Sunday, 12 August 2012

Edinburgh United Breweries in the doodoo

I've been gathering information about this for a while: the largest duty fraud of the 20th century. When Edinburgh United Breweries finally got caught after years of secret brewings and duty dodging. It all got rather messy.

Ever since 1926 there had been furtive nocturnal brewings that hadn't been registered in the official brewing books and of which the Excise was totally unaware. The point was to dodge paying the duty, which was already a considerable proportion of the cost of brewing beer.

The whole of the brewing staff had been in on the fiddle. It eventually came to light when a disgruntled sacked employee tipped off the Excise. Their retribution was swift and terrible. They demanded £51,000 in back duty be paid immediately. EUB didn't have that much cash, so the Excise started seizing their property. The net result was that EUB had to file for bankruptcy, not having sufficient assets to carry on the business.


In the First Division of the Court of Session, Edinburgh, yesterday a petition was presented on behalf of the Edinburgh United Breweries for the compulsory winding-up of the company and the appointment of a provisional liquidator.

Mr. T. M. Cooper, K.C., who appeared for the petitioners with Mr. J. L. Clyde, said the circumstances were of exceptional urgency. The petition was an the instance of the company and the whole of the directors, and one of their number in his character as a creditor. The capital of the company was roughly £100,000; it was a public company with some 500 shareholders, and the shares were quoted on the principal Stock Exchanges.

A few weeks ago allegations were made by the Excise authorities that irregularities had occurred  in the  payment of duty on beer brewed at the brewery, and the company's books had been seized.

On Tuesday without previous warning, the Excise authorities presented to the company a demand for over £51,000 as duty, coupling their demand with a request for instant payment.

The company being unable to comply, the Excise authorities proceeded to distrain upon the company's goods, with the result that the company's activities had been paralysed. In that situation the company had had no opportunity and no time to investigate the validity or the quantum of the claim. The directors had come to the conclusion that immediate action should be taken for the protection of the interests on the one hand of the shareholders, and on the other hand of the other creditors of the company.


It was alleged in the petition that the directors were unaware and prior to the allegation in January, 1934, had no knowledge of any irregularity affecting the payment or non-payment of duty. The books and records had been out of their possession from that date to this. If the £51,000 of duty were due so far as it was possible to say, the company was unable to pay its debts within the meaning of the Companies Acts.

Apart from that, their Lordships would appreciate that questions of importance might arise, but he was not in a position to say whether they would or not is to the preference to the Execise Authorities And the effect of the distress on the other creditors. The whole question had been thrown upon the company at a few hours' notice.

Lord Morison asked if the Excise had any special powers under their warrant.

Mr. Cooper read the section of the Revenue Act to the effect that the collector by warrant might empower any person to distrain.

Lord Sands: Is there any other section under which the Revenue is the sole judge?

Mr. Cooper Nor that I am aware of. The situation is this — that in pursuance of a claim the existence of the quantum of which has never been ascertained, the Excise authorities are at this moment engaged in liquidating a public company at their own hands.


Lord Blackburn; Does the claim run back for a period of years?

Mr, Cooper: Back to 1926. My motion is that your Lordships should pronounce the first order in the petition and simultaneously make the appointment of a provisional liquidator. I understand that the collector of Excise intimated that he was acting under instructions when he took this strong action yesterday. I think it would he desirable, that an independent person with the authority of the Court behind him should be in a position to possess himself of the assets, which at the present moment are being taken out of the brewery. Your Lordships have ample power and a duty to consider the interests of others than the Commissioners of Excise. There are other creditors and the shareholders. The alternative to the motion I am making just now would be the destruction of the company and possibly the seizure of the whole liquid assets.

The Lord President: We had better have the Lord Advocate here. I see I great difficulty in appointing a liquidator who cannot get the stocks and  who even cannot get access to the books.

Mr. Cooper: A good deal of mischief has been done. Seizures were made yesterday, and with such rigour that they have even extended to a car belonging to the wife of one of the directors.

Lord Sands: It might not be to their interests to sell this place as a break-up.


Mr, Cooper: The extent of the powers possessed by the Excise authorities surprises me. Your Lordships will appreciate that if the Excise authorities have a preference for £51,000, then the liquidation would not affect that, and I do not think the Lord Advocate would he prejudiced by this appointment. I am anxious to avoid the inevitable and irretrievable loss. If someone in an independent position is not at once appointed it may be that an independent person could negotiate when the directors could not.

Lord Morison: Is it clear that the liquidator will supersede this officer who is in possession ?

Mr. Cooper: I do not know whether he would, but be certainly would be in a position to talk to the authorities in London. It does seem to me if nothing is done that the company will be irretrievably damaged.

The Lord President, alter consulting with the other Judges, said they would make an order giving intimation of the petition to the Lord Advocate, Either he or the Solicitor-General was in Edinburgh, and, in view of the exceptional character of the situation, it would be no more than reasonable if the Lord Advocate or Solicitor-General were to appear in that Court after lunch.

The Solicitor-General, who appeared after the internal, said that, according to his information, there had been fraudulent evasion of duty since 1926, and he was entitled to take any steps which the statute gave to enforce payment.

After counsel had given details of an arrangement suggested for carrying on the business, the Lord President inquired if that included handing back the books.

The Solicitor-General replied that he could give no undertaking, as the books were required for other proceedings.

Counsel for the company said he was there to defeat the Solicitor-General's attempt to secure an illegal preference over the other creditors.

The Solicitor-General denied that he was seeking such preference.

The Court ordered that the petition should he advertised, and appointed a provisional liquidator.

The Solicitor-General subsequently appeared before Lord Fleming and obtained an "ex parte" order for payment of duties amounting to £51,901.

Lard Fleming said he expressed no opinion as to whether the Crown was entitled to enforce the decree or what would be the effect if they did so."
Financial Times, 22nd February 1934, page 9.

There's a lot to digest there. But there's a technical point that's puzzling me. It's to do with gyle numbers.

As the dodgy brews weren't in the brewing books, they wouldn't have a proper gyle number. Usually the gyle number would be marked on the cask, so that if there were any problems, it could be traced back in the brewing records. I wonder which gyle number they put on the casks of the secret brews?

How many barrels had they brewed secretly? It's easy to work out a rough estimate. The Excise wanted £51,901 in unpaid duty. In 1926 to 1934 the rate of duty was 80/- or 114/- per standard barrel. Because beer was by then well under standard barrel strength, it averaged about 60/- per bulk barrel. So about three quid. Or approximately 17,300 barrels. The fraud went on for 8 years, which means they brewed about 2,000 barrels a year secretly.

Had the directors really known nothing about the dodgy goings on? Would they end up in the dock? We'll find out the answer to those and many other questions in future instalments.

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