SHAREHOLDERS’ LIABILITY

Northern Advocate, 28 November 1928, Page 3

SHAREHOLDERS’ LIABILITY

EC NOTION OL 1 COLLECTOR. COMPANY NOT IN LIQUIDATION. A! AC ISTLRIAL DECTSION. Reserved judgment was given i>y Mr < J. H, Luxford S.M., at the Whaugarei Magistrate’s Court this morning' in tire ease in which the Whangarei “Daily News’’ Company 'daimed from

John Boyd the sum of £2;> for share capital. The judgment read:—

This is an action to recover the sum of £2o, living the balance alleged to he owing by the defendant on 50 shares owned by him in the share capital of the plaintiff company known as the Whangarei “Daily News” Printers and Publishers Ltd. The action was commenced by William Lawrence Donohue “as Liquidator of the Company.” This was wrong. The liquidator must sue in the name of the company and not his own name. Mr Trimmer then sought leave to amend the proceedings by substituting the Whangarei “Daily News” Print-j ors and Publishers Ltd. as plaintiff inj the place of Mr Donohue. This was) objected to by Mr Ziman on the ground that the defendant denied that tire company was in liquidation.

As it was ascertained that Mr Donohue was also receiver for the debenture holders, Mr Ziman agreed finally to allow the case to proceed on the footing that Mr Donohue was suing in the name of the company, either as liquidator or as receiver for the debenture holders. Mr Zhnan made certain reservations to his agreement, which were duly noted, but to which I need not refer in this judgment. The plaintiff company tvas incorpor-j ated on May 5, 1026. The capital of the company is £20,000 divided into 20,000 shares of £1 each; the company went to allotment on November 29, 1020, when 5000 shares were allotted to various applicants; soon after this the company commenced business. A debenture was given by the company on December 10, 1920 to the Commercial Bank to seeurt an advance sufficient to meet the requirements of the company. The whole of the company's undertaking and nil its property and assets, both present and future, including its unpaid and uncalled cappital, were charged by the debenture with the payment of the money advanced by the bank. Subsequently, the company issued a series of debentures for £IO,OOO in all, whereuidler it charged the same property but subject to the rights of the bank. The company was not successful and by the beginning of March 1028, the directors realised that there was little hope of continuing tiie business. The bank was then pressing for the payment of the money's secured by its debenture.

A number of shareholders presented a requisition to the directors, on March 12, .1.928, calling’ upon them to summon a general meeting’ of the company to discuss ways and moans of meeting liabilities and, if necessary, lo take steps to wind up the company.

The directors 7 decided to summon a special meeting-, but before the notices had been sent out, the manager of the Commercial Bank intervened, with the result that the directors, on March 14, sent out notices summoning’ an extraordinary general meeting, for the following day, to consider and to pass, if thought fit, as an extraordinary resolution the following motion—“ That it has been proved to the satisfaction of this meeting that the company cannot, by reason of its liabilities, continue its business and that it is advisable to wind-up the same, and, 'accordingly, Hint the company bo wound up voluntarily and that W. L. Donohue, •of Whangarei, accountant, he and is hereby appointed liquidator for the purpose of such winding up.” A meeting of the company was hold at the time appointed in the notice, but was adjourned for seven days to ■nable the directors to consider an offer which had been made by an Auckland syndicate to purchase '.he company’s undertaking. On March 19, before the adjourned meeting had been held, the Gammereial Bank appointed Mr Donohue its receiver, and it authorised him to ’liter upon the mortgaged premises and to take possession of the same in manner provided by the debenture. Mr Donohue at once acted iu accordance with the terms of this ’authority.

On March 22, the adjourned meeting of the company was held and the motion set out, in (In'.notice of March 14 was passed as an extraordinary resolution. Mr Donohue then assumed the role of liquidator as well as that of receiver for the first debenture holders. Subsequently he was appointed ind accepted the position of receiver for the second debenture holders. Ho set about to realise the assets of the •ompany and to call up and collect the uncalled ami unpaid capital of the

company. The directors had made four calls previous to Mr Donohue’s appointment is receiver and to the passing of the '■xtraovdinary resolution of March 22. The defendant had paid his application and allotment moneys, and the first two calls, amounting in all tu K'/ a shang but he failed to pay calls of L’/V> a share respectively made by I lie directors on October 14, 1027 ami January IS, lt»2S.

A demand was sent to him by Mr Donohue on April 24, IP2S, requiring him forthwith to pay £2.1, which was the balance owing on his Id shares, Mr Donohue elaimod the monev “as receiver for flic Commercial Bank of Australia.” Later, a nofiee was sent by Mr Donohue claiming the monev as

liquidator. The dcfendaul, and a number of other shareholders, declined to pay Air Donohue the money which he demanded and, thereupon, the present- proceedings were commenced. It was stated in argument that the decision in this ease will cover the liability of the other shareholders who refused to i amply with Mr Donohue’s demands.

The case can be divided conveniently into two parts; the first will deal with the call of 5/ per share made by Mr Donohue, the second will deal with the two calls of 2/(1 per share made by the directors respectively on October 14, 1927, and January IS, 1928.

It is elementary that a receiver has no power to make a call. The call must bo made by the directors, or by a duly appointed liquidator, before a receiv'd’ can use the company's name to enforce the' payment. Consequently, it is necessary to consider whether the company is in liquidation. If it is not in liquidaton there has not been a proper call made in respect to the final payment of 5/ per share and an action is not maintainable to recover that amount.

! In my opinion tho company is not jin liquidation. Tho shareholders attempted to comply with paragraph (c) of section 220 of “The. Companies Act, 1908,” by purporting to pass tho extraordinary resolution I have referred to previously. Section 92, however, requires that a notice stating the intention to propose such a resolution must be “duly given.” That means that the notice must 'be given to the members in accordance with the company’s Articles of Association. The plaintiff company is governed by the Articles set out in Table A of the Companies Act. Article A! of Table A requires that seven clear days’ notice of any meeting must bo given to shareholders. Such a notice, admittedly was not given in the present case. The strict compliance with the requirements of this article is mandatory. The plaintiff, therefore, is not entitled to recover the first part of its claim.

The second part of the plaintiff's claim depends upon the validity of the two calls made by the directors on the dates I have stated previously. Mr Donohue, an the receiver of the debenture holders, would be entitled to recover those calls if the directors made them in due form. Mo evidence was adduced to prov'. the form of the notices which were sent to the defendant, but ‘:he minute book of the company was produced to prove the resolutions by which the calls were authorised. It must bo presumed, however, that the notice conformed to the tonus of the resolution.

The resolution passed by the directors on October 1-1, 1927 is in the following words: —“On the motion of A. J. Murdoeh, seconded by 0. 8. B; Morrison, it was resolved that a further call of 2/(> per share (be made) on the company’s shareholders from 1 fo 5000 in terms of the Articles and returnable at Xov ember 12, 1927," The words in brackets do not appear on the minute book but iv was obvious that they should have been inserted.

Mr Zirnan submitted that this call is invalid for throe reasons: —

(a)—The directors failed to appoint any person to receive payment of the call.

(h) —The directors failed to appoint a place at which the call was payable. ((>) —The directors made a call only in respect of .‘IOOO shares instead of in respect of 51 MO shares, which at that time comprised the company’s share

capital. The omission to name the person to whom the call is payable is fatal to its validity. It is not necessaiy to set out these particulars in precise language; it is sufficient, if they can be ascertained by necessary implication. In the present case, however, the resolution is silent on these matters. I am of the opinion, therefore, that the call of October 14, 1927 was made invalidly and cannot bo recovered from the defendant. The resolution of January 18, 1928 was in different terms to th“ resolution I have just considered. I -will set out the resolution at , it appears in the companv’s minute book at page 5M; —

“It was resolved on the motion of Mr R-. G. Hosking and seconded by Mr Dnnningham that a further call (4th) be made of 2/(1 per share on shareholders holding shares, 1 to 5000, on the company’s register in terms of the company’s Articles and said call to be payable at the company’s office, Vim* 'Street, on February 12, 1928.’’

Mr Ziman advanced the same •argument against the validity of this call as he advanced against the previous call, except that ho conceded that the directors had specified the place of payment. It is true that the directors did not appoint specifically a person to receive pavment of the calls, but I consider that the language is sufficient for me to infer that the shareholder was required to pay (he call “to the company at its registered office.” The appointed receiver may be a body corporate; a body corporate acts-through its officers and servants; it necessarily follows that the .shareholders wore required. to pay their calls to some person in the apparent employ of the compnnv at its registered office.

It remains only to consider whether the directors were entitled legally to make a call in respect of part only of

its 'share capital. It was proved that there- were 5130 contributing shares on the register of the company at the time the resolution of January 18,

128, was passed. The directors are

empowered by Article II “from time to time to make such calls as they think lit upon the men;hers in respect :>f all moneys .unpaid on shares held by them respectively.” There is

no power given the directors to create special groups of shares with different conditions attaching to each group. The whole of the shareholders are on a footing of equality; it is wrong, therefore, to make a call on some members without making a similar call on all the other members. The directors violated this principle of equality among shareholders when they made tin' fourth call," That, in my opinion, lenders the call invalid. I find, therefore. that rhere is no liability at the present time on the defendant to pay the unpaid moneys in respect of his shares in the company'.

The plaintiff will be nonsuited. 1 will allow costs lb scale, viz., £3 9s.