THE RECONSTRUCTION ATTEMPTS A lengthy process
"What Happend When?
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Two days after the crash a meeting was arranged with the creditors and an accountant was appointed to make up a statement for the company.
The Blackburn Standard writes some days after the crash: "A Glasgow correspondent learns upon inquiry that none of the Scotch banks are involved to the extent of a single penny without adequate security"
The British Linen Bank were said to be secured over the Duddingston Brewery which was worth £100.000 (the liquidators sold it in 1899 for £30.000).
13 December 1898
On the 13th of December it is said
"We are informed, from a most trustworthy source, that Sir Thomas Lipton has completed negotiations with Mr. Robert Pattison. the head of the great liquor company, whereby the millionaire will finance the concern through the present crisis."
This is then denied two days later
As Lipton just had started to sell whisky from Scotland and Ireland and had bottling vaults and stores the timing was perhaps not the best.
Advert from The Graphic December 28th 1898
There are also general comments on the whisky industry and the profits made
"Last month's prices for new Scotch whisky per proof gallon ranged from ls 3d to as much as 4s. It is, however, stated that fairly drinkable whisky is bought on the average at 3s 4d per proof gallon new. The question of age affects price to some extent. The London retail trade describe whisky kept for two years as "old" and three years as "very old".
Same day came an official statement from the company:
"The directors have placed large securities the hands of the banking companies, and negotiations are now proceeding with a view to obviating any disaster with regard to be company's business."
It was also reported:
"The story is that, some disagreement arose inside the office between the head of department and one of the managing directors, with the result that certain financial aid which the head of the department had given to the firm was withdrawn, and the company, in order to pay indebtedness, presented bill, for, variously stated, £7.000 or £10.000 to the bank, which was rejected. Since the news of the difficulties came to light a rush has been made upon them.
The stock fell in the afternoon to £1 17s 6d (the price paid at floatation was £10)
The creditors having bills were asked to hold them for 10 days, in order to get the assets valued and one of the biggest creditors had perfect confidence in Pattisons. 7th of December the stock price went up again and closed at £3 0s 6d. It come also more details about the cause of the crise:
It was an open secret in Leith yesterday that it was the Clydesdale Bank that declined on Saturday to advance money on the bills of the Company’s £20,000 of London bills, it is said, had to met, but the Company could only raise £11,000. They had hoped that the Clydesdale would provide the other £9000, but it declined to do so, and the Company in consequence, was unable to meet is pressing liabilities.
One of the largest creditors said that he had perfect confidence in the Pattison.
The manager of the British Linen Company Bank said: " I am still hopeful that an arrangement may be come to whereby the Company will go on. There are so many others involved that I look upon this as a probable result of the negotiations now in progress. It rests entirely with the large trade creditors to guarantee sufficient money to set feet again".
The stock brokers Messrs J.D Walker & Watson said already two days after the crash:
...should the position prove irretrievable, we cannot see how the threatened deluge can be averted - that is to say, on the assumption that current reports are true as to the enormous holdings of whisky now being carried by the company, the 'financing' of which has apparently led to the present trouble."
...whether the present storm be stayed or not - in the way of hastening, if not exactly precipitating, the impending "whisky crisis," is that equally may warning be taken by those who to so large an extensive during recent years been laying down whisky as an investment - perhaps more correctly a "speculation."
A Glasgow correspondent learns upon inquiry that none of the Scotch banks are involved to the extent of a single penny without adequate security. The British Linen Company Bank was secured through properties in Duddingston Brewery (£100,000) and the Clydesdale Bank had other securities.
17 December 1898
17th of December is reported that firms in Leith involved in the affair of Pattison have formed a syndicate with a view rendering the assistance to the company. The purpose should be to avoid that large stocks of whisky (£200,000) are thrown on the market.
Many newspapers write about the overproduction. There are, however, some who delude themselves, and try to delude others, by saying the present stock does not exceed three years' consumption. This AN EGREGIOUS BLUNDER.
and the role of Scotch banks
... who have been finding nearly all the money for the distillers, cannot stand the racket. They are regretting that they did not adhere to their resolution to have nothing to do with pawnbroking as far as dutiable goods were concerned, but, like many others, they were caught by the boom and now somewhat late in the day, when to prevent a catastrophe, if happily it be prevented, they have been obliged to call a halt. They find themselves neck deep in whisky
The time for making the report of the financial status of Pattisons takes longer time and 20th December it is said that that the situations does not look as good as it was originally was said to be. The share goes down and a newspaper repeat their recommendation to sell the shares also at this low price, £3 12s instead of wait and lose even more.
The report was expected to be ready Friday 23rd of December, but is further postponed and 30th december is a meeting between, banks, creditors and auditors and a reconstruction scheme should be ready January 6th 1899. - "The main thing, however, is to prevent the whisky crisis from spreading and until more details are known it is impossible to say how far other firms may be affected"
6 January 1899
Meeting with creditors in Edinburgh
Two balance-sheet reports were made, one from the books and one with respect of what a buyer would pay for stocks etc.
BALANCE-SHEET REPORT NO 1
Assets.......................................£1,144,188 3s 5d
Liabilities......................................£702,611 5s 7d
Surplus.........................................£441,577 17s 10d
BALANCE-SHEET REPORT NO 2
Assets..........................................£837,606 15s 9d
Liabilities......................................£920,400 9s 10d
Deficiency......................................£82,793 14s 1d
The accountants also gave following reasons for why the company had failed:
- insufficient free capital
- unnecessary expenditure
- anticipation of profilts
in the beginning of 1899 the attempts for reconstruction started. This was a long process and the banks who although they were best secured they were the biggest obstacle for reconstruction.
The brothers sent a letter dated January 6th where they disagreed to the valuation of properties and stocks. For example the interest in the Glenfarclas Distillery was put in at £92,300 but they thought it was worth £15,700 more. Interesting is also that they mention the promissory note for £40,000. "This bears the firm's signature, but it truly is a liability of us as individuals" . This will later be one of the indictments in the trial.
19 January 1899
On January 19th 1899 was a extraordinary general meeting of shareholders and a voluntary liquidation was proposed. Robert Pattison says at the opening
"Every one knows that when he borrows money he is largely within the power of those who lend it, but I never expected to realise in my own person the adage that the borrower is a servant to the lender. I thought I was rich, but now I am penniless".
9 March 1899
March 9th 1899 the estates of Robert Pattison were sequestrated.
10 March 1899
It was a meeting in London with the liquidators and the London syndicate.
The stock price of the Preference share (Nominal £10) - was 6 March 6th only 16s but one week later 43s 3d. People speculated as it was said that a London syndicate (Ocean Accident and Guarantee Company) would buy Pattison with following conditions:
- The secured creditors would be paid in full
- The unsecured creditors 13s 4d would get in the £
- The preference shareholders were offered shares in the new company worth £6 5s for every £10 share
17 March 1899
March 17th both Robert and Walter Pattison were called as witness in the Inverness Sheriff Court in connection with the bankruptcy of Messrs Brown & Stark, merchants in Inverness. You can read more about this here. Both of them were uncooperative and Mr Burns solicitor said to Walter:
"You must know, and you will be examined elsewhere and have to tell. As I said to your brother, you are doing yourself injustice"
The Preference share price was very volatile during the spring and 28th March the shares were deleted from the official Stock Exchange list in Edinburgh and Glasgow.
24 March 1899
The accountants for London syndicate started to examine the books of Pattison's in Leith. The accountants were Messrs Price (Waterhouse and Price, London) and Mr Ford (Rhodes and Ford, London).
8 April 1899
April 8th it was reported that the accountants who investigated the books of Pattison on behalf of the syndicate were still working but the report should be ready following week. "In well-informed Leith circles it is thought that negotiations will be carried through to a successful termination"
The same day it is reported that the liquidators of Pattison had consented to allow the trustee (Brown & Stark bankruptcy) to have access to the books of Pattisons. "It is supposed that like permission will be granted to trustees on other bankrupt estates which had transactions with Pattisons, Limited"
14 April 1899
April 14th Robert Pattison appeared for examination in Edinburgh Bankruptcy Court. Mr Craig who represented the London syndicate applied that for the examination to be conducted in private, but the Court granted the trustee's request that it should be public. He was asked a lot of question aslo about the profits made when Oban and Aultmore was floated. The meeting was adjourned until May 19th.
18 April 1899
April 18th was the last day for the offer and the syndicate delivered their offer in time.
8 May 1899
May 8th it was reported "At last the Pattison reconstruction scheme is said to be nearing a success, and that only a few details of no significance have now to be adjusted. So far as can be gathered the scheme which the syndicate is to take over the assets is to pay the liquidator the sum of £345,000 for the book debts, stock, and good will, and £100,000 for the heritable property"
4 days later it was said that negotiations between the liquidators and the syndicate had failed and that the Duddingston Brewery
was for sale.
15 May 1899
May 15th the staff received notices to quit. On same day some of the liquidators prepared a petition to the Court of Session asking the Court to give powers to continue the business until the negotiations with the syndicate are brought to a successful issue.
19 May 1899
May 19th the Court of Session heard the parties. The creditor William Higgins Jr (Avoneil Distillery, Belfast) (£130,000) and others that a big loss the creditors would be the result if an arrangement was not done with the London syndicate. The situation had changed and the syndicate now were prepared to pay £50,000 and then $345,000 in cash at three different periods (after two, four and six months).
It was two main problems:
1) the security for the second and third payments.
2) the British Linen Company Bank - they held a bond for £100,000 (Brewery and Warehouses) but was now offered Debenture Stock (estimated value £91,600) in the new company
The liquidators now were running the business at a loss and they complained that the syndicate did not fulfil their promises and present a definite scheme. It was proposed that a meeting should be arranged with the bank to know if they would accept debentures instead of cash. It was critizised that this point was not checked much earlier.
The difference between liquidation and selling the business was as per the main group of creditors only £4,000 (£381,000 against £377,000).
Did anyone, he (the Solicitor Genral) asked, ever hear of a bankruptcy where those who were concerned with the estate said, we think it will realise £381,000, but we can get £377,000, and would not jump. at that offer? . He did not understand why the liquidators should seek to depreciate the value of the scheme which they themselves six weeks ago wanted six months' more time to allow them to complete. They had been negotiating for this very scheme, and spent all their intelligence and experience - and one knows that these were both great - (laughter)-in getting this scheme to a point, they had got it down to a very pin-point, and then they damned their own scheme. He could not understand their action.
26 May 1899
A new meeting was held with the creditors May 26th. A group of creditors (William Higgin, jun (Avoniel Distillery Belfast), James Ainsley (Ainslie & Co/Clynelish Distillery), Mr William Ross (Distillers Company) F.W Brickman broker Leith/Benromach Distillery))
Mr Ross was chairman at this meeting and presented a new proposal from the syndicate.
The total sum was £345,000, which should be paid in three equal instalments after two, three and four months. At this meeting the liquidators agent made a statement against the scheme. At this stage the negotiations with the liquidators has stopped but the meeting took the decision that a group of creditors "the committee" (William Higgin, Robert Cameron, F.W Brickman and William Ross) should go to London and meet the London syndicate. However they should have everything ready for a decision the following week.
6 June 1899
It was reported that the reconstruction attemps failed. At meeting with the London syndicate (Ocean Accident and Guarantee Company) they intimated their willingness to find the cash to pay off the heritable bond, and to guarantee payment of the second and third instalments, but the conditions on which they were prepared to do so required a readjustment of the terms for the acquisition of the property by the new company.
The committee had done their utmost to arrange for this readjustment, but they regretted that they had been unable to bring the negotiations to a close within the time at their disposal.
Mr Ross (DCL) reported: ...... on 5th June the brewery was again advertised for sale by auction, and the committee has been informed by Messrs Davidson & Syme that this has been done by agreement between the liquidator and the British Linen Bank. In these circumstances the committee beg to report that they are not in a position to continue the negotiations.
(Signed) Wm. H. Ross."
It shows that the cooperation was not the best and the strong creditor group up to now, lead by Mr Higgins (Avoneil Distillery) was now weaker (only representing £130,000).
Mr Salvesen (who appeared for creditors representing £345,545) said he represented a very large body of creditors, who had instructed him to oppose any further extension of time. Many of the creditors had come to be of opinion that the Syndicate was trifling with the matter.
This was the end of a long process and now the assets of Pattisons were on auction. It seems that already from the start it was forced behind with the goal to extend the process by this avoid that a lot of whisky came out on the market a low prices. The result of this was also that the value of other assets (brewery, offices warehouses) fell and this was also interesting for prospective buyers.
I fully understand that the liquidators were fed up with syndicate because of the long time it get definite positive answers, but If I had been a creditor I would have been very disappointed also with the liquidators.
However in my research I have not found any signs of such a reaction. Why should they be disappointed?
At the meeting 26 May 1899 they reasoning that it would go much quicker to get the money if the assets were realised. The syndicate was prepared to pay £345.000 for the assets, but this was “not a very tempting offer for the assets”.
This would give 13s 4d to the unsecured creditors or as much as if the assets were realised on auctions, but it would take at least 9 months until the full price was paid by the syndicate. If the assets were sold they said it would take 6 weeks.
6 June it was decided to sell the assets. What was the result?
The unsecured creditors:
- got 7s 6d in the £1 (37%) instead of 13s 4d (67%)
- got this at three occasions – the first in December 1899 i.e. not 6 weeks after as the liquidators said but after 6 months.
The effect of this much worse outcome and the delay of payment was of course that creditors with weak finances, like F.W & O Brickman (whisky brokers in Leith),
also got problems (winded up by sequestration 4 October 1899). Their creditors then also got problems and it was a snowball and domino effect.
For others in the trade with capital this was a bargain to buy assets of Pattison at low prices and you can read about the the sales of assets here.
Edinburgh Evening News - Tuesday 06 December 1898
Evening Telegraph - Wednesday 07 December 1898
Blackburn Standard - Saturday 10 December 1898
Western Mail - Tuesday 13 December 1898
Evening Telegraph - Tuesday 13 December 1898
Evening Telegraph - Monday 19 December 1898
Leeds Mercury - Friday 20 January 1899
The Edinburgh Gazette - Friday 10th March 1899
Belfast News-Letter - Wednesday 15 March 1899
Glasgow Herald - Friday 17 March 1899
Dundee Courier - Friday 14 April 1899
Freeman's Journal - Monday 08 May 1899
York Herald - Friday 12 May 1899
Glasgow Herald - Saturday 20 May 1899
Liverpool Mercury - Saturday 27 May 1899
Dundee Courier - Wednesday 07 June 1899
R.B Weir "The History of the Distillers Company 1877-1939"