CONTRACTS VOID

Evening Post, Volume CXXII, Issue 132, 1 December 1936, Page 6

CONTRACTS VOID

DEBENTURE ACTION

MAGISTRATE'S ORDER

MCARTHUR TRUST CASE

J (T.y Tclcgvapli—Press Association.l INVERCARGILL, November 30. 1 The financial position of McArthur r j Trust, Ltd., was discussed at length 1 in the Magistrate's Court today, when a civil case lasting several hours was' . I held to determine the fate of the debentures which had been transferred jto the trust. The secretary oi' the I trust, Mr. F. D. Graham, of Sydney, attended the hearing, and was crossexamined on the balance-sheet for more than an hour. The application before the Court was for an order on behalf of four Southland persons—James Fleck, Mary Fleck, Mai-garet Bain, and James Allan Thomson —to have cancelled and dek dared void the transfer by them to s the McArthur Trust of debentures own--1 ed by them in the Executive Invest- - ment Trust. Although the sum involved was not stated in court, it is ! understood to be about £25,000. L The case was a sequel to the recent * conviction on a charge of "share hawk- ! ing" of the man who arranged the I transfer of the debentures. After hearing Mr. Graham's evidence and the representations of counsel, the Magistrate, Mr. W. H. Freeman, declared the contracts void and fixed security for appeal, the likelihood of which was intimated. The order asked for also stipulated the return to the four debenture holders of the money received by the McArthur Trust i'rom the Public Trustee for the debentures received. Mr. A.. C. Hanlon, K.C., with Mr. C. M. Barnett; of Dunedin, represented the McArthur Trust opposing the making of an order of cancellation, and :Mr. H. J. Macalister supported the order. '■There was a long discussion on AwWther the Court had jurisdiction, Mr. Alstnlon claiming that a New Zealand Qpiytrt had no such power. He submitted'that as the company did not reside in HSf?w Zealand it was not amenable to t^iet jurisdiction of the Court. Mi(. Macalister contended that the Court, cUd have power to deal with the case vj;hipther or not the company had actually '.commenced business in New Zealand. \ The Magistrate held that the Court had jurisiliation. Security for appeal was fixed* tpt 15 guineas. SECRffifITAJRY'S EVIDENCE. Fleetwood. 'iDcsmglas Graham, secretary of Mc^a-tLanr Trust, Ltd., said that people who ,had transferred their debentures for stares in the McArthur Trust now had lUae security of the same debentures w*ith the extra security of the ordinary share capital of the McArthur Tru;tefi. On the figures they were certainly' better off. Mr. Macalister: Are.you serious in saying that these people are £1686 better off from the m«/\-e conversion of their money notwithstanding that the company had an *a«penditure of £12,000 or £13,000? Where did the added value come froiVi? Witness said that half off the debentures had been exchanged for preference shares in the McA;rtl|?jjr Trust, which were fully covered, aai tf the other half were exchanged f or. ■'■ ordinary shares, but £30,000 of debentures of the National Investment Co. hadsbeen exchanged for ordinary shares,'.and this benefited the other shareholder^. Mr. Macalister: For this .£^30,000 what did the National InweSSNCnent Company get? Witness: It got certain assets. \[ Mr. Macalister: But what did ifi get from the McArthur Trust? ';, Witness: It didwnot get anything. The debentures belonged to J. ,W-; S: McArthur, and he transferred thesm to the McArthur Trust . for orcttrisry shares. Mr. Macalister: Was this asset worth £30,000? Witness: Considerably more,-1 slfcouSd think. Mr. Macalister: And yet McA:flhur was willing to change an asset Vvioirth more than £30,000 for ordinary shares worth 3s lOd in the £.. Rather a Ijad deal, don't you think? Witness: I think it was. After further questioning by Ill'r. Macalister, witness said that he woi#ld refuse to admit that the trust was-tin' a hopeless position. \ COURT'S JURISDICTION. f! The Magistrate said that he did no 4 propose to reserve his decision. They other case (a charge- against Calverti of share-hawking) had gone to appeal, he understood, and he was only con- > cerned with the present order. He did not see that he should be bothered ' with conflicts of law. He agreed with Mr. Macalister that the Court had ( jurisdiction. The Companies Act ' would be useless if the provisions were , to be interpreted as not meaning ; what they said. "In my opinion," continued the , Magistrate, "although it may not be the ] function of this Court' to say it, the , legislation did not go far enough. It ( should have definitely provided that , when it was decided to clean up the j Investment Executive Trust debentures, and go into liquidation, the transfers of debentures for shares should have been prevented, so that the Public Trustee should have paid debenture holders their money. Then if they Hked they would. have parted with their hard cash, but the McArthur Trust apparently got in ahead on the ; legislation and now we have this ; trouble. I think this Court has juris- ; diction, but as the matter will prob- • ably go to the Supreme Court I won't : waste time in summing it up fully, and my decision is that the transfers, be declared void. I agree with Mr. Macalister that there should be taken iato consideration the methods employed in getting the transfers, canvassing, the surrounding circumstances t of the canvassing, the legislation passed at the time, and the value of shares in the McArthur Trust." There might be some considerable difficulty in enforcing the declaring void of the contracts because the company was incorporated in Queensland, the 'Magistrate concluded, but that was not the Court's business. He would allow £5 5s costs, and fix security for | appeal at £15 15s.