BUBBLE INSURANCE COMPANIES.

Marlborough Express, Volume III, Issue 123, 27 June 1868, Page 4

BUBBLE INSURANCE COMPANIES.

To the Editor of the Marlborough Express. Si k, —It is quite certain that it was asserted at the Wellington meeting that the whole paid-up capital of the New Zealand Insurance Company is per share. One speaker added that there was a bonus of £6, making up £l2 per share, and on this sum the Company paid its dividends. What is meant by a bonus I cannot imagine?—Either the capital is paid up to £l2 per share, or it is not. But the balance sheet of the Company for the half year ending November 30th, 1867, states—Capital, £55,000, and Reserve Fund £12,37l Is 7d. This makes £22 per share on 2,500 shares stated as capital, on which dividends are paid. It is not stated as paid up, but the public are led to believe that it is so. The Government returns say this Company is one of 2,500 shares of £IOO each, or £250,000. It is quite true that the English Limited Liability Act allows companies In bo established for many purposes, with the liability, of the shareholders limited to the amount of their subscription, part only of the subscription to be called up. But this does not apply to Banking and Insurance Companies, and the working of the Act has been most disastrous, as a very large proportion of the companies established under the Limited Liabdity Act have passed through the hands of the official liquidators. About 13 years ago the South Australian Legislature passed an Act to establish a Bank of Issue with limited liability of the shareholders. The Act was sent home and returned disallowed, the despatch stating that the Imperial Government, while much preferring unlimited liability for Colonial Banks of Issue, would not absolutely insist on it, but would insist on these conditions. Ist, That the full subscribed capital should ho paid up previous to commencing business. 2nd, That each shareholder should, by the Act of Incorporation, be held liable for at least double the amount of his subscription, in addition to the paid-up capital. 3rd, That each shareholder should bo held liable for at least six months after the transfer of his shares. The last proviso was intended to prevent directors and those in tlio seer, t from selling out of insolvent companies, and transferring their liabilities to others. In the case of the Northumberland ail'd Durham District Bank, the directors advanced to the Conside Iron Company, in which they were entrusted over half a million of the assets of the Bank, and then sold out. The Bank afterwards stopped payment ; Conside was unsaleable, except at a heavy loss. Ten years alter the stoppage of the Bank the creditors hud only received 4s. in the pound ; £4O per share had been levied on tho shareholders, but tho directors who had done all the mischief escaped ; it was swindling within the law. In the case of the General Maritime Insurance Company, the promoters of the Company had not filed their share list at the Stahnp Office, ns required by the Joint Stock Companies Act. When the stoppage came, there was no proof except against the acting directors ; they were personally unable to meet the claims (over £200,000). It is true that some of tho insurance brokers held share lists, but they could not be proved. The creditors lost the greater part of their claims ; the whole indeed, except a composition paid by five of the directors for a personal release. It is extremely doubtful that Local Insurance Companies should be established in this Colony, or that the mutual system, as practised in the North of England for Marine Insurance, should be introduced. This is better and more secure than any Joint Stock Company. The English and Australian Companies not being incorporated in the Colony, can only he sued in case of dispute in the English or Australian Courts. They are practically irresponsible, except their agents will accept service of a writ, which they caunot be compelled to do, —a local Company of course has its shareholders within the Colony. If incorporated, a writ can be served on the secretary ; if not, on any shareholder. If the Companies could be reached through the New Zealand Courts, we should hear no more of the practice of tendering a lower sum than that insured in case of total loss by fire, coupled with the option of re-building by the Company. One action would abolish tho practice for ever. But it is essentially necessary that these new local Companies should comply with the following conditions : —lst, The full subscribed capital must be paid up. 2nd, If the liability be limited, the ament of the capital and the limits of the liability to be expressed on the face of each policy. 3rd, But above all a list of original shareholders, and transfers to be kept in some public office, and no shareholder to be released until his transfer was registered. This is really tho vital point. A company may have a large paid-up capital and unlimited liability, but the capital may be lost by imprudent operations ; and as for the liability of the shareholders, the only real security, it is altogether illusory in the absence of legal proof. If share lists are to be left in the custody of the officers of the Companies, dear-bought experience has amply proved that they may not be forthcoming when required. I would not trouble you or the public on this question', in which I have no personal interest,' were it not that I see clearly ; that There is a strong disposition in this Colony to establish Companies of the same nature as those which inflicted such heavy losses on both

shareholders and creditors in England in 1848 and 1566. The very recent case of Paine v. Hutchinson prove that public registration is yet required in England. The plaintiff had sold 100 shares in the Contract Corporation to the defendant, previous to the winding up of the Company, and the defendant refused to complete the transfer, alleging that the plaintiffs had purchased from one Cruse on the same day as they sold to defendant. It appeared that Cruse had executed a transfer to defendant, which he refused to accept. The Lords Justices on 20th March, 1808, on appeal from the Vice - Chancellors Court, ordered defendant to execute the transfer to indemnify the plaintiff against calls, amounting to ■£’9,ooo, and to be registered as the contributory for these shares in place of Cruse. Yours, &c,, Hbnky Cooke. Blenheim, June 25th, 1868.