COMPANY AFFAIRS

Evening Post, Volume CXXVIII, Issue 19, 22 July 1939, Page 11

COMPANY AFFAIRS

FRAUDS ON PUBLIC

LIQUIDATION PROCEDURE

PROVISIONS FOR INQUIRY

Emphasising that proper machinery existed for the punishment of frauds on the public by abuses of the Companies Act, the Minister of Justice (the Hon. H. G. R. Mason), in a statement issued last night, outlined the procedure in relation to the liquidation of companies. The Minister said that during the past few years many complaints had been addressed to him on this subject, and he thought that it iiight be helpful if he were to outline what he considered to be the proper procedure in such matters. He wished to make it clear that his remarks had no reference to the winding-up of a company which had failed through no fault of the directors or its officers, or which was being wound up foi some reason other than failure, and where both the conduct of the company and the wind-ing-up of the liquidator were satisfactory. All investors were aware that even where ca c and honesty had been used in forming a company and carrying on its enterprise, failure and loss might result, and in those circumstances a shareholder could have no complaint against anyone by '•eas-n of his ill-luck. But the matter was very different where the company was formed not so much for the purpose of carrying on an enterprise as for the purpose merely of enabling the promoters to secure the shareholders' money. Most people knew that there were formed every year a number of companies for the purpose not so much of carrying out some genuine commercial or manufacturing enterprise, as of obtaining money from credulous investors. After the shareholders' money was gone, the company had to be interred, and in order to save the reputation of the directors, to be interred as decently .s was possible. This was done by going into voluntary liquidation, appointing as liquidator a nominee of the directors. These abuses of the Companies Act were not without their remedy. The principal remedy of shareholders (or, as the Act termed them on a windingup, contributories), and of creditors, was to petition to have the company wound up by the Court or wound up subject to the supervision of the Court. If a creditor or contributory did not care to petition in his own name he could, if he so chose,' place a statement of the position before the official assignee of the district. Then, as authorised by the Act, the official assignee might, if he saw fit, petition to have the company wound up by the Court. The Court would not make an order unless it was satisfied that the voluntary windihg-up could not be continued with due regard to the interests of the creditors and contributories. FULL INVESTIGATION. When an order is made for the wind-ing-up of a company by the Court, the Companies Act provides for the most exhaustive investigation of its affairs. The Minister explained that the starting point was a complete statement of the affairs of the company. The assignee nominates which of the directors, promoters, or officers of the company he requires to. prepare this statement, and that person then becomes responsible for its preparation. On receipt of the statement the official assignee investigates the books of the company and files a report to the Court—(a) as to the amount of. capital issued, subscribed, and paid up, and the assets and liabilities; (b) if the company has failed, as to the causes of failure; and (c) whether in his opinion further inquiry is desirable as to any matter relating to the promotion, formation, or failure of the company or the conduct of the business thereof. "If the assignee considers that there has been fraud he presents a further report- setting out his opinion that a fraud has been committed by a promoter, director, or officer of the company, naming the person or persons responsible and stating any other matter which in his opinion should be brought to the notice of the Court," said the Minister. "If the assignee states in that further report that a fraud has been committed, then the Court has the powers given under sections 215 and 216 of the Act, namely, (a) to order the public examination of any promoter, director, or officer of the company, and (b) to restrain such person from being concerned in the management of any company for a period of up to five years. COURT'S POWERS. "If it appears that the company has been carried on for any fraudulent purpose, the Court is empowered, on the application of the assignee, to make an order that any of the directors, either past or present, shall be personally liable for all its debts or other liabilities, or if it appears that any promoter, director, manager, or officer of a company has misapplied any money or property of the company, or has been guilty of any misfeasance or breach of trust in relation to the company, the Court may compel him to make such contribution as it thinks just. "The official assignee becomes provisional liquidator whenever a company is wound up by the Court, but the creditors may, if they so choose, appoint their own liquidator. If no other liquidator is appointed the official assignee continues to act as such. Whether or not he is also liquidator, the official assignee investigates the promotion and conduct of the comThe Minister said that the Companies Act required the Minister of Justice to take cognisance of the conduct of the liquidators and, if any complaint was made, to inquire into the matter and take such action as he thought fit. His Department was prepared to investigate any complaints of that nature in co-operation with the assignees in the duty cast on them by the Act. The Department perused the reports furnished by an assignee, and if it considered any further investigation was required it advised him to that effect. If any legal or accountancy experts were required to report to the assignee • and no funds were available in the | estate, the Department, in proper j cases, provided the funds for the pur-j pose. I The assignees were required to report any breaches of the criminal provisions of the Act to the Court, which then referred the matter to the| Attorney-General. Appropriate steps | were then taken to prosecute any persons criminally liable. In conclusion, Mr. Mason said he j hoped that he had made it clear that i proper machinery existed for the punishment of frauds on the public by abuses of the Companies Act. Everything in his powier and in the power of the officers of his Department would be done to see that that machinery functioned as it was intended to function. i