COMPANY LAW

Dominion, Volume 28, Issue 120, 14 February 1935, Page 10

COMPANY LAW

Protection of Bondholders BILL INTRODUCED Proposal to Establish Commission One of the legislative measures to take precedence in Parliament is the Companies (Bondholders Incorporation) 1 No. 2 Bill, which was introduced into the House of Representatives yesterday afternoon by the Minister ol Finance. Rt. Hon. J. G -, C ?. a . te I s ’ tains the principles submitted on November 9. but contains many alteiuHons in detail. The main provision is the establishment of a commisson of three members to lie appointed to deal with difficulties affecting approximately titty companies that are now operating more or less actively in New Zealand in enterprises relating to tobacca, citrus fruits, flax, tung oil. and timber. The remuneration of the commission Is to be paid out ot the Consolidated Fund. As already indicated, the Bill arises out of the report of the Companies Commission which investigated the operations of bond-issuing companies, and aims at the protection of bondholders who, in the words of the Minister of Finance, are scattered “all over tlie face of the earth.’ Companies to Bear Expense. With a view to removing the difficulties of the bondholders the Bill provides for the incorporation of tlie bondholders of any bond-issuing company into a limited company. Iu order to ensure this on an equitable basis, the conversion of bonds into shares will be under the supervision of the commission. Payment of levies and fees tire to be so fixed that the expenses of administering the Act will be borne by the companies affected, and not by the Consolidated Fund.

In tlie proposed statutory protection of bondholders three steps must be taken by the companies concerned. The first step is to supply to the Registrar of Companies a detailed statement of facts of their operations. Failure to do this will render them liable to a fine of £lOO ou summary conviction and to a further fine of £2O for every day during which the default continues. Tlie second step provides that every such company or tlie trustee for its bondholders may be required to submit a scheme for incorporating the company’s bondholders, or any section of them, into a company. In addition, the commission may consider proposals made by any other person and may then make an order for incorporation. Rights of Bondholders.

If any bond-issuing company or trustee is ordered to submit a scheme and fails without reasonable cause (proof to be on tlie defendant) to do .so within a specified time,- such company or trustee shall be liable on summary conviction to a line of £lOO and to an additional fine of £2O for every day during which the default 'continues.

Provisions are included in the Bill so that upon tlie incorporation the bonds will be converted into shares and the rights of the bondholders will not be altered more than is absolutely necessary to enable the conversion to be effected. The shares issued to bojdr holders will entitle them, as neatly as may be. to the same proportionate interest iu tlie same assets as did tlieir bonds.

Provision is made for the adjustment of the rights of bondholders, and authority is given to the commission to make orders to facilitate realisation It is contemplated that in some cases it will be found necessary for groups of bondholders to realise their lands jointly, and in such cases some adjustment will have to be made as between the various groups and also as ; ,between the bondholders’ company and the.boudissning company. The machinery clauses of the Bill provide that in any such adjustment, tpe shareholders in the bondholders’ company will be protected, first, liecause tlie application Ims to be made by the company’s own directors after a statutory meeting, and secondly, oy a provision for a hearing by the commission of all the parties affected. Moreover, if the commission thinks it desirable, it may provide for dissentients fiy partitioning off a proportionate part of tlie lauds or produce and reinstating the dissentient shareholders to their former position of bondholders. Question of Exemption. To enable the bondholders’ company to raise further capital for its realisation project, the Bill provides that the commission may exempt the company or any realisation company formed by it from the previsions iu the Companies Act relating to share-hawking and to the obtaining of tlie minimum subscription within four months, but tins exemption relates only to issues to exist ing shareholders of the bondholders” company. As no income will be earned by the company until its realisation project is under way, it is provided that, interest on new share capital may be paid with the consent of the commis siou. instead of requiring tlie consent of the Supreme Court fis in the case of other companies It is further provided that dividends may be paid to one group of shareholders, notwithstanding that [here may be a loss of any part of’ the company’s undertaking allocated te any other group In the miscellaneous section of tlie Bill there are seventeen clauses which while not affecting the general prin eiples of the Bill, represent viral machinery It is provided that rr> stamp dutv will he payable in respect of any conveyance of land from the trustee for the bondholders to the bond holders’ company, if made in pursuance of an order of tlie commission As duty must be paid on the transfer from the bond-issuing company to the trustees, it is considered that the additional duty which would become pay able by virtue of the compulsory transfer to a new company under the Act should not be charged. It is also provided that the bond-issuing company mar advance moneys to shareholders in the bondholders’ company or to the bondholders’ company: also that the bondholders' company may reissue shares surrendered by bondholders Income Tax Assessment.

It inav be noted that section 356 of the Land Act, 1924, is proposed by the Bill to be extended so as to apply, w'tn necessary modifications regarding tlie acquisition of land, to any company formed In pursuance ot the Bill .‘imi the trustee for bondholders. In the case of any bondholders’ company which

acquires bonds affecting timber or tlnx. the deduction allowable in its income tax assessment for the cost of such timber or Hits is to include such part of the cost to it of tlie bonds as In the opinion of Hie Commissioner of Taxes is attributable to the timber or flax. This provision makes it clear that the bondholders’ company will not lose this deduction merely because tlie shares issued to liondltolders are in form an exchange for bonds and not an exchange for the timber lands or flax lands affected by the Bill. The Bil] makes it ciear that share certificates and other documents Issued to shareholders in a bondholders’ 1 company are required to state that no shareholder has any claim upon tht* public revenues, and that the Government assumes no responsibility for tlie undertaking. It is also provided that the constitution of the commission shall not be questioned and that its proceedings shall not be open to the public.

Following on an explanation of the Bill by Mr Coales tlie measure was read a first lime, and in reply io questions. tlie Prime Minister, Rt. Hon G. W Forbes, said that tlie second leading would be taken to-day.