Unsurprisingly, the Pattison brothers didn't agree with the valuation of the accountants. They did their best to prove that, far from there being an £80,000 shortfall in the accounts, the company was still solvent. See what you think:
A letter from Messrs Robert & Walter Pattison was then read as follows :-
Leith, January 6th, 1899.
Dear Sirs,-It was only on Wednesday evening that we were furnished with a copy of the balance-sheet which you prepared of the affairs of our firm, Pattisons, Limited. In the short time it has been impossible for us to go minutely into the balance-sheet; but, from the examination we have been able to make, there are a number of points to which we would like to direct your attention : -
(1) Properties-You state the properties at the values put upon them by the valuators who have been employed. We naturally contend that for a going concern the business should be taken at the prices at which they stand in the firm's books - that is to say, the cost to the Company. The difference between the two exceeds £71,000. In connection with the difference it is right to say that there are accounts amounting to fully £17,000, which came in, and which, in our estimate, we include as being part of the cost of the buildings. These accounts, amounting to £17,000, are part of what you include in your statement at the end of the liability side, under accounts outstanding not provided for, £28,101.
(2) Stocks-These have been taken in at the valuation placed upon them by the valuators. Of course, with such a large stock it has been utterly impossible for us to check the valuations with anything like completeness. But, taking the leading items, we find that the valuation of these items alone is less than the cost of the articles to us by no less than £21,300.
(3) Investment - Our interest in the Glenfarclas Distillery is put in at £92,300, much less than we have been advised and ourselves believe to be its true value. We should put it £10,700 more than you have, to which there should be added our share of the trading profits of the concern for two years, which profits have been left in the concern, and the amount of which we estimate at £5000.
(4) Sundries -Under this head are entered showcards, mirrors, stationery, &c. These items stand in the books at £21,981, which is cost to us, but you estimate them at £7000 only. There are a number of other items not carried into the books or into your balance-sheet at all. For instance, railway plates, containing our advertisements at railway stations, and lettering for shop windows all over the country. These latter items have cost us at least £5000. Under this head, therefore, we think there ought to be carried in as an asset on the basis of a going business a further sum of £15,000.
(5) Goods in transit - You have made no allowance for goods in transit and distillery casks not taken into stock. What we mean as to goods in transit is this, you have entered as a liability against us under the item accounte outstanding the invoices for goods bought. But you have not made an allowance for the position of the other goods in course of transit to us. If the accounts for these goods are to be taken in as liabilities, then the goods should be taken in on the other side as assets. With reference to distillery casks in the accounts rendered, we are charged for these also under accounts outstanding, but when the casks are returned we will get credit for the value. Under the item for goods in transit and distillers' casks we estimate the assets have been understated by about £5000.
(6) We should call attention also to this, that there is debited as a liability of the business a promissory note now held by one of the Banks for £40,000. This bears the firm's signature, but it truly is a liability of us as individuals, and the banks hold Securities given by us to a much greater amount at the time, so that in dealing with the assets and liabilities of the Company these securities should only be applied to the £40,000 liability, and this item, seeing that it is wholly met by the securities, ought to come out of the Company's balance-sheet, making a total of £168,000.
In addition to all these, there is the goodwill of the business, which, when the Limited Company was formed, was estimated at a very large sum, and since then there has been spent in advertising the Company's name and brands considerably over £100,000. Of course, you understand that we surrender our own private means for the benefit of the creditors of the Company, subject, of course, to this, that such private creditors as we have shall be entitled to claim therefrom for their debts. In justice to ourselves we think that when your report and balance-sheet had been read to the meeting this letter should also be read.
(Signed) Robert Pattison.
Walter Pattison. "
Evening Telegraph - Saturday 07 January 1899, page 3.
Let's do a bit of maths: £71,000 for the buildings, plus £21,300 for the whisky stocks, plus £15,700 for Glenfarclas, plus advertising crap £15,000, plus goods in transit £5,000, plus £40,000 owned personally by the brothers to the bank comes to £168,000. Just like the brothers said. Throw in the goodwill and the company seems to be positively swimming in assets.
Problem is, this wasn't the true situation. The buildings weren't worth the amount the company had paid to build them. The whisky stocks had, in fact, been overvalued by the accountants, as we'll find out later. A real valuation of them would fire several torpedoes into the unsteady Pattison ship. The advertising stuff, though they might have paid over 20,000 quid for it, wasn't worth much to anyone else. The brothers might have considered the £40,000 to the bank a personal debt, but when they were personally bankrupted, it fell back to the company.
£100,000 spent on advertising? That's an enormous sum for the period. Looks to me like one of the causes of their financial difficulties. The company had only been going for 3 years.
I can't say whether the value of Glenfarclas was correct, nor that of goods in transit. Let's be generous and say these were correct: that's only £20,700 in extra assets. It's nowhere near the amount by which the whisky stocks had been overvalued. The shortfall in the accounts was, in fact, much, much larger.
Next we'll be looking at the mysterious syndicate and their attempts to takeover and continue the business.