Downfall and trial
In 1928, Lord Kylsant applied to extend the government guarantee on a loan from the Midland Bank. When the application was refused, his shipping group defaulted on part of the next repayment. Much of the group's finances were based on debenture stock paying fixed interest at five per cent, and the main trustee of this stock was Kylsant's older brother, the 1st Viscount St Davids, who was unhappy with the way debenture stock was being issued, especially a £2,000,000 issue in 1928. Lord St Davids made his concerns public, and the stock market values of the whole group declined sharply. Worried by these revelations and fearing an economic crisis, the British government appointed the accountant William McLintock to investigate the group's finances. His report issued in early 1930 revealed that Royal Mail Steam Packet Company had liabilities in excess of £10,000,000. This was enough for the banks to act, and much of Kylsant's powers were removed to trustees appointed by the banks, although Kylsant remained chairman until November 1930. In February 1931, Kylsant and his wife went to the Union of South Africa on holiday, and in his absence, McLintock revealed that for several years the Royal Mail Steam Packet group had been paying dividends to stockholders despite trading at a loss. McLintock did not report this activity as fraudulent, although politicians used the term when the matter was discussed in the House of Commons.
On his return from South Africa, Kylsant was arrested and charged with making false statements with regard to company accounts for 1926 and 1927, contrary to section 84 of the Larceny Act 1861. The company auditor, Harold John Morland, was charged with aiding and abetting the same offences. Kylsant was also charged with issuing a document (the prospectus issued for the 1928 debenture stock issue) with intent to deceive, contrary to section 84 of the Larceny Act 1861. Both men were committed for trial at the Old Bailey.
The trial took place in July 1931 and lasted for nine days, presided over by Mr Justice Wright. Both men pleaded not guilty to all charges. At the end of the trial, while both men were found not guilty of the first two charges, Kylsant was found guilty of the final charge of issuing a document with intent to deceive. Morland was discharged and Kylsant was sentenced to twelve months' imprisonment. After one night in prison he was released on bail, pending an appeal against the conviction. Kylsant's appeal against the conviction and sentence was heard in November 1931, when it was dismissed, and he subsequently served ten months in Wormwood Scrubs prison before being released in August 1932.
In his obituary, The Times reported:
Lord Kylsant bore his trial with great dignity, cast no blame on any colleagues, and on return to ordinary life retired to his residence in South Wales. On his return to Coomb he was given a warm welcome and his car was drawn by 40 men at a running pace for about a quarter of a mile to the entrance of the house, and passed under an arch of laurel and evergreen which had been built over the gates. All who knew him acquitted him of any desire to act criminally, and they laid the responsibility on the assumption of duties beyond the power of any individual to bear and on a certain financial recklessness and a belief in the future which events showed was unjustified.
