COMPANY LAW

Press, Volume LXIX, Issue 20989, 18 October 1933, Page 10

COMPANY LAW

Bill Introduced in Parliament PROTECTION FOR THE PUBLIC HAWKING OF SHARES PROHIBITED lFrom Our Parliamentary Reporter.] WELLINGTON, October 17. The prohibition of the haw r king of shares, stricter regulations governing the issue and terms of company prospectuses, and the restrictions on the appointment of company auditors are three of the principal provisions of the Companies Bill, a monumental measure of 384 clauses and 264 pages, which was introduced into the House of Representatives to-night by the Minister for Finance, the Rt. Hon. J. G. Coates. and read a first time. Although the bill is mainly the consolidation of the present company law, there are a large number of amendments, designed for the most part to bring New Zealand law into line with British practice. House to house hawking of shares is specifically prohibited unless the shares are approved by a registered stock exchange, or in certain other cases. Except with the approval of the minister, no person is to be qualified for appointment as an auditor unless he is a member of the New Zealand Society of Accountants, Incorporated Institute of Accountants, or the New Zealand Accountants' and Auditors' Association, Incorporated. This will not disqualify auditors who are acting when the bill is made law. The bill is designed to give greater protection to shareholders and creditors, and to protect further the public against new flotations. It was framed by a committee appointed in 1930. comprising Messrs P. Levi, H. E. Anderson, H. D. Vickery, J. L. Griffiths, J. M. Hume, R. W. Kirkby, F. PI. Bass, and C. M. Bowden, which represented virtually all the interests affected by the bill. As far as possible the language and arrangement of consolidating the Imperial act of 1929 have been closely followed. Provisions regarding prospectuses, which are set out in a schedule to the bill, ensure that full disclosure must be made in the prospectus of the position of the company issuing it, and of the financial interests in it of the promoters.

Sales of Shares. An important part of the bill places restrictions on the sales of shares and debentures. It is made unlawful for iinv person to issue in New Zealand any prosDectus offering for subscription shares in. or debentures of. a (omoany incorporated outside New Zcafand, whether the company will or will not establish a place of business in New Zealand, unless before the issue of the prospectus in New Zealand a copy of it, certified by the chairman and two other directors, has been delivered for registration to the registrar. Similarly, with certain exceptions, it is made unlawful for any person to issue in New Zealand a form of application for shares or debentures of such company, unless the form is issued with a prospectus complying with the above provision. A line of up to £SOO is provided for a breach of this clause. Particulars to be disclosed in prospectuses issued in New Zealand by overseas companies are defined by another clause. The bill prohibits any person going from house-to-house offering shares for subscription or purchase to the public. The word "house" does not include an office used for business purposes. It shall not be lawful to make an offer in writing to any member of the public of any shares for purchase, unless the offer is accompanied by a statement in writing containing the exact particulars regarding the status of the person making the oiler, and the financial position and constitution of the company concerned. Status of Salesmen. The particulars required are set out in detail. The prohibition does, not apply ia; Where the shares to which the offer relates are shares which are quoted on, or in respect of which permission to deal has been granted by any stock exchange registered under the Sharebrokers Act, 1908, and the offer specifies the stock exchans-\ (b) Where the shares to which tiie offer relates are shares which the company has allotted with a view to their being offered for sale to the public, or (c) Where the offer was made only to persons with whom the person making the offer has been in the habit of doing regular business in the purchase or sale of shares. A breach of the provisions of this clause renders the person liable in the first case to a fine of £2OO, or to six months' imprisonment, or to both these penalties. Overseas Companies. Under the present law an overseas company is required, before commencing to carry on business in New Zealand, to appoint an attorney to represent it, and a power of attorney is required to be filed in the court. The proposed provisions impose much more stringent obligations. Every overseas company, whether already in business in New Zealand or hereafter commencing business, is required to file ■with the registrar (1) Documents relating to its constitution. (2) Particulars as to its directors, and (3) Particulars as to its attorney or attornies. Companies incorporated outside New Zealand are required to keep the same accounts in respect of any business carried on in New Zealand as they would if they were New Zealand companies. Copies of the balance-sheets of such companies have to be filed annually with the registrar, with a translation in English if necessary. The fact that an overseas company is incorporated out of New Zealand must be disclosed on all correspondence, and on its place of business. Insurance. A special- part of the bill deals with companies carrying on insurance business other :than life or accident insurance. No limited company shall carry on in New Zealand such insurance business unless it has a paid-up capital intact of £50,000. It may commence business, however, if it has a paid-up capital intact of not less than £25,000, and additional capital called ■up and payable within six months of the date of registration of the company of an amount not less than the difference between £50,000 and the amount of paid-up capital. It may also carry on the business of insuring property of its own members only if it has an | issued capital of not less than £50,000, I of which not less than £25,000 is paidI up capital intact. In each case cerI tain conditions are specified.

! A section of the existing bill, which ! declares that with certain exceptions no company carrying on the business i of insurance, whether or not in common with any other business, is to be (registered with a limited liability is i omitted in the bill before the House. ! "The omission of any such proyii sion," states the memorandum to the i bill, "makes an alteration in the law 'of major importance. The undesir--1 able effect of the existing provision |is shown in. the history of the fJoi minion Life Assurance Office of New '■ Zealand. Ltd., which, though consist- ! ins exclusively of shareholders domiiciled in New Zealand and carrying lon business exclusively in New ZeaI land, was originally incorporated with !a limited liability in New South Wales, and could be so incorporated I in New Zealand only by means of a ! private act." 1 Mining. i Several minor changes are proposed lin the section dealing with mining i companies. Unless it is a company : limited bv shares, a company that is ! not a mining company is not to be pcii mitted to alter its objects to include ! mining uurposes. Every mining eomi uany incorporated outside New; Zealand is required-to have a registered ' office in New Zealand. New Sections. ; An entirely new section provides : for the winums up, as it they were : companies registered under me act, '. or certain corporations and associations mat have to some extent tne i nature of companies, but wnicn are ' unregistered as such. ; 'mere are several important new ' provisions with respect to private : companies, ft is now made obligatory I lor new companies to register tneir articles of association. Existing prii vate companies will be required to i register articles, and are to be al- ' lowed six months after the commence'ment of the act in which to do so. Private companies are required to '■■ iirnish an annual return to the regis- ; trar. Provision is made whereby in the event of an increase in the capital :of a private company, the increase i must be fully subscribed for in a docui ment executed in the same manner ias a memorandum of association. A i private company is empowered to act i either by resolution passed at a meeti ing of the company, or by a like resoi hit ion passed by means of an entry !in its minute book. Entries in the I minute book may be made by affixing ito the minute book a memorandum, ; or series of memoranda, signed as m- ! tended to be effective as an entry in ! the minute book. Every member of ' a private company is given the right, on pavment of a small fee. to demand a copv of the company's balance-sheet, ; with the auditors' report, etc.

Liquidators. Under ihe present law Hie official assignee appointed under the Bankruptcy Act is, by virtue of his otilce, official liquidator in the winding up of all companies within his district. Under the terms of the bill the official assignee is, by virtue of his office, the provisional liquidator, but the court has power to appoint the official assignee or any other person as liquidator. The court has also power to appoint a special manager to assist the official assignee in the administration of any estate or business requiring special knowledge or other qualification. The company that is being wound up by the court is required to submit a verified statement of its affairs to the official assignee. Provision is made fur the constitution and proceedings oi a committee of inspection, replacing the supervisors which may be appointed under the existing act. The court is empowered to restrain a fraudulent director-promoter or officer from lading part in the management of companies for a specified period, not exceeding live years. Provision is made to increase the powers of creditors in the voluntary winding-up of a company that is not declared to be solvent. In windingup priority of payment is given lo compensation under the Workers Compensation Act, but this provision is limited in its application to case.--where the rights of the worker are not protected by insurance. On application by the liquidator or an., creditor the court is empowered to make an order imposing a personal liability without limitation on.directors who have been guilty of ii«ua-?; lent trading. A company that s being wound up will be obliged to disclose that fact on its invoices, correspondence, and other documents. A special provision is made to prevent the registration of with names containing such woids ..s chamber of commerce, building society, royal, imperial or national, municipal-, or chartered, or bank, cooperative/trust, trustee, or stock exchange, which are likely to deceive thefublic as to the. true nature_ and functions of companies. The iegi.. trar of companies is authorised to sanction a change of name.

Application Forms. Subject to certain limited exceptions, the issue of forms of application for shares or debentures ma companv is prohibited unless they die accompanied by a prospectus complying with the requirements of the act Under the present law the minimum subscription, without which a company cannot proceed to allotment of shares, may be arbitrarily fixed in the memorandum of association without reference to the requirements o the proposed company. -the om provides that the minimum subscription shall be iixed by reference to Uie requirements of the company in respect to preliminary expenses .and working capital. A company not issuing a prospectus is required to with the registrar, before proceeding to allotment, a statement in place oi a prospectus. The present act doe:, not fix a limit on the rate of commission that may lawfully be paid to a subscriber for shares. The bill proposes a maximum rate oi 10 per cent. Commissions and discounts are to be reauired to be disclosed in balancesheets. Subject to certain .minor exceptions, a company is prohibited tiom assisting a subscriber in the purchase of its shares. Powers are given foi the issue of redeemable shares, and the issue of shares a': a discount. Subject to certain safeguards, a company is authorised to pay interest on share capital raised for the purpose of constructing works, or providing plant that cannot be made profitable for a long period. I Share Certificates. ' \ new clause requires a company i to* issue its share certificates within two months after of transfer Previously these certificates had to be issued only "within reasonable time*' Debenture holders and share - holders are given the right to inspect the register of debenture holders. Companies not having a snare capital are required to make an annual return, including a certified copy of the balance-sheet, to the registrar of companies. A series of new provisions are made concerning the keeping and auditing of companies' accounts, and the preparation of balance-sheets. Auditors. An important new provision declares that except with the approval of the Minister for Finance, no person ?hall be qualified for appointment as auditor of a company, unless he is either a member of the New Zealand Society of Accountants iTncor-i porataD. tne institute of Accountant:,! of New Zealand, or Hie New Zealand! Accountants and Auditor;.' Association (Incorporated), or a member, fellow, or associate of aa association of accountants consU-tute-.l elsewhere in the British Empire. This provision does not disqualify any person appointed as an auditor of a company before the commencement of the act from acting as auditor, or from being reappointed to that position. Another clause of the bill requires a statement regarding the remuneration of directors to be furnished to shareholders. Directors are required to disclose any interest they may have in any contracts with the company. Provision is made to facilitate the reconstruction and amalgamation of companies. Power is also given to a company to acquire the shares of shareholders dissenting from, a scheme or contract involving the transfer of shares which is approved by a ninetenths majority of shareholders.