COMPANIES’ ACT

Evening Star, Issue 21824, 13 September 1934, Page 6

COMPANIES’ ACT

DUTIES DF SECRETARY ADDRESS BY MR J. M. PATERSON An interesting address on ‘ The Duties of a Secretary,’ as required by the Companies Act, 1933, was given last night by Mr J. M. Paterson to a largely-attended combined meeting of members of the Otago branch of tho New Zealand Society of Accountants and of the University Commerce Faculty Ex-students’ Association. The president of the Accountants’ Society fMr E. R. Grace) presided. FXECUTIVE OFFICERS. Mr Paterson said that there was nothing to compel any company to have a secretary, or, at least, to have a person who boro Unit title. ■ A company could not act by itself, but only through agents, in general the business of the company was controlled by the directors, who might, and did in many cases, not only direct the business, but actually carried it out. Whether the directors did this or merely directed the general policy of the business, they almost invariably hud subordinates to carry out their policy and directions. These subordinates might be given the choice of a variety of names—manager, secretary, accountant - secretary, manager - secretary, inspector, superinendent, and so on. Thus it came about that many companies hod no secretary at all, and the duties which would normally be carried out by a secretary were entrusted to one of the directors or to the manager or the inspector. A typical example in their own city was the Perpetual Trustees Company, and elsewhere in Now Zealand the large insurance companies and banks rarely bad a secretary called by that name. It again happened that in many smaller businesses the secretary-accountant was not unknown. To sum up, the matter of what officers were appointed was entirely one for the taste of the directors, guided no doubt by the exigencies of the business, aud very often by the responsibilities or powers they wished to entrust to tho particular servant. “ There is nothing to prevent a director from being appointed and acting as both director and secretary, so long, of course, as ho is empowered by the articles to hold an office of profit in the company.” said Mr Paterson. He had frequently found an impression that a director must not Hold tho office of secretary, but a moment’s consideration would show that there were hundreds of directors who were managers, and there whs no stronger reason why they should not be secretaries. That was the legal position, but in practice almost every going company had its secretary, for the obvious reason that it was important to have someone in the service of the company who was marked out, as it were, to attend to the numerous duties which the Act imposed upon the directors, aud which were best carried out by them through a secretary. Sometimes the _ secretary was appointed by the articles, but that was an unnecessary complication. He was more often appointed by a resolution, aftd if there were special terms of his appointment these were usually embodied in a contract of service between him and the company. He was generally remunerated by a fixed salary. A secretary' who was appointed by the articles should remember that, strictly speaking, that was not a contract with the company on which lie could rely, though the terms of the article might be evidence of the terms on which ho was employed. If he had to be dismissed lie had, in the absence of express provision as to the length of notice to which he was entitled, a right to reasonable dismissal or to reasonable compensation in its place; but there were many matters for which _he might be dismissed summarily—obviously for wilful disobedience to a lawful order, for misconduct, incompetence, permanent disability, speculation on the Stock Exchange, or even for an act of forgetfulness if it had or might have had serious results. SECRETARY’S FUNCTIONS. Mr Baterson went on to deal with the duties of a secretary, and said that in the ordinary course he was present at all meetings, whether of the company or of tho directors, and he made proper minutes of 1 proceedings at these meetings. He issued, under the direction of the board, all necessary notices to members and others. It was bis particular province to deal with tbc shareholders with regard fo calls, transfers, forfeiture, and so on. He normally kept the books of the company referring to its internal business and constitution, and certified transfers and made all necessary returns to the Registrar of Companies. Tho office of secretary conferred on him no authority to bind the company bv contract. Still less could ho bind

the company by registering a transfer which the directors lind not seen. If bo certified a transfer fraudulently, the company would not be liable. If be forged the directors’ signatures to a share certificate and affixed the common seal, the company would not be bound or estopped by his action. There were, however, „ occasions when the company might be liable for the fraud of its secretary acting in the course of his employment. A secretary as such bad no power to convene a general meeting or fo strike a name off the register of members or to pass and register a transfer not approved by the directors. In all these things lie could act only on the express authority of the directors because it was to them that these'powers were committed and in carrying them out, as he often did, he had merely delegated to him the executive part ol the duties committed to them. In the long list of duties and responsibilities that were cast upon flic secretary by the new Act, he was sure they would find much to support the view that the. secretary of a company under the new Act bad ndw no nominal position. He did not say that all the duties he-would mention wore officially fixed by the company on the secretary. In most eases, they were imposed on the directors, but they were all duties which the directors would expect a secretary to carry out, and, in practice, he believed they would expect him to remind them of these duties and merely require their' signatures to the notices and documents which he would prepare for them and later register or file. The list of documents that he must keep in mind was itself formidable, but fortunately most of them would very rarely occur in the life of a company—perhaps never occur—and in these special cases, the secretary would expect to be advised by a competent legal adviser of the company of bis duty, or, better still, look it up for himself. But the very infrequency of many of the duties, especially with regard to charges and their registration might well trap a secretary who had forgotten about the special provisions of the Act. They found that where the company’s objects had been altered, a copy of the order must within fifteen days he delivered by the company to the Registrar of Companies. When any prospectus was issued, a copy had to be delivered to the registrar for registration before its publication. That, however, was a duty which more usually fell upon the solicitor forming the company, which at that date might be presumed to have no secretary. Whenever shares were allotted, the company must within a month of the allotment give the registrar a notice of the allotment and a copy of particulars of every contract to allot shares otherwise than for cash. This porvision obviously did not apply to a private company, because it did not allot at all, but this was the first and most important, duty of the secretary of every new company, and, worse still, the secretary was particularly named in the section as liable to a fine of £SO a day for every day during which the default continued. The first thing that every new secretary of a new company should have to do was his return of allotments. The company had to supply a statement of any discount or commission on shares not offered to the public for subscription. This was an unusual ease.. Whenever share capital was altered the company had within a month to give notice to the registrar. Every officer of the company, which included tho secretary, was liable to a default fine if it were not done. Similarly, an increase of capital had to be notified within fifteen days and with the like consequences in default. A reduction of capital had also to be delivered to the registrar and ain order confirming or disallowing a variation of shareholders’ rights had to be registered within fifteen days.

Charges were bound to give secretaries a great deal of trouble. Some of these troubles the company could send on to the company’s solicitor, others it could not. It might he assumed that the duty requiring charges in general to be registered within twenty-one days could safely bo left to the solicitor because, to protect the security, the solicitor preparing it would no doubt see that it was done. It should not he forgotten that the responsibility for registration was placed on the company, and unless someone else had registered the document in question, every director, manager, secretary, or other person who was knowingly a party to the default was liable to a penalty of £SO a day. The secretary must also keep, and this was a duty pertaining to himself solely, at the company’s office a copy of every instrument creating a rogisterahlo charge, enter all mortgages and charges in the mortgage register, and keep a copy of all charges at the registered office and allow inspection of the mortgage register and any charge by any shareholder or creditor, free, and by any other person for Is. In connection with charges be would not forget that before October 1 certain charges that did not previously require registration had now to be registered, including any mortgage which the company had given over its land, even though that mortgage might be registered in the Lands or Deeds Registry Office.

It was the secretary’s duty to inform the registrar of the situation of the registered office, and if it were changed to give notice of tho change within a month. It was the annual duty, and this was a most important one, to supply the annual return within one month of the annual general meeting. The return included a copy of the company's balance-sheet and the reports thereon, and of any, if any, labour shares. After the annual return had been prepared he must enter it in the share register. When the company had been formed and bad commenced business be must call the statutory meeting not less than one month afterwards nor more than three months afterwards, and he also had to forward the statutory report. A duty that he might easily forget was that he must give the registrar notice of the appointment of directors, and if there were a change in the directorship it had to be notified within fourteen days. Whenever an extraordinary or special resolution was passed he had to send a copy of it to the registrar within fifteen days. There were many points connected with the internal constitution of the company involving statutory duties cast upon the secretary, Mr Paterson referring to the penalties for the various defaults.

The secretary must keep the name ol the company up outside its registered office and outside every place where it carried on business, and be would see that it had its name clearly engraved on its seal and on all business instruments and documents. The directors of a company, notwithstanding anything in its articles, were compelled to call a meeting of members on the requisition of members holding not less than one-tenth of tho nominal value of the shares of the company that carried the right to vote. •, It would doubtless fall upon the, secretary to bring under the notice of the diieetois the receipt of requisitions, but it should lie remembered that the secretary as such had no power to call a meeting

otherwise than under the direction .of the directors. He would annex a copy of every extraordinary and special resolution to every copy which he issued of the company’s articles. Minutes were to bo kept not only of all general 'meetings, but of all directors’ meetings. This would in practice prove an arduous duty on the part of the secretary. The minute, book of general meetings was to be kept at the registered office of the company, and during business hours was to ho open, to the inspection of any member without charge. It would be noticed that this privilege of inspection did not extend to the proceedings of directors. There had been a certain amount of criticism of this omission,' but it seemed reasonable, since they could readily imagine that to allow members to peruse the current proceedings of directors, perhaps involving uncompleted matters, would be an intolerable nuisance.

Every company was now required to keep proper books, which should be retained at the registered office of the company. The responsibility for keeping proper books did not seem to extend to the secretary, at least' so far as fines were concerned, but rested entirely upon the directors. The secretary must, however, be exceedingly careful not to allow any balance-sheet of the company to be issued, circulated, or published without its having the signatures of two of the directors and the auditor’s report attached, because if he were a party to doing so he was liable to a fine of £SO. He must, however, except in the case of a private company, remember that every member was now entitled to a copy of the company’s balance-sheet, with a copy'of the auditor’s report, and not only a member, but any holder of a debenture. The secretary was included in the responsibility of sending such a copy to all persons entitled to receive notices of the general meeting of the company, and of supplying any member or debenture-holder with a copy on demand without charge. This provision was new and should bo very carefully watched by all company secretaries, because the failure to send the copy bal-ance-sheet involved a fine of £2O. Auditors were obviously entitled to access to the boqks, accounts, and vouchers of the company. In practice they would no doubt ask the secretary for them in the first place, but in addition ho would remember that he was bound to give them such information and explanation as might be necessary for the performance of their duties. Again, there was a heavy penalty on default.

There were . not many companies where the liability of the directors was not limited. He personally did not know of one, but it was specially mentioned that the secretary was under a duty to give notice of his unlimited liability to every director so appointed. In addition to a fine, he shared liability for any damage that the director not getting the notice might sustain. WINDING UP OF COMPANY. When a company was wound up by the court the secretary must submit to the official assignee within fourteen days of the winding-up order a statement of the company’s affairs verified by affidavit. In the case of a voluntary winding up, be must advertise the passing of the resolution within fifteen days by advertisement in tbe Gazette, and in one or more local newspapers. In a creditor’s voluntary winding up, he had similarly to advertise a meeting; of the creditors of the company which had called a meeting of its shareholders to consider the passing of a resolution for a creditors’ voluntary winding up. As might bo expected, in all cases of winding up, the secretary, as an officer of the company, must give all information and assistance, and hand oyer all books and documents to the liquidator of the com pan.y. .MIXTNG COMPANIES. Many of them were secretaries of

mining companies, said Mr Paterson, and they knew that though a mining company was for the most part exactly like any other company, there were certain important differences; Tc start with the transferor 1 of a share ln : a mining company or the transferor who signed the transfer first must attach to his signature the true date of signing and that was the date of the transfer.. The transferee had to present the transfer for registration _ within forty-two days after that date if it was executed in New Zealand, sixty days Australia, or Fiji, 120 days anywhere' else, and on receiving -the transfer the company must endorse on it the true date on which it was received, A transfer would be registered only within 120 days from that date whether it was executed in New Zealand or elsewhere. After that registration would be effected only on a Supreme Court order. The secretary was liable to a fine for neglecting to endorse on a transfer the date on which it was received. In regard to the recovery of calls in .mining companies and the forfeiture of shares, a call must be sued for within twenty-eight days after it became payable, and if the judgment was not paid within twenty-one days, the share was forfeited without any resolution of the directors. If no proceedings were taken and the call remained unpaid. for twenty-one days after its due date, then it was similarly absolutely forfeited.' Then the secretary must within fourteen days of the forfeiture, send a registered letter to’ the shareholder of the part of the forfeiture, giving him notice of tire time and place of the intended sale of the share, the penalty for not doing it being £lO. Then, not less than twenty-eignt days or more than sixty days after the forfeiture, the forfeited share was to be sold by publio auction, again the penalty for a breach being £lO. The secretary of every mining company would remember iiot to pay a dividend on a share on which there was an overdue call. He must first deduct the call, and whatever the articles skid, he was bound by that section. PRIVATE COMPANIES. Dealing with private companies, Mr Paterson said that the secretary would bo careful to see before October 1 .that any private, company that had riot registered its articles did so. It was aa offence to increase the number of members of the company beyond twentyfive, and the secretary was one of tha persons responsible. He would ajso remember that when there was an increase of capital that had now, by art alteration, in the Act, to be done on a subscription form which had to bo sent to the registrar. The minute book method of passing resolutions was now fully authorised as an alternative, but if any member had not signed the resolution, the secretary must remember to send him a copy within seven diiys. Very sensibly, the Act said that <v document containing the signatures could be pasted into the minute book. Any member of a private company must be furnished within seven day* after be made tlie request with a copy of tho last balance-sheet, auditors report, etc. Perhaps the most important altera, tion of all, so far as the company secretary was concerned, was that private companies must now, file their annual returns. As a small relief, its would appear that’ the old provisions which required imblication in th* ‘ Gazette ’ of a yearly return, by taming companies were no longer effective.In conclusion, Mr Paterson said that the principal difficulty tvas that the older people would have to get rid of many of the old usages and accustom themselves to the working of the new Act. “ The day of the old amateur secretary is past,’’ said Mr Paterson, and they looked forward to the increasing entrusting of company secretaryships to those who had practical training and exp6rience of these things. After the speaker had answered numerous questions, Mr J. W. Smeaton moved a hearty vote ol thanks to the speaker, which was carried by acclamation.