Monday, 30 April 2012

The abortive sale of McLennan & Urquhart

This is a really weird story. Of a very unusual flotation. And it shows what a litigious bunch they were back in the 19th century.

Let's start with the article:

In the Court of Session on Tuesday, Lord Low closed the record in an action by Menzies, Bruce Low, & Thomson, W.S.. Edinburgh, and Robert Menzies, a partner of the firm, against McLennan & Urquhart, Dalkeith, for payment of (1) £480, (2) £62 14s 9d., and (3) £40 13s 4d. In May, 1889, Mr Menzies was authorised, if he could find a suitable purchaser, to enter into negotiations for the sale of the Dalkeith Brewery, he was to receive a commission of 1.5 per cent. on the purchase price. The pursuers state that in 1889 a sale was effected for £32,000, and the first sum sued for represents the amount of the commission on the price, while the second sum is the commission at 1.5 per cent, on the valuation of the stock-in-trade. The purchaser of the brewery made a deposit of £5000, but as the balance of the price was not paid, he forfeited that amount, and the defenders retained the brewery. The purchaser had arranged for the sale of the brewery to a limited company, and when the prospectus was issued to the public, it came, the pursuers state, under the observation of the officials of the Inland Revenue that the amount set forth in the prospectus as representing the profits of the brewery for 1885, 1886, 1887, and 1888 — the four years preceding — exceeded by £18,072 the amount set forth in the defenders' annual returns of income to the Commissioners of Inland Revenue for the period mentioned. The sum which duty had been paid for these years were respectively £965, £980. £1018, and £2040. The Inland Revenue accordingly claimed £545 18s 6d, in respect of duty on £18,072. The third item sued for represents account incurred in adjusting an  arrangement with the Inland Revenue and other work. The defenders, who deny that they are lucratus by the pursuers' services, maintain that no commission is due, on the ground that the pursuers did not obtain the price arranged for, and did not effect a sale; but the defenders state their willingness to pay the business account, subject to taxation."
Dundee Courier - Thursday 24 May 1894, page 2.

I'll summarise: the owners sold the Dalkeith Brewery to a third party who then wanted to convert it into a limited company. He paid a £5,000 deposit but, not being able to pay the other £27,000 of the purchase price, didn't acquire the brewery and lost his deposit. Quite an expensive exercise, £5,000 being a considerable sum.

I'm going to make a wild guess here. The unlucky purchaser must surely be the mysterious Mr. Beal mentioned in the prospectus. I suppose his plan was to use the money raised from the flotation to pay Mr. McLennan and Mr. Urquhart the balance of the purchase price. It's an odd -  and ultimately unsuccessful - way of selling a company.

Did the flotation ever really happen? Was it scuppered by the attention of the Inland Revenue? As the company was still a partnership in 1896, I suppose not.

Those tax officials, they have eyes everywhere. Lying about your income and then putting the real figures in a prospectus is just asking for trouble. £545 18s 6d is about 3% of £18,072. A pretty low rate of tax. I assume that was corporation rather than income tax.

It's a bit of a cheek claiming commission on a sale that fell through. Especially after waiting five years. I'd have told Menzies, Bruce Low, & Thomson to bugger off, too.

"Lucratus", another Scottish legal term, means having made a profit. I suppose McLennan and  Urquhart had made money from the transaction: the £5,000 deposit. Maybe letting the lawyers have 1.5% of that sum would have been fairest.

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