THE GOLDEN MASCOTTE SLUICING COMPANY.

Otago Daily Times, Issue 11506, 19 August 1899, Page 7

THE GOLDEN MASCOTTE SLUICING COMPANY.

A PETITION FOfi WINDING UP BY THE CODKT.

THE APPLICATION DEFUSED.

At a sitting o£ the Supreme Court in Chambers yesterday, his Honor Mr Justice Williams heard a petition that the Golden Mascotte Sluicing Company bo woun<f tip by the court.

Mr J. Mouat appeared in support of the petition, and Mr V. C. MacGregoi (for the -/ company and liquidators) to oppose; The- petition act forth that the Golden Mascotte Sluicing Company (Limited) was incorporated as a limited company under "The Companies Act, 1882," and the amendments thereof, on November 3, 1898, with a registered office situated in Duncdin, and with a capital of £7500 in 7500 shares of £1 eneli. The objects for which the company was established were— (a) To acmiire gold-bearing land at Canadian Flat, in the survey district of Long Valley, consisting of two special claims numbered respectively US and 149, containing 97 acres, more or less, known as the Canudian Flat, being sections 4 and 5, block XIII, Long Valley district, with the tail race, dams, mining plant, and all appliances used in mining thereon or in connection therewith; (b) to acquire and construct water-races arising in the Tnieri Gorge and ending at the said mining properties, comprising in all, water rights to 135 Government heads of water, together with all water rights and all flaming pipes find other appliances belonging thereto or used in connection therewith; (c) to adopt and carry into effect an agreement, dated June 23. 1898, made between John Laffey and Patrick Lnffey, of the one part, and Messrs Cook and Gray, of the other part, for the sale and purchase of the mining properties above referred to; (d) to acquire such other land, water-races, and water rights, mining interests, and property and rights capable of being used for the purposes of the company as might be deemed necessary or expedient in the interests of the company, and to sell or lease any land, rights, or other property of any kind whatsoever; (c) to mine foi gold upon the said land or other lands ■which might be acquired by the company; (f) to erect and construct all such buildings, works and appliances as might bo requisite or expedient for effectually carrying on the bnsiness of the company; (g) to borrow money by way of overdraft, or by mortgage, or upon debentures, or other securities npon the property of the company, including the uncalled capital of the company; (h) to do all such other things as were incidental to or necessary for the attainment of. the abovo objects. The company was formed exclusively for mining purposes. The agreement of June. 23, iS9B, provided -for the sale and purchase of the' mining properties above referred to, the consideration to be given to John Laffey and Patrick Laffey being nominally 1500 shares fully paid up; but these shares wero not really and truly the value to be given for the property, but were in greater part contracted to be given as rewards to the promoters of the company for the use of their names and influence as provisional directors and promoters of the company. The agreement had never been filed with the registrar of Joint Stock, Companies as reouired by section 34 of " The" Companies Act, 1882.' Shortly before the time of the registration of the company the promoters issued a prospectus inviting applications for 4500 shares of £1 each in the capital of the company. The p:ospectus stated, among other things, that the company was projected to acquire and work mining 'areas on Canadian Flat, and particularly two valuable special claims of 50 acres and 47 acres 3 roods 10 poles respectively in Long. Valley Survey district, and also to acquire the -water rights to 135 Government { heads of water from the Taieri River, and re-' presented thai the claims had been well pros-' pecfed and reported on by two of the best reputed mining men in Otago; that six shafts were sunk at different places on the claims through highly payable wash running from 14ft to 20ft in depth or more. On the higher ground in two of the shafts they bottomed the last 3ft of wash, giving over half an ounce of.gold to the.load, and that the vendors were so satisfied with the property that they received : no cash for their interests, although they had spent over £500 in prospecting the ground, and paid rent, survey fees, etc. in addition thereto; and, moreover, were applying for a large sum ■ of- contributing shares. The names of James Hazlett, C. F. Greensloie, E.- T. Wheeler, J. K. Simpson, and Henry Crust were given in the prospectus as those of tho provisional directors, and that of Edward Trythall as broker for the proposed company, and W. E. Cook as interim secretary. The prospectus was alleged to have been prepared by the interim secretary, and to have been issued by him on the faith of representations made to him by the vendors; and it was also alleged that the provisional directors were induced to lend their names on the faith of the said representation, and in consideration, of having allotted to them, at the request of the.vendors, thp following fully paid up shares:-—To James Hazlett, RQ-.slui.tmj'to. O. F. Greerislade, 80 shares; toB. Tv "Wheeler, 80 shares ;'fo J". X.' Simpson, ', 80 shares; to Henry Crust, 80 shares; to Edward Trythall, 100-shares; to Cook and Gray, 100 shares; and to George Neil], 100 shares. The Raid shares were duly allotted.' and ac- ■ eepted by the allottees. The vendors, John Laffey and Patrick: LaSey, received 100 shares each for the property sold by them to the company, and there never was'any value or con- , sideration tMeived by the company . for tho ' paid up shares other than that already mentioned. The whole of the 4500 contributing shares were taken up. The company took no steps to carry on the business, but in January of 1593 they despatched to Canadian Flat Mr John Bon, a mining expert; with instructions to prospect and report,' and he. reported that the property would not yield one grain o£ gold to the cubic yard, anil was. entirely valueless. The petitioner held I*l, shares, for which ho applied on the faith o:' the statements in the prospectus. On the Hth of March last the compare passed p resolution to voluntarily wind up. Tl;b petitioner did not attend that meetin?, and it was alleged that owing to some, misimdcrstanding.as tc . the hour only a bare quorum, consisting o£ the promoters, attended and took part in the proceedings. The commr.y had abandoned or surrendered the titles i.: the property. The shareholders had received co value ot consideration for the money paid liy them. Some of the promoters were being sued fov calls, and endeavouring to repudiate their liability.

.Tha answering affidavit' of the liquidators, Messrs Henry Crust sad B. T. Wheeler, jun., set foith: That they were formerly two of the directors of the Golden Mnscotte Company, upon the contributing shares of which 2a 6d were payable on application and a like sum on allc-mont, and of the moneys so contributed Borne £600 remained over and above what was required to wind up the company, so far as could he known at present; that the* vendors, Messrs John and Patrick Laffey, had not transferred the special claims and water rights mentioned in the petition to the company, and accordingly ■the contract referring to the transfer had never been filed with the registrar of Joint Stock Companies; that shortly after the formation of the company the directors, obtained reports as to the best method of working the special claims, and from these reports the directors had reason to suspect the correctness of the reports furnished to them by the vendors; that tne directors accordingly caused the claims to be prospected and reported upon in the interests of the company, and came to the conclusion thai it would not lie right to go to the expense of putting machinery on the claim, as the prospects obtained were not nearly so good ks. those referred to in the reports formerly obtained by the vendors; that the shareholders were called together, and had the position of matters explained to them by the directors, end eventually it was decided to wind up the company voluntarily; that the vendors and their friends strongly opposed the winding-up motion, and that John Wells took no part in the-meetings of affairs'of the company until' Klifr the liquidation, nor did he in any way pmest against what was being done until he ■was pressed by the liquidators' solicitor for his application and allotment moneys, which were only recovered from him after repeated applications,and a definite threat of legal proceeding.'. .' Mr Mouat said that it was no doubt unusual to ask for such an order after a company had decided to wind up voluntarily, but the facts

''■stifled if. He (Mr Mouat) appeared for Mr JjHn Wells, the petitioner, and he had also a paper'signed by four other shareholders, and Mr Daniel Haynea, the holder of 200 shares, also supported the petition, though he had not signed. The whole thing had been a mistakehe (Mr Mouat) did not say that there had been any particular fraud, but the result was that tho shareholders had given their money for nothing. It was a case where the promoters should have acted as Mr Smith . did with the Voltaic, and- handed back to the shareholders tiieir deposits, saying that a mistake had been made. Instead of doing this, they had received £1125, and spent £025,-ah(l there was absolutely nothing to show for it—nothing to show what had become oMhe £600. ' Part of it, no doubt, had gone in brokers' cmjimission, and expenses, and that sort of thing. The question of. creditors fortunately did not come in, as there were no creditors. The posHion was that the brokers had made a profit, and everybody else had been a loser; and then th« brokers absolutely had tho effrontery to get themselves appointed as liquidators. Mr MucGregor: Tint is not the case. Mr Mouat: Well, Mr Wheeler did. Mr MacGregor: Mr Wheeler was not a promoter at all. Mr Mouat replied taat Mr Wheeler had received paid-up shares. It was not a violent presumption to say that the company was now being wound up in the interests of those who had made a blunder or worse—he would not say it wa«. worse, it was probably p, blunder, but *v unfortunate otic for the shareholders. Another thing, they nnver registered the contract, and under sectir.K 34 of the act they wero liable to be made contributors. His Honor: What money wa9 paid to the Laffeys? Mr'Monat replied th>t no money was paid. They got 500 paid-up shares. The petitioner claimed that the cor-ributors should receive back what they had ptji), and that those who made tho mistake shois'lcl pay the expenses. Ifr MacGregor: They can bring an action if they think they have one. Mr Mouat remarked that it was monstrous (hat the shareholders should have to pay the ;osts of liquidation after paying commission and Eettius ii 9 value at all.

His Honor: How much was paid? Mr Mouat: £1125.

His Honor: And who do you say got tho money? It is not alleged, is it, that there was any misreDresenLation on the part of the vendors? The. iaffcya, at any rate, got nothing."

Mr Mouat: No; they only got shares, on which we say they are liable to pay. They did not get any money. The brokers got it; Mr Wheeler amongst the others. Mr MacGrcgor: Mr Wheeler was not a broker.

Mr Mouat went on to say that the prospectus contained misstatements. It said that tho property included .135 Government heads of water, whereas Mr Nicoll's report said that there weri. only 32 or 33 heads. That was a mistake, cither designedly or otherwise. These statements might have been mado negligently or fraudulently—it was not for him to say fraudulently.

His Honor: I should have thought there was a remedy by action if there was a misstatement. You contributed your money on the faith of the prospectus.

Mf Mouat: We cannot say that this was due to any particular individual. We do not know who are responsible.

His Honor: Bui if your title amounts, to anything it is because you have been deceived cither wilfully or accidentally—because you have been misled by the prospectus. Well, it would be tho person who issued the prospectus who is liable to you.

Mr Mouat: They rely apparently upon expert reports, which to some extent would exonerate them. With regard to Mr Nicoll's. repor: they

His Honor: But if you cannot succeed in an action, how can you succeed in any other .way?

Mr Mouat replied that they could have those--1500 shares put upon the contributing list. Upwards of £500 had been spent, and nobody knew what had been done; and those 15C0 shares could be. made to bear their quota of that expenditure. These 1500 shares would represent 25 per cent, of it. Learned" counsel, referred his Honor to the Varieties case, reported in 2 Chancery Division, 1893, and submitted that the present case was a much stronger one, because there was misrepresentation as well.

Mr MacGregor submitted that the Varieties case was different from the present one, because in the Varieties case the petition was filed before the resolutions for voluntary liquidation were passed. This entirely altered the doctrine of law. The law with regard to the case where a contributory applied after a voluntary winding-up was referred to in Buckley at page 132. He would refer his Honor to what therein appeared. Tho cases there showed that a winding-up order could not be made unless fraud was - shown. In the present case the petition did not even allege fraud. Mr Mouat said that it was something very much like fraud.

Mr MacGregor: If you want to succeed on the ground of fraud you must allege it, and prove it very clearly. Learned counsel went ou to say that it was absolutely incorrect to assert, as the petition did, that on March 14 the company passed a resolution to wind up voluntarily.': At the meeting of March 14 the resolution was not passed but negatived. That appeared from the liquidators' affidavit. Tho fact was'that'the resolution was carried at a special meeting helct on April G, atf which several independent shareholders were present, and the point at issue at that meeting was not as to the method of wiuding-up—not whether the company should bs wound up by the court, but whether it should be wound up at all. The directors wanted it to be wound up, and it was the vendors who, having 500 shares, did not want it wound up. Pernaps they thought they could float it again., li was the Lafieys and Mr Trythall who objected. The directors wanted. the company wound up, and • they adopted this courEO because it was the cheaper. He would repeat, therefore, that there was not oven an allegation of fraud in respect to the passing of the resolution, and the rest of the suggestions in the petition were completely met by the liquidators' affidavit.

Mr Mouat: We say it is a fraud td keep our money at all. It should be returned.

Mr MacGregor went on to,say that, according to the cases, there was just as much power in a. voluntary liquidation as in any other; and ithc authorities were clear that shareholders had no say after .liquidation, unless it could, be shown either that the resolution was passed by fraud, or that the creditors stepped in. Here there were no creditors, and, as he had said, there was no'fraud'alleged. He submitted that the petitioner hail entirely mistaken his remedy. Mr ilouat had had ample opportunity to'iind out all.the facts, every facility having been offered to him for doing so. "■< Mr Mouat, in reply, said that if there had been an independent liquidator it would have been less objectionable, but here there, was a man who was placed in the position of having to punish himself for 'misrepresentation. ; His Honor said: I do' not think that the petitioner .has. made: out a sufficient case for compulsory winding up. After the voluntary winding-lip is commenced a compulsory order cannot be made upon the contributories' ■ petition-unless either—First, a cage of fraud in passing a voluntary resolution is made out —e.g., that it was carried; by a vote of a majority implicated in the .transactions to be investigated; or, secondly, the petition is supported by, creditors. That is the law as laid down by Buckley on joint stock companies; and for that position the case of the Gold Ccm-. |>any (11 Chancery Division, 701). is cited. The judgments .in that case fully carry out the statement contained in the text of Mr Buckley's work. The learned judges in that case really seem to have doubted whether in any case where there had been a resolution voluntarily winding up, tho act gave the court power' to order a compulsory winding-up, but they very strictly limited the cases where the court will order a compulsory winding-up after a voluntarily winding-up is commenced—that is, where the application for si compulsory winding-up is at the instance of a contributory. In the present case I do not think it is shown by the petition, nor.can it bo inferred from the petition, that there was anything in the nature of fraud in tho resolution for a voluntarily winding-up. This resolution was passed at the instance of the directors. There was opposition to the resolution, but it was not the opposition _of independent shareholders. It was the opposition of the vendors and other persons who got paid-up shares; and they wished the operations of the company to be carried on with the contributing shareholders' money. If it had been made clear that the resolution for the voluntarily winding-up had been carried by a majority of votes of that kind, that might have induced the court to interfere, but here the resolution for' voluntary winding-up was really carried in the interests of the independent shareholders. The best thing that could have been done was that there should have been '.a winding-up. The question of whether there was 'to be a voluntary winding-up or a winding-up by the court was never raised- by anybody. The petitioners' grievance seems really to be that there were statements in the prospectus that were not true and led them to take shares, and they have suffered in consequence of those statements. That, however, if it be the case, seems to.me to be more a subject of action at law than an investigation into the1 winding-up. That the remedy, is by action_ at law in a case o£ the kind is pointed out "by Vice-chancel-lor Malms in the Silver Hill Company; and I gather that some of the learned judges in re the Gold 'Company are of the same opinion. Lord Justice James in that case says:—"lt is not the function of a winding-up order to give remedies for wrongs connected with the dealing in shares, to give relief or redress to the man to whom the .wrong is done by .his being induced to'become a shareholder." Be that as'it may, the petition does not allege, nor can it be inferred, that, .there has -been anything in the

nature of fraudulent misrepresentation for which the issuers of Ihe prospectus are liable. If there was fraudulent misrepresentation the petitioners have their remedy. In refusing an order for compulsory v.-incling-up it is not as if tho court had no jurisdiction to intervene. On the contrary, section 11)8 of our Companies Act, which corresponds to section 38 of the English Companies Act, gives the covtrt tho fullest possible power. Whatever the jurisdiction of the court under a compulsory winding-up or under a supervision order—whatever the jurisdiction of the court is—it is the same jurisdiction in a voluntarily winding-up. The contributories have the same protection by applying under this as they' would have under a "supervision order or under a compulsory winding-up order. If the liquidators do not do" their duty—do not put the proper persons on the list as "contributories, or in any other respect fall short of what they ought to do, them any contributory can come to the court on summons and bring' them to their bearings. For these reasons I think the petition must be dismissed.