AUTHORITY OF DIRECTORS

Press, Volume LXX, Issue 21180, 2 June 1934, Page 9

AUTHORITY OF DIRECTORS

Interesting Legal | problem i LIQUIDATOR'S DECISION , UPHELD | % I „ interesting case involving the t 1 authority of the directors of a t 'tnr came before the Supreme * t ve-terday when an application I f;Ur Lde on behalf of an English firm I of proof of debt for i ;t . 14s iod partially rejected by the - -Jn- of a New Zealand eomF The applicant was the Dental Co. (London >. and the I'f fwas opposed by the liquidator '"En and Herdman. Ltd. The ifor an order reversing the i :0t '° n of the liquidator on the i! that the rejection of the debt i « erroneous findings ol wrong conclusions of law. 5 Shearing legal argument, which 1 WfJ the whole day, his Honour j Johnston dismissed the ap- ! tffwß. Lascelles appeared for the i Manufacturing Co. and Mr k. : SsVon for the liquidator of Irvin j.': Herdroan, Ltd. Business Sold to a Company Dealing with the statement of facts i «t before the court, Mr Lascelles iWtin 1926 John Irvin. Peter ! ?! Herdman, and William Edmond I i llrfs were trading in partnership 'Khureh as denial and medical ! The Dental Manufacturing ■ ■# was an English firm with, which I i, partnership incurred debts to the ! fcjfrf £4BO. The business ol the f Xrship was then sold to a private ; '2 n y in February, 1930. Irvin and iff, Ltd.. of which there were i Messrs Irvirl and Herd•nr T. Mill, and Mr W. S. NewiSh The company took over the f felons of the partnership with the I! Salification that it should pay only Sj debts set out in a particular bal--1 ate-sheet, which showed the debt to I Dental Manufacturing Co, Ltd., as i Si The creditor company then pro- < to deal with the newly-formed - npany and pressed for payment of I larger debt. Irvin and Herdman f spceoted the position, and treated the JfflWit owing as the larger sum. It l«s actually put into written figures l j r them in a .statement which agreed i ditely with the creditor company s | ffltetions. One other director also ientified himself in a letter with the f reotance of the larger debt. When ' ®ed by the creditor company the f tto directors said the company would I tse fresh capital for the settlement > the Dental Manufacturing Coma's and other debts. A meeting of Beholders was held, but whnt transid there was not known. The flint of the debt recognised by the jidator (Mr W. S. Newburgh) was ISs sd, half of which had been sived, without prejudice, as a first rfcd, on March 10, 1932. On DeletieT 22, 1932, notice of action was fjfcby the solicitors for the creditor company, and the liquidator was srjed not to make any distribution ' which might prejudicially affect the Dental Manufacturing Company's position. His Honour. Was this debt set out si the annual balance-sheet? Mr Lascelles; I think there were no annual balance-sheets. It was a private company, and its affairs were loosely conducted. Important Principles "Theprinciples involved are of some cominercial -importance, and are not mthout their legal difficulty owing to the. confusion of legal authorities," aid Mr Lascelles, • who expressed tabt whether the liquidator could kjilly proceed with the distribution t! thefuiids available without having lit question decided. The creditor wmpaoy telied on the fact that the (titer tompany had power, and did issume' the obligation, settled the feire?, and part performed it, and fe partnership dropped but under the tivalioa The debtor company wf.s told by the authority, ostensible or fewise, of its directors in the cirranstances. Authority, apart from articles, was a question of fact, ! the directors' status, and of the stare of the company's business. The ibtor company held out its directors ' taring certain powers, and the alitor company relied on their reMentations and suffered in conse"fflce. Mr Lascelles submitted that scircumstances of the case justified toppel. it might be claimed by the defence, jil Mr Lascelles, that Irvin and felman were a pair of scamps, but te creditor company had no evidence tit they were anything but estimable Memen whose word could be relied t The Motion Opposed ■'lrGresson said that the grounds on '®h the liquidator was asked to '®t the Dental Manufacturing Coma's debt rested on an allegation that jecompany, by its directors or some of undertook to pay the debt of the 'rtnership which had been contracted wore the inception of the company, 'submitted that such an undertaking, pen, was not within the powers of company and would not be in the Aests of the shareholders. If within ■!powers of the company to give 'I an undertaking by its directors, o° such undertaking wafe in fact ;!'v • suc ' l undertaking, if in fact :" its directors. Irwin and Hord(nj no " '°' nd the company, not iit H e raa H c r within the ordinary Rector's powers. If the 'these directors Bound the com!anJ un given was one ,;d^ ver the debt of another person, 'f-itt» ere was not ia existence such : tL as would satisloe statute of frauds. Judge's SummiriK l>p ■■atff V L n^iiU^° rnen( -' s Honour said ha ?. n °t had a clear view WW't it had not been desir'WouMu settled urgently Placed nl° resci 7 ed his judgment % ml r f cord lhe mar| y in terKic ir^ €n advanced on each s loolr^ 0n ? ur said llle case had What at ,, cal >'.fully in order to ! ®cablp authorities actually were Vnnu he claim ' h at the the excess amount h'? WaS supported by between the parties. w was ?,nh ?f unted ' i£ the co »- f 1 Was fn? i ' to tlle company, to take OVCI ' the ot certain stated i w Sof - whlch should not 0 " 11 " 8 liable > at the werM?nKi nd r Herc:irnan - who !ar ?e a rth„ a , b L e / for a debt twice Ir f t°i whidl lhc s'on ur . me ct to take over The Pf.g^ th f r the company; -w«r e w tak(; wcr a freys o'wlns hi t*. 1 11)0 b: ' ln »ee Dental m 1 and ■ llerc| - Min, i f M , anulac turiii ; . Co. to'havp fac 1 ur ing Co. must *hkh /L vloc| g° oi ' the J e com P a »y was I asfepi consideration the the ent ? nd memo- . «tico U Hhl 10n ' only " Erectors had r> r v,as ! moneys nf 1 POWC;r to : of o company in • les s in ird person ' £ formed should . m*" The fin! Manufacturing Co. of new s M2Sested that the , ' ft *Ch W th C ev Pltal - 7 as the om - v ! y might uft their ,

money. It would be lamentable if the shareholders should be so mulcted of their funds, and if it was a question as to whether any damage should fall on the Dental Manufacturing Co. or the shareholders, his Honour considered it should be on the former. His Honour said he would set out the reasons for his judgment in writing in case Mr Lascelles's overseas clients desired to appea'