CHRISTCHURCH OIL COMPANY.

Press, Volume LI, Issue 15394, 27 September 1915, Page 10

CHRISTCHURCH OIL COMPANY.

•AITLICATIOX TO CALL l*P MORTGAGE. DECISION* RESERVED. His Honour Mr Justice Sim, at the Supremo Court on Saturday, heard an originating summons to call up the principal moneys due on a second mortgage, from the Christchurch Oil Co., Ltd.. to William Lorigan and others, on which mortgage there was due and owing £6017 Bs. Mr Skerrett. with him Mr Hoban. appeared for the applicant, the second mortgagee, and Mr Raymond. K.C.. with him Mr Anthonv, lor the Oil Co., Ltd. Mr Skerrett said the application was for permission to sue for and call up tlie, principal sum owing on a second mortgage by reason ot a breach of covenant to pay the principal moneys owing under the first mortgage. The real point involved was. did the security mentioned in the -Mortgages Extension Act mean, and was limited to the actual value of the property subject to the charge, or was not the' security used in its widest sense as anv default which endangered either the property or the recovery ot the sum under the personal covenant:-' It was quite plain that the words of the statute having regard to the incidence of the statute were .sufficiently wide to include the endangering of the personal security for the mortgage debt. The main facts were indisputable, the only difference that would arise would be the suggested exense.

The company started with a capital of £87.500. made up of 350.000 5s shares. The company issued to the vendors 100,000 lully-paid un shares or £25,000. It issued 100,0<Xt contributing shares, or another £25.000, and it had unissued 150,000 shares, or £37,500. Of all that large capital £25.000 was all that \ras available, and that available capital was subject to liabilities to the extent of no lesß than £24.000. The company was started only with £25,000 of available capital, and out of that £25.000 it had to pay £24,450 for the purchase of a property, and it issued to the promoters of the company £25.000 of paid-up shares. Ho did not wish it to he understood that lie supported the vicious system of selling properties to companies far in excess of value. The property in question, 163 acres. was bought bv Messrs Lorigan and Otwav for iilOO per acre or £10,300. They sold to a syndicate at £150 per aero, or £2-1,450, giving a paper profit to Lorigan ami Otwa.v of £8150. The syndicate re-sold to the company at the same price, plus 100.000 paid up shares, so that the property cost the company the sum of neaily £50.000. The transactions were completed in August, 1912, and of the sum of £21,450 the company paid £5000 cash to the vendors, and gave two mortgages, totalling £13,253. The first mortgage was to the original owner of the company, and was for £11,792 payable as follows: £2000 on August Ist, 1914. and the balance on August Ist, 1917. Default was made in the payment of the £2000, tho sum of only £500 being paid. The second mortgage was to Lorigan, and M. H. Wynward, and A.-K. Skelton,cach having an undivided half, and was for £0461, of which £500 was repaid in December, 1912. and a further sum of £500 was payable on August Ist, 1914, but default was made, and the balanco of £6017 was payable in 1910. There was no provision in tho second mortgage as might have been expected, whereby in default of one instalment the whole became duo, and there was no power except an exercise of tho power of sale to sue for and recover tho balance. There was a covenant to pay tho principal and interest owing on" tho first mortgage, but it gave no remedy which in tho existing state of the law Avas available. Although tho company had been in existenca for three years, not one penny had been spent upon tho property. The annual charges totalled £1409, of which tho directors drew £300 and the secretary £75. and interest accounted for £922, while that was got in was £149 17a (id. The company must go hack between £12(J0 and £1300 per annum if the company was not wound up. He claimed that the. whole substratum of the company was gone, and that what the directors had done was plainly ultra vires, and should be tho subject of enquiry. Tho main object of the company was to acquire lands and to bore for oil upon lauds in their possession. What the company had done whs to act entirely upon clauses in the articles of association which wero merely ancillary to the main objects of the company.

In 1013 the company took shares in the United Oil Company to the extent of £5300, and they had actually paid £'5250 on thoso ..shores. In 1914-l"> they took, or undertook to take, £3000 in debentures of a company called thp Consolidated Oil Company, of which they had paid £835, leaving a liability of £2165. Mr Herman was the chairman of directors of the Consolidated Oi] Company, and was also a director of the Christchurch Oil Company. Mr Herman was also guarantor for the Consolidated Company's bank account to the extent of £19»5. Tho property of tho Consolidated Oil Company was situated within less than a mile of properties over which Herman had an option, and 25 miles from the property of 163 acres which tho company iii question had bought to work. Several so-called cxcuses had been put forward to account for what had been done. The £3000 was put into the Consolidated Oil Company at a timo when the Christchurch Oil Company had only £11,000 of uncalled capital to eomo and go tipon. The balancesheet for 1915 showed that 3s 6d per share in the Christchurch Oil Company had been called up. leaving £7500 uncalled capital. The payments made to other companies were made since the instalments became due to tho first and second mortgagees. It was clcar the company could only carry on at a loss. It was incurring annual deficits of from £1200 to £1300, and it was the duty of the directors to wind up. looking at the matter from a merely honest noint of view alone, it was the duty of the directors to w'ind up the company, and not further involve the shareholders' uncalled capital. but they had taken no steps to wind up. and the application had been brought to compel them to take proceedings to wind up tho company. He asked that leave be granted to enfore© the security. It was quite clcar that the form in which they would enforce the security would be by suing upon the covenants. That must bring the directors otf the company to consider whether it wa s not their proper course to take immediate steps to have the company wound up. He submitted he hod established all that was required.

In place of paying off the mortgages and improving the property the company had expendid its money elsewhere. It was clear at the present time that, to refuse the mortgagee the right to call up the money would be not for the benefit of the shareholders, but ior the benefit of the directors of the company. It was they who were drawing £300 a year, but what were they doing? So far from being disadvantageous to the shareholders it was positively advantageous that the relief claimed should be granted. In conclusion, Mr Skerrett said that some reforms were badly needed for the protection of the honest investor. Mr Raymond, in reply, said the arguments adduced were much more relevant on an application or petition to wind up a company than on an application under the Mortgages Extension Act. He contended that no case had been made out justifying the granting