UNPAID SHARE CAPITAL

Northern Advocate, 11 October 1928, Page 6

UNPAID SHARE CAPITAL

A CLAIM CONTESTED. INTERESTING WHANGAEEI CASE A case of considerable interest to company shareholders was heard before Mr J. H. Luxford, S.M., in the Magistrate’s Court on Tuesday, when W. L. Donohue claimed from John Boyd the sum of £25, unpaid share capital in the “Whangarei Daily News” Printers and Publishers’ Company, Limited.

Mr Trimmer appeared for plaintiff and Mr Zirnan, instructed by Mr A. Mardscn Woods, for defendant.

The claim was in the nature of a test case, a number of other claims for unpaid shares resting on the success or otherwise of the action.

Air Trimmer opened by making application to substitute “Whangarei Daily News Printers and Publishers, Ltd.,” for AY L. Donohue as plaintiffs.

Mr Ziman said he would dispute the statement that the “Daily News” was in* liquidation and that Mr Donohue was liquidator. Air Trimmer sqid that Mr Donohue believed himself to be liquidator, and that everything pointed in that direction.

The magistrate intimated that he would hear the proof of liquidation and, if necessary, would then consider granting the application, Air Trimmer said that the company had been formed to run a newspaper, but could not carry on. On March 12 the directors of the “Daily News” received a requisition signed by a number of shareholders requiring them, on account of the large sum owing the employees for wages, to call a meeting within 21 days to discuss ways and means of carrying on, or, alternatively, of going ihto liquidation. The 'directors immediately had notices printed calling this meeting, but on the same day, the manager of the Commercial Bank of Australia notified the company that the money owing to the bank, Which was secured by a first debenture, must be paid by the following Friday. The matter was discussed by the manager of the bank and Mr Donohug, who had been appointed the bank’s receiver, and it was decided that an extraordinary general meeting must be called for March 15. Notices were printed for this meeting on March 14. This meeting was called in full conformity with the Act in all ways, except that it did not give 7 clear days’ notice as required under section 53 of the Companies Act, 1908. Defendant was present at the meeting and made no objection to the shortness of notice. The resolution dealing witli the going into liquidation and the appointment of Air Donohue was moved, ( seconded, and fully discussed. Before it was put, another motion adjourning the meeting for a week was carried. This was done to enable' the directors to consider an offer from an Auckland syndicate for the purchase of the paper. On the following morning, the bank wrote the company, giving them two days to find the money owing, and, on Monday, March 19, this not being forthcoming, Mr Donohue was put in as receiver for the bank. Every penny that came in he took, but he would not pay anything out, and the paper therefore could not carry on any longer. On the following Thursday, the adjourned meeting was held and prospects discussed, but nothing was finalised, and there was carried the resolution which put the company into liquidation, with Mr Donohue as liquidator. Defendant was not present at this meeting. Mr Donohue then commenced realising tho assets, and Oil shareholders had, from time to time, notice of the condition of fiffaifs. In May, a meeting was called, by means of an advertisement in the “Northern Advocate,” asking that shareholders meet in the Y.M.C.A. This notice bore no signature, but Mr Boyd was chairman. Company affairs were discussed, and a committee formed to iook into the position, and neither Mr Boyd nor any other shareholder objected to Mr Donohue holding the position of liquidator. On the following morning Air Donohue met .Mr Boyd and asked for payment of the share capital owing.

The latter made no demur, but asked, for time in which to pay. Until the tiling of the defence to the present case, Mr Boyd had never questioned Mr Donohue as the liquidator. Mr Donohue had been appointed' receiver for the debenture-holders of the second series, and there was only enough money realisable to pay a dividend to these people. About £I7OO had been collected, and this was mostly share money. A receiver must sue through a liquidator, as there was no contract between the receiver and shareholders, although there was a distinct one between the liquidator and shareholders. Mr Donohue was a man of many parts; in fact, an absolute ‘ ‘PoohBah,” being liquidator, receiver for Ihe bank, and also receiver for the holders of the second-debentures. If it was held that the company was not in liquidation, defendant and his friends had had a remedy. They could at any time have called an extraordinary general meeting and pmt the company quite validly into liquidation. 'This could have been effected at any time during the past six months, THE EVIDENCE. A. T. Murdoch, farmer, of Whangaroi, said he was a director of the "Whangarei Daily News. ” The capital of the company was £20,00(1, in £1 shares, under Table A of the Companies’ Act, ,1908. On March 12, as the result of a requisition from a

number of shareholders, he had a

notice printed, calling a general meeting. He did not send this out because the manager of the Commercial Bank called up the money owing to his institution, and insisted on a meeting at an early date. This meeting was duly held on March Id, with Mr G. S. B. Morrison in the chair, and himself as minute secretary. The extraordinary resolution was moved by Mr Morrison, seconded by Mr McLean, but was not put, a motion of adjournment being carried first. On the following morn-

ing, a letter from the bank demanding payment was handed in, but this also stated that if eight guarantors could be found, the bank (would consider a stay of proceedings. Five guarantors were found, but the bank would not accept them, and Mr Donohue was put in as receiver on March 19. The reason for adjourning the meeting was because of a tentative offer of purchase, which the directors wanted made into a concrete proposal for them to consider. This fell through, and the adjourned meeting was held, at which the resolution sending the company into liquidation was put and carried. He had no recollection of any objection to shortness of notice. Witness was present at a shareholders’ meeting hold in the Y.M.C.A. in May, but could not recollect any mention of the validity of the liquidator’s appointment. The first call in respect of the present claim, amounting to £6 ss, was made on October 14, 1927, and there was a minute regarding this on page 48 of the minute book. The next call of £6 5s was made on January 18, 1928, and was recorded on page 53 of the minute book. Witness did not know how the other two calls were made, as these were more subsequent to the liquidation. It was the duty of the secretary to send out notices, and} as far as he knew', this had been done.

To Mr Ziman: The secretary was Atiss Grace Walker, but he could not say if there was a minute in the book appointing her.

Air Ziman: “'She was therefore not tho secretary.”

Witness said Air L. G. Hill was appointed secretary when the company was formed, but he Was not sure (Whether Miss W-alker was appointed when he resigned. However, she signed cheques as secretary. He could not say whether, if Miss Walker had been appointed secretary, it would show in the minutes.

The company had gone to allotment with 5000 shares, said witness, but he could not say if any shares were issued subsequently. Air Ziman at this juncture pointed out to tho Court that the share register started off neatly, but ended in rough pencil notes. It was quite evident that it was run under “Rafferty” rules.

To witness, Mr Ziman said; “Are you sure only 5000 shares were issued?” •

Witness replied that lie thought so.

Mr Ziman then read out the names of the holders of 130 shares in small blocks, which had been issued during the time tho paper was carrying on, and asked (witness if he did not remember issuing these. Witness admitted that these might have boon issued.

Witness said in reply to Air Ziman that the company's solicitor, Mr T. H, Steadman, was present at the meeting on March 15, but that he could not remember whether ho (Mr Steadman) had pointed out that the meeting was called with too short a notice. At the adjourned meeting, he still had no recollection of Mr (Steadman raising an objection. He also had no recollection of the withdrawal of any persons from (he mooting. On being pressed, witness said he remembered Mr Steadman leaving the

meeting. To Mr Trimmer: “Mr Steadman left because he had another appointment.” George Singer Black Alorrison, farmer, of Mangatapcre, said he was chairman at the meetings on the 15th and 22nd, The directors did not have a meeting before the general meeting, and there was no instruction from the directors to summon the meeting.

The Bench: “Who, then, authorised the calling of the general meeting?’ ’ Witness said he thought it would bo Mr Murdoch and the editor, but that ho concurred as chairman of directors. The Bench; “Did it not occur to you as extraordinary haste to call a meeting of such importance at such short notice?’’

Witness: "Yes, but it was forced on tls. ’ ’

The Bench; "It could not have hurt the bank’s security to have waited a few days, and there was therefore no

reason.’ ’

Witness: "Yes, 1 agree that we were (oo hasty.’’

To Mr Ziman witness said that there were a good many shareholders absent from the meetings.

To Mr Trimmer; One of the directors had failed to qualify, and was therefore not a director, and others had resigned. One director was absent in Auckland, which only left Mr Murdoch, himself and another director at Hikuvangi available. William Lawrence Donohue, account ant, Whangarei, said that on March 12 Mr Chisholm, manager of the. Commercial Bank at Whangarei, interviewed him in connection with the "Whangarei Daily News.” Mr Murdoch also came along to his office at tbo same time. The bank manager said he must take action immediately, and would give the option of going into liquidation or of being forced, and

would ouly give until the following Friday. The bank did not wjsh to appear in the role of oppress dr, but preferred doing it through a liquidator. Air Chisholm and himself drafted a resolution which went to the shareholders. He was present at the general meeting and had a discussion with Air Steadman, the company’s solicitor, re the shortness of notice. He was not present at the general meeting, although he was called in for a few minutes and asked whether he would act as liquidator.

The Bench: “It does not seem a

good proposition for one man to hold the dual positions of- receiver and liquidator, us the issues must often be conflicting. The defendant must realise that the £25 in question must be paid, but he was evidently prepared to spend quite a lot in litigation to make sure whether Air Donohue was the right person to pay it to. Air Trimmer: “Litigants have often gone lo the House of Lords for £25.”

The Bench: “And also to the Inna tie asvlum. ”

Witness said he was receiver for the holders of both series of debentures, and had collected between £I7OO and £IBOO, about half that amount being share money. He had sent out some notices as liquidator and some as receiver. Air Trimmer: “More technicalities.” The Bench: “Or irregularities.” The Bench asked if the letters sent out were share calls, because, if so, they had to comply with all necessary provisions.

Witness (after some hesitation): “Yes, they wore calls.” Mr Ziman: “Were these the only steps you took towards calling up shares?” AVxtness; “Yes.” Mr Ziman: “Have you made up a list of contributories to settle?”

Witness: “Yes, but I don’t know if tho notices were sent out.”

Mr Ziman; “You don’t know very much.”

Witness; “I have done my duty ; There will only be enough money for the debentures, and nothing will bo left. ” ■

To Mr Ziman witness thought a notice was sent to shareholders of a list of contributories to settle, but was not sure. It was probably on a file.”

Air Ziman: “This should be more Ilian a probability, as it Was a most important part of the duty of a liquidator. Gould Vou produce the list today?” Witness: “Yes, I think I can produce it.”

Mr Ziman: “How did you /become receiver for the baftk?”

Witness: “By a letter which I can produce.'' The appointment as receiver for the second debenture-holders was made at a meeting which I called. This gave me power to incur any expense I thought necessary to protect the de-benture-holders’ interests. The second series of debentures consisted of £IOOO, which wete registered, and £2OO not registered. After the luncheon adjournment Air Ziman suggested that if Mr D'onohue was suing as a receiver, it was a now proposition, but, even assuming that he was properly appointed, he was still not entitled to recover, Mr Ziman •wished to reserve the right to object to this if the first amendment proposed by Mr Trimmer failed.

Air Trimmer said the ease turned on whether Air Donohue had been validly appointed liquidator. If this was so he could sue in tho name of the company, with himself as liquidator. If not, he could do so in the name of the company with himself as receiver. Tho Bench: “If you want to bring in the company as still in being, with Mr Donohue tho receiver, it opens up altogether a new line of action.” In view of the why the case had gone lie assumed that Mr Trimmer Would not still suppose the company to be in liquidation.

Mr Trimmer said he wished to add tho alternative to sue as receiver.

iMr Ziman said he was agreeable, provided he could object if the first ground mentioned at the beginning of the hearing failed. The Bench: “That may remove some of the bristling technicalities.’’ On Mr Donohue being recalled, he said he had no list of contributories to settle. He had not sent any such notice to shareholders, and had* not done anything in this direction as liquidator. The Bench: “Then you are not functioning as a liquidator?'’ Witness: “That is so.’’

To Mr Ziman, witness said he had paid the bank in full, and what he was aiming to do now' w r as to pay the second debenture-holders, and his ow r n commission. 'There should be just on 20s in the £ for the second debentureholders.

To the Bench, witness admitted that there were many unsecured creditors, perhaps up to £ISOO, nearly £BOO of this being for wages alone. To Mr Ziman, witness said he was aware that the wages men were applying to have the company wound up by the Court.

Mr Ziman, after deciding that it tvas not necessary to call any evidence for the defence, said it was elementary that statutory requirements be complied with, otherwise the company could not be in liquidation. The requirements could only be complied with if every shareholder wore present at the meeting, which was not the case. It was common ground that the company was governed under Table A

of the Companies’ Act. Section 53, | requiring the giving of 7 days’ notice j of a meeting, was mandatory. It was i therefore clear beyond shadow of doubt that the company was not in j liquidation, and that, consequently, Air | Donohue was not liquidator. He further went on to show by quoting Justice Cooper that the liquidator j could not make good the sale of any j of the company’s assets. Another | ground was the fact that the secretary ! could not send out a notice calling an extraordinary general meeting without the sanction of the board of directors, which was not given, and therefore the notice was not valid. It was obvious that, the company not being in liquidation, Air Donohue could not function as liquidator. A receiver had no power to make calls, although he | could, recover calls nbjide by a liquidator, Such calls could only be made by the company, or by the liquidator, if the company were in liquidation. This disposed of the two calls made by Mr Donohue after the alleged liquidation of the company. The calls made by the company were not validly set out in the minute book, and were therefore not collectable. On tho third call (October), no place of payment was mentioned, no name of the person to whom payable, and only a portion of the shareholders concerned were mentioned. Tho fourth call (January) was also invalid, in that no name of the person to whom it was payable was mentioned, and also that the wrong amount of capital was stated on the minute. Article 11 specifically stated “all shares,” and only some were called on. For the defence, Air Trimmer said that an action had to be brought, and it was as well to bring it now as later. He had to admit that some of the technicalities wereThe Bench (quickly): “Fatal” Mr Trimmer went on to say that it was quite possible for a company to have in its articles a clause stating that 2,7, 10 or even 14 days’ notice of a meeting was necessary; therefore clause 53 of table A was not hard and fast . It was only a question of formality or procedure. At the conclusion of Mr Trimmer’s address the magistrate said that, in

deference to his particularly lucid argument, he proposed to reserve derision, which he would give in writing.