A DIRECTOR’S LOT

Hawera Star, Volume LI, 3 January 1931, Page 15

A DIRECTOR’S LOT

WILL IT BE HAPPY?

PROSPECTUS LIABILITIES

LAW’S NEW PENALTIES.

The responsibility of directors or proposed directors, for the statements made in prospectuses, is » ;®? d ' x " + feature of the British Companies Act of last vear. . There 'has always been of course, a moral responsibility, but the lan * Britain now recognises and defines it with much, more emphasis and stmg, for failures of the responsible Prisons are now penalised a,s never betoie n Britain These penalties are still a-b----fent from New Zealand company aw. Tire New Zealand Government lias, however, set uo an advisory committee to assist the'Law Drafting Department in bringing New Zeajaiy lai into line with the British Act If this is done, directors m New will bei liable to answer for ceitam things for which they are not able now. For instance, it is P oin J;« l out bv the “New Zealand Stock Exchange Gazette” that,, if a prospectus is issued without registration a, duector ay ill be liable to a nne •or ioi every day on which it xernams on regi stored. Forms of application (for shares, debentures, etc.) must not be issued unless information of a certain character (defined by a schedule of the British Act) 'is given; and failuie to comply means liability to a fine £SOO. ‘

COMPELSORY REGISTRATION

Comparing the -position to-day in New Zealand with that to-day m 1 - thin, the “New Zealand Stock Ex change Gazette” writes: , , '‘Under the present New Zealand Act and the Imperial Act, every prospectus must be signed by every person named therein as a directoi, 01 a proposed! director, and) must be delive - od to the Registrar of Companies toi reristration before it is issued, but unde’ the New Zealand Act there is no •penalty for failure to comply with these provisions. Under the Imperial Act however, every director who know ingl'y permits a prospectus to ,be issued, without being so registered is habl to a- fine of £5 for every dav that the •prospectus is unregistered. The effect of this will he to make persons named os directors, and who •authorise the y^%rSp e 4^ C '' “Under the Imperial! Act, it is esshould lie set out in the prospectiy and the ■particulars to be set out reouire a great deal more care and information than is required bv the Ne\v Zealand Act. It is incumbent upon directors to see that all the information required by this schedule is accurately given in the prospectus. The amount of information that is reqmred bv the schedule to be gw en is con side red ample to protect the investing Pll “The Act also provides that it shall not- be lawful to issue any form ot ap ■plication for shares in, or debentures ■of a company, unless the form is issued with a prospectus which discloses the information required by the -schedule and complies with all requirements ot the Act. The .section applies in all cases, unless it is shown that the form of application was issued either with a hona fide invitation to a person to enter into an underwriting agreement, or that the shares or debentures were not offered to the public, and the penalty for contravening the provisions•of this -section is £-500. Under the present New Zealand Act, there is no such provision or penalty. The penalty is severe, hut judging bv the number ot prospectuses issued in New Zealand which make no attempt to comply with the provisions of the Companies Act: such a penalty, if incorporated m the new New Zealand Act. can only have the good effect of making those responsible for the issues of prospectuses very careful to fulfil the requirement of the law.

DEFENCE! OF NON-COGNISANCE!

“The director, however, does, not incur any liability for any matter not disclosed if he proves he was not cognisant of it, or that the contravention a lose from an honest mistake of fact, or that the contravention was in respect of matters which, in the opinion of the Court, were immaterial, but the Act does not limit or diminish the liability any person may incur under the general law apart from this section of the Act, and the directors may, of course, be liable in damages in an action of deceit.

“The Imperial and New Zealand Acts both provide that any .person who has authorised the issue of a prospectus shall be liable to pay compensation to all persons who subscribed for shares or debentures in the form of a prospectus for any loss they may incur by reason of any untrue statement contained in the prospectus. This provision makes a director liable for carelessness for statements in n prospectus and carelessness is not nearly so difficult to prove as deceit. If. however, a director can show that he had reasonable ground to believe and did believe that the statements were true, then he will be relieved from responsibility.

“Under this section in the New Zealand Statute, a director cannot he sued in respect of an untrue statement in a prospectus after three years from the date that the cause of action arose. That limitation does not appear in the Imperial Statute, and consequently, he may be sued at any. time within six years from the date that the cause of action arose.”