COMPANIES ACT.

Auckland Star, Volume LXV, Issue 129, 2 June 1934, Page 12

COMPANIES ACT.

TOO RESTRICTIVE? DIFFICULTIES OF FLOTATION. AMENDMENT URGED. The revised Companies Act, which came into operation on April 1 last, was criticised by the chairman of directors, Mr. W. Fraser, at the annual meeting of New Zealand Perpetual Forests yesterday. "This Act lias been almost entirely modelled on the British Act of 1929, and. while some of the provisions of the new Act undoubtedly help to protect the investor in a small company, sufficient consideration has not been given to the essential differences between the methods of raising and the ability to raise large capital sums in Britain and in New Zealand," said Mr. Fraser.

"It is an admitted fact that reduced interest-earning possibilities for money invested in Government or public utility stocks tends to divert money into more speculative industrial enterprises offering quite reasonable capital protection and better prospects of a higher annual return, and this condition of affairs is likely to create improved opportunities for the satisfactory absorption into normal channels of production of some of the skilled and unskilled labour available. Further, it cannot reasonably be denied that there is now accumulating in New Zealand considerably more credit or money than any 'gilt edged' supply can absorb. In these circumstances, one would expect to see a considerable expansion of industrial activity, but credit —than which there is nothing more timid or nervous—has suffered many shocks in the past few years and certain provisions contained in * the new Companies Act would seem to have provided the one last thing lacking to bring about the com plete paralysis of new industrial enterprise in New Zealand.

"I refer particularly to the entirely new and restrictive provisions of the Companies Act," said Mr. Fraser. "One states: 'No allotment shall be made of any share capital of a company offered to the public for .subscription unless at least 60 per centum of the amount stated in the prospectus as the minimum amount which, in the opinion of the directors, must be raised by the issue of share capital in order to provide for' the establishment and operation of a business has been subscril "d, coupled with the further provision that 'If the conditions aforesaid have not been complied with on the expiration of four months after the first issue of the prospectus, all money received from applicants for shares shall . be forthwith repaid to them.' Four Months' Limit an Anomaly. "You are doubtless all aware that in Great Britain there is a great mass of wealth lying liquid, and is looking for investment, and, co-related thereto, an intricate and far-reaching system _of underwriting, which makes it possible to arrange, within a few clays, or even hours, for the complete finance of huge enterprises involving millions of money. In this Dominion, however, there is neither the vast amount of liquid wealth to draw from, nor any organisation for financing that is in any way comparable to that found in Britain, and wherea-s the fixing of a four months' limit for the subscription of all the moneys required to establish and operate an industry before allotment can take place is a perfectly reasonable thing in Great Britain, in New Zealand it simply means that no one, having any discretion at all, would attempt the flotation of a company requiring a large amount of capital, if 60 per cent of that capital had to be raised inside a period of four months. While, no doubt, this and other anomalies will be removed in the course of time, it is pertinent to remark that there has not been one major flotation proposed or offered on the market since the new Companies Act became law, and in the public interest the need for amendment in this and other respects is very urgent."