COMPANY DISCORD

Otago Daily Times, Issue 23529, 18 June 1938, Page 12

COMPANY DISCORD

INVERCARGILL CASE DIRECTORS’ FEES IN QUESTION ISSUE FOR APPEAL COURT (Per United Press Association) WELLINGTON, June 17. > The Appeal Court is hearing the •ease of Millers (Invercargill), Ltd., '-versus Maddams. The case arose of internal discord in a company known as Millers (Invercargill), Ltd., carrying on business as 'drapers at Invercargill. N The company was incorporated in ;1933 with a capital of £ 1000, the 'shareholders being James Thomas JjSharp (350 shares), respondent, Maddams (300) and Sydney Hanchard (350). The business was carried on both at Invercargill and Gore. ’ The Gore branch for a short time managed by the respondent, and the Invercargill branch by James Thomas Sharp. Eventually the respondent retired. The company proved very successful, and for the years 1935, 1936, and 1937 large directors’ fees were voted, Sharp getting the largest portion of 'them. Hanchard decided to retire. |le offered half of his shares to the respondent, who suggested that Hanehard should make up his existing difficulties with Sharp. Hanchard •then saw Sharp and arranged to sell his shares to him. Finally transfers of these shares were executed, covering 267 to Sharp, 50 to Mrs Sharp, and 33 to Maddams. Difficulties then arose in the management of the company between Maddams and Sharp, and as a result Sharp transferred certain of ms to nominees to give him greater voting power. In 1937 Maddams commenced an '*ction in the Supreme Court, Invercargill, claiming a declaration that the resolutions of the company approving the transfers of these shares by Sharp to his nominees were invalid. He also claimed as invalid a resolution passed by the company in November, 1935, fixing the directors’ fees at £6OO, of which £5.0 was made payable to Sharp, £2O to Mrs Sharp, and £2O to him. In his judgment delivered in the (action in September, 1937, Mr Justice Kennedy held that the resolutions relating to the shares and jsimilar internal matters of company ■■management could not be attacked, 'hut that the resolution of November, 1935, awarding Sharp £560 of the ’total directors’ fees of £6OO, constituted fraud by a majority of shareholders against the minority '(Maddams), and that it could not ;»tand. He said that the effect of the resolution was that Sharp had .'Used his voting power to make a present to himself oL part of the •company’s funds, which should have 'been . available for distribution imong the shareholders. He made an order- that there should be repaid to the company £.560 by Shaip and £2O by Mrs Sharp. "The appeal from that order was heard to-day. The company, Mr and Mrs Sharp, and other shareholders, with the exception of Maddams, are the appellants, for whom Mr W. J. Sim and Mr L. J. Hemsley (Christchurch) appeared. Mr H J. Macalister (Invercargil) appeared for the respondent. Mr Sim said the only question to be considered was whether the resolution of November, 1935, was in fact fraud on the minority shareholders, and that question was entirely one of fact. The court would have to consider the evidence and determine whether the judge in the hourt below had come to a correct conclusion on the facts. There was ho dispute as to the law applicable, v Mr Sim contended that the question whether Sharp had abused his powers as the largest shareholder (iould only be determined in the light of all the surrounding circumstances. An examination of those circumstances indicated that particular regard must be had to the fact that the amount taken by Sharp as directors’ fees was not excessive, ip view of the extraordinary success to which Sharp had carried the Company, Moreover, a precedent had been set by the company voting Him almost a similar amount in the previous year. Then, too, Sharp had been content to leave £1326 of his money in the company without any ihterest. ■1 Mr Hemsley, in support of Mr Sim, contended that all Sharp’s actions had been in accord with the best company practice and had been taken as the only way out of the deadlock which had occurred between the shareholders. %; Mr Macalister, for the respondent, submitted that the facts disclosed actual fraud on the part of Sharp and his nominees, but, if the court was not convinced of that fact, it must hold that there had been fraud in the wider sense of a breach of fiduciary duty or abuse of power, v The court reserved its decision.