COMPANY CASE

New Zealand Herald, Volume LXXII, Issue 22086, 16 April 1935, Page 11

COMPANY CASE

PKEMIER TOBACCO •ACTIONS OF PROMOTER THE ALLOTMENT OF SHARES ORDERED TO PAY DAMAGES "In the present case I can take no other course than to find that Russell as a promoter has been guilty of misrepresentation," said Mr. Justice Herdman yesterday, in the course of a lengthy judgment determining the case in which allegations were made of corrupt practices on a large scale in the promotion of the Premier Tobacco Company '(New Zealand), Limited. The proceedings were brought by Chambers, Worth and Chambers, public accountants (Mr. Mackav), us liquidators for the Premier Tobacco Company against William Samuel Russell (Mr. E. N. Moody), formerly managing director of the company.' The liquidators claimed from Russell a total of £33,820, made up of 15,000 £1 shares received by Russell, 15,000 shares' which he allowed tf. go to tho Eeronne Syndicate and £3820 cash which Russell had received. "Only One Inference" "It seems to me," said His Honor, "that an examination of the scheme, which was so carefully designed, and of the manner in which it was carried into operation, makes it impossible to draw any other inference than that the representations were made without any honest belief in their truth, and that persons were induced by these representations to invest the money which they have lost." His Honor said the summons alleged that William Samuel Russell, while acting as a promoter and director of the Premier Tobacco Company, was guilty 'of misfeasance and breach of trust, and that he was liable to pay a sum of money by way of compensation for losses suffered by shareholders of the company. It was claimed by the liquidator that Russell received certain benefits which were in the nature of a secret commission, and that he was guilty of b, breach of duty in sanctioning the payment of moneys aod the allotment of shares to a, syndicate called the "Eeronne Syndicate," when such syndi-

cate had failed to carry out its obliga- > tions under a contract. Fraud on the part of Russell was also alleged. Public Lose £19,000 In the opinion of the liquidator, creditors of the company would receive about 20s in the £l, but the shareholders who, by the end of the liquidation would have subscribed about £19,000, would receive nothing. In other words, when the winding-up was completed, .about £19,000 of money subscribed by the public would have been hopelessly lost, unless, of course, Russell could be compelled to compensate subscribers. His Honor outlined the history of the Premier Tobacco Company and its relations with members of a syndicate in London who undertook to promote a company on the basis that the syndicate was to get £SOOO in cash and 15,000 shares and Russell was to receive the same for tlieir services. After quoting from the prospectus issued by Russell, His Honor said he had been unable to discover any proof that any firm of high financial standing sponsored this company, or that there was any justification for leading the public in Zealand to believe that most of the capital would be provided in London. "No shares were applied for by English investors," he said, "excepting the shares which Russell, as the alleged agent for Joynson-Hicks, Homer and Dale, 'applied fdr. These men paid ' no money on account of these shares, and they have refused to pay calls due in respect of the shares which Russell applied for on theTr account. Russell's Activities "There is no documentary evidence of any kind that Russell was authorised to apply for these shares. The unfortunate subscribers in New Zealand were led to believe that English capital to the amount of £170,000 was to be avaijable for the purpose of establishing a prosperous industry, but not a shilling has been invested; not a penny has reached the shores of this country. "When 1 remember that it is Russell , who executes the contiact of March 12, 1931, on behalf of the Eeronne Syndicate, that Russell pays the money necessary to furnish Joynson-Hicks and his associates with qualifying shares, that Russell executes the memorandum on their behalf, that Russell signs tho prospectus on their account, that Russell executes the transfer of 15,000 shares in his'own "favour, and when 1 remember that the members of the socalled Endoto Syndicate and Eeronne Syndicate contributed nothing, and did nothing to help the venture, and that one of them, Stayelev-Dale, and Ronne, in whose name the company was baptised, are undischarged bankrupts, 1 can come to no other conclusion than that the alluring statements contained in. the prospectus were untrue and were intended to deceive persons in .i New Zealand who might consider investing their money in this company." Calculating Damages His Honor said it was clear that Russell, while acting as director of the company, permitted the allotment of 15.000 shares to the Eeronne Syndicate when he must have known that tho syndicate had not performed its part of the contract. The syndicate did nothing." Russell received a profit which was not revealed in the prospectus, and ho «as guilty of a breach of trust in connection with the allotment of shares. He received a sum of £3BOO 10s 6d, but from this was to be deducted £702 Is fld for expenses incurred, leaving a balance of £3098 9s 5d which Russell would have to pay. Russell would also be ordered to pay damages for the 15,000 shares which he allotted to himself and for the 15,000 shares which in breach of trust ho allotted to the Eeronne Syndicate, tho Measure of these damages being determined on the. principles laid down in cases quoted by His Honor. "There is>, evidence," concluded His Honor, "that Kussell sold some of his shares, hut whether the lots were large, ; I do not know. Before I can finally de-

fide what he is obliged to pay, there must be further evidence tendered about prices paid at the time the allotment was made It the parties cannot Come to some agreement upon these questions, it will be necessary to hear further evidence. In the meantime, the question of costs can stand over."