Colonial trade, and the large discount on shipping samples explained the leakage in that department. Everyone had to spend money in getting

and they had done that. He would not say that Mr. Roberts told them they were on the wrong side; he said he thought they were. They adopted the British United machinery because of needing a certain machine, and they knew that would bind them to other machines. Up to that time they had only free machinery. The B.U. machines were subject to the penalty clause. When one had a lot of loaned machinery it was essential to keep production going. He admitted that such conditions were a temptation to take orders at what they could get, and not what they wanted, but he denied that he had been tempted in that way. He wished to be firm on that point because a good deal was being said about making boots too cheap and selling below cost. During

he revised the costings. They had taken orders, and found that owing to the rise the price was below what they would cost. He was sure, however, that they had never taken a new order at an old price. The advances are always marked, and they had very nearly come to standing still because they would not accept under such conditions. They never did become idle, and he admitted that to have done so would have been a drain on the capital. He admitted that including the machinery claim that would have arisen they were £3,500 down at the time of the balance-sheet. He agreed now that the business done after that was a speculation with creditors’ money as they had no capital and that they had not consulted the creditors. He admitted that

had been larger of late and that the boots were not up to the arranged standard. They offered these boots to customers and had, to save carriage back, accepted 3d. per pair less in certain cases. He could not give an idea of the number of returns during the twelve months, but the loss on them was considerable, amounting in some cases to 1/6 per pair. He dared say they had £700 worth of returns, and should estimate that they were sold for 30 per cent less than value. When they went from the smaller to the larger factory the Bank bought some of their free machinery, but a large proportion was taken to the larger factory. He did not think, if there was an adjournment, that he could explain the leakage that had, he admitted occurred.

The examination was formally adjourned to the next court