No Liability Companies.

Otago Witness, Issue 1933, 7 December 1888, Page 12

No Liability Companies.

Editor Witness,— Sir : Seeing in a late Witness a number of letters on the above subject, wherein some of the writers advocate the repeal or amendment of that portion of the Mining Compaaies Act relating to no liability . companies, and as the outcome may be that 'some of the Otago M.H.R/s might take the matter in hand without weighing the question previously in all its bearings, I would like to publish my view of it, being manager of two companies registered as no liability companies in New Zealand. The point urged by your correspondents is the want of protection to the working man, though other creditors expect the same consideration. A no liability company has to pay up 5 per cent. of its capital to procure registration, thus having a fair margin to start with. When this is expended it will represent a certain improvement in the value of the property in nine cases out of ten, and the property of the company is at any time at the mercy of the judgment creditor if the director§;fail to provide for the debts by making calls. Wages men or contractors in mining companies here are universally paid monthly, and if they are not paid they are not slow in looking for their remedy. Directors, knowing this, provide for the work rather than see their property sacrificed and the company obliterated. In limited liability companies if the wages man or other creditor has the only additional safeguard in liquidation, it is a poor one if he has to fall back upon it, as usually the length of time taken in winding up companies and distributing the available proceeds would severely try the patience of any creditor, and he would perhaps then find that the cost of winding up had absorbed the biggest portion of the assets.

Now we will look at the shareholders' side of the question. The no-liability shareholder knows beforehand that unless the capital is provided as the work proceeds the work must stop. He cannot obtain credit on the strength of the nominal capital unpaid, and cannot rely on the company obtaining credit because a number of better marks may be on the register. He must pay his fair share of the outlay or throw up his interest, as forfeiture promptly follows default, whereas under the limited company his shares cannot be sold, at the earliest, for two months after the call has been made, and often there are three calls then payable on the shares, and he then exercises his discretion as to forfeiture or redeeming them at the last hour. Thus in a prospecting venture or mine unproved perhaps till a crushing plant is provided, possibly on credit, the limited liability shareholder, if he is a man of property, stands in an unfair position against those who have nothing to lose in case of failure. In many cases where a company has started its first crushing and that has been disappointing it has had no chance afterwards to prospect elsewhere, as a panic may then occur among creditors and shareholders and disastrous legal and liquidation charges overwhelm it before the ground has had a fair trial. Take as an instance the Oriental Company, which instead of calling up sufficient capital worked on credit till the debts accumulated to such an extent that shareholders would not face them. The company went into liquidation, and heavy contributions were forced from those who could pay, and the mine and crushing plant was sold for a song (£350), whereas if the company could have kept going and had driven 50ft farther on the reef they would have got into the gold that the present proprietors (the Progress Company) struck, and now the property is worth £40,000. If the capital had been provided the old company would doubtless have held and developed the property^ and if it had been a no liability company the money would certainly have been found. Though it might have involved a transfer of interest in shares, it would have terminated better for all of them.

Thus the benefits of the No Liability Act can be recognished by hona jide investors who wish to stand on equal footing with their co-ven-turers. It gives a feeling of security to capitalists that there is no possibility of their being called on to contribute to make up for the deficiency of others who stand in to win and have nothing to lose.

No liability companies are in the majority in Victoria, as the equity of the act is apparent. Later on its value will be recognised in New Zealand.

The people who suffered through the Hyde Gold Mining Company would have been in the same position under a limited company with a Victorian proprietary, unless they had gone there for redress or got a guarantee in Otago. — W. G. C

iollinqs.

I am, &c M Reefton, November 28.