THE GOLDEN MASCOTTE SLUICING COMPLY,

Otago Witness, Issue 2373, 24 August 1899, Page 21

THE GOLDEN MASCOTTE SLUICING COMPLY,

A PETITION FOR WINDING UP BY THE COURT.

THE APPLICATION REFUSED.

At a sitting of the Supreme Court in Chambers xm Friday, his Honor Mr Justice Williams heard a petition that the Golden Mascotte Sluicing Company be wound up by the court. Mr J. Mouat appeared in support of the petition, and Mr W. C. MacGregor (for the company and liquidators) to oppose. The petition set forth that the Golden Mascotte Sluicing Company (Limited) was incorporated as a limited company under " The Companies Act, 1882," and the amendments j thereof, on November 3, 1898, with a registered office situated in Dunedin, and with a capital ] of £7500 in 7500 shares of £1 each. The objects for which the company was established were — ; (.a) To acquire gold-bearing land at Canadian | Flat, in the survey district of Long Valley, ; consisting of two Bpecial claims numbered re- ' spectively 148 and 149, containing 97 acres, I more or less, known as the Canadian Flat, , being sections 4 and 5, block XIII, Long Valley district, with the tail race, dams, mining , plant, and all appliances used in mmiug there- , on or in connection therewith ; (b) to acquire ' and construct water-races arising in the 'laieri , Gorge and ending at the said mining properties, comprising in all, water rights to 135 Govern- ' inent heads of water, together with all water ■ rights and all flummg pipes and other ap- i phances belonging thereto or used in connec- , tion therewith ; (c) to adopt and carry into ef- ' feet an agreement, dated June 23, 1893, made j between John Laffey and Patrick Laffey, of the one part, and Messrs Cook and Gray, of the other part, for tho 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 I company as might be deemed necessary or ex- j pedient in the interests of the company, and to sell or lease any lslnd, rights, or other property of any kind whatsoever; (c) to mine, for gold upon the said land or other lands* which might be acquired by the oompany; (f) to erect and construct all such buildings, works and appliances as might be requisite or expedient for effectually carrying on the business of the company; (g) to borrow money by way of overdraft, or by mortgage, or upon debentures, or other securities upon the property of the company, including the uncalled capital of the company ; (h) to So all such other things as were incidental to or necessary for the attainment of the above objects. The company was formed exclusively for mining purposes. The agreement of June 23, 1898, 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 were 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 required 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 prospectus stated, among other tilings, that the company -was projected to acquire and work mining areas on Canadian Flat, and particularly two valuable special claims of 50 acTes and 47 acres 8 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 represented that the claims had been well prospected and reported on by two of the best re- i puted mining men in Otogo; that six shafts , were sunk at different places on the claims ' through highly payable wash running from 14ft i 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 j of contributing shares. The names of James i Hazlett, C. F. Greenslade, R. T. Wheeler, J. j K. Simpson, and Henry Crust were given in I the prospectus as those of the provisional direc- i tors, and that of Edward Trythall as bioker I for the proposed company, and W. R. Cook a-? I interim secretary. The prospectus was alleged to have been prepared by the interim secretary, ; and to have been issued by him on the faith j of representations made to him by the veil- j dors; and it was also alleged that the pro- i visional directors were induced to lend their i names on the faith of the said representation, and in consideration of having allotted to them, at the request of the vendors, the following fully paid up shares:— To James Hazlett, 80 shares; to C. F. Greonslade, 80 Bhares; to R. T. Wheeler, 80 shares; to J. K. Simpson, 80 shares; to Henry Crust, 80 shares; to Edward Trythall, 100 shares; to Cook and Gray, 100 shares ; and to George Neill, 100 shares. The said shares were duly allotted and accepted by the allottees. The" vendors, John Laffey and Patrick Laffiey, received 100 shares each for the property sold by them to the company, and there never was any value or consideration received by the company for the paid up shares other than that already mentioned. Tho -whole of the 4500 contributing shares were taken up. The company took no steps to carry on the business, but in January of 1899 they despatched to Canadian Flat Mr John Don, a mining expert, with instructions to prospect and report, and he reported that the property would not yield one grain of gold to the cubic yard, and was entirely valueless. The petitioner held 100 shares, for which he applied on the faith of the statements in the prospectus. On the 14th of March last the company passed a resolution to voluntaiily wind yip. The petitioner did not attend that meeting, and it was alleged that owing to some misunderstanding as to the hour only a bare c)ort]"i of the promoters, attended duel tool- o^it in the incceedings. The coml.arv hnu tbancle:->fd oi wirrendered the titles to •.!■( r> uppity. '• b' ..lij.mholdtrs had received i>o "aluf or ( caidprat'.ri for the money paid ly them, borut oi thb |)!omoteis were being

sued for calls, and were endeavouring to re1 pudiate their liability. The answering affidavit of the liqi-.idators, Messrs Henry Crust and R. T. Wheeler, jun., set forth: That they were formerly two of the directors of the Golden Jlascotte Company, upon the contributing shares of which 2s 6d I were payable on application and a like sum on I allotment, and of the moneys so contributed ! some £600 remained over and above what was required to wind up the company, so fai as could be 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 aftar the foimation of the company the directors obtained reports as to the beet method of working the special claims, and from these reports the directors had reason to suspect the of the reports furnished to them by the vendors ; that the directors accordingly caused the claims to be prospected and reported upon in the interests of the company, and came to tho conclusion thai; it would not be right to go to the expense of putting machinory on the claim, as the prospects obtained were noi nesuly so good as 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, and 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 or affairs of the company until after the liquidation, nor did he in any way protest 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 applij cations and a definite threat of legal proceedings. ! 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 j justified it. He (Mr Mouat) appeared for Mr ; John Wells, the petitioner, and he had also a ' paper signed by four other shareholders, and I Mr Daniel Haynes, the holder of 200 shares, , also supported the petition, though he had not signed. The whole thing had been a mistake — , he (Mr Mouat) did not say that there had been , any particular fraud, but the result was that ' the shareholders had given their money for ! nothing. It was a case where the promoters should have acted as Mr Smith did with the i Voltaic, and handed back to the shareholders ■ their deposits, saying that a mistake had been , made. Instead of doing this, they had received ;£1125, and spent £525, and there was absolutely nothing to show for it — nothing to show what j had become of the £600. Part of it, no doubt, had gone in brokers' commission, and expenses, and that sort of thing. The question of creditors fortunately did not come in, as there were no creditors. The position was that the brokers had made a profit, and everybody else had been a loser; and then the brokers absolutely had I the effrontery to get themselves appointed as I liquidators. Mt MacGregor :• That is not the case. ! Mr Mouat: Well, Mr Wheeler did. Mr MacGregor: Mr Wheeler was not a promoter at all. Mr Mouat replied that 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 was worse, it was probably a blunder* but an unfortunate one for the shareholders. Another thing, they never registered the contract, and under section 84 of the act they were liable to be made contributors. His Honor: What money was paid to the Laffeys? Mr Mouat replied that no money was paid. They got 500 paid-up shares. The petitioner claimed that the contributors should receive back what they had paid, and that those who made the mistake should pay the expenses. Mr MacGregor: They can bring an action if they think they have one. Mr Mouat remarked that it was monstrous that the shareholders should have to pay the costs of liquidation after paying commission and getting no 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 misrepresentation on the part of the vendors? The Laffeys, 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 MacGregor: Mr Wheeler was not a broker. Mr Mouat went on to say that the prospectus contained mis'statements. It said that the property included 135 Government heads of water, whereas Mr Nicoll's report said that there were only 32 or 38 heads. That was a ' mistake, either designedly or otherwise. These I statements might have been made negligently lor 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. Mr Mouat: We cannot say that this was duo to any particular individual. We do not know who are responsible. | His Honor: But if your "title amounts to ' anything it is because you have been deceived 1 either wilfully or accidentally — because you | have been misled by the prospectus. Well, it , would be the person who issued the prospectus j 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 report they | were clearly wrong. I 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 shareß put upon the contribut'ng list. Upwards of £500 had been spent, and nobody ■ knew what had been done; and those 1500

shares could be' made to bear their quota of that expenditure. These 1500 sharrs would ropresent 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 ifacGregor submitted that the Varieties case was different from the present one, because in the Varieties case tha petition was filed hafore the resolutions for voluntary liquidation were passed. This entirely altered the doctrine of law. The law with regard to the caso where a contributory applied after a voluntary winding-up was referred to in Buckley at paga 132. He would refer his Honor to what therein appeared. The cases there showed that a winding-up order could not be made unla»a fraud was shown. In the present oase the petition did not oven allege frimd. Mr Mouat said that it v.'as 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 weui on to say that it was absolutely incorreot 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. The fact was that the resolution was carried at a special meeting held on April 6, at which several independent shareholders were present, and the point at issuo at that meeting was not as to the method of winding-up — not whether the company should be 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 600 shares, did not want it wound up. Perhaps they thought they could float it agauu' It was the Laffeys »n3 Mr Trythall who objected. The directors wanted the company wound up, and they adopted this course bocause it was the cheaper. He would repeat, therefore, that there was not even an allegation of fraud in respect to the passing of the resolution, and the rest of th« suggestions in the petition were completely mci by the liquidators' affidavit. Mr Mouat : We say it is a fraud to 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 the authorities were clear that shareholders had no say after liquidation, unless it could be shown either that the resolution wao passed by fraud, or that the creditors stepped in. Hers there were no creditors, and, as he had said, there was no fraud uliegod. Ho submitted that the petitioner had entirely mistaken his remedy. Mr Mouat had had ample opportunity to find out all the facts, every facility having beep oilered 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-up is commenoed a compulsory order cannot bo made upon the contributoriea' petition unless either — First, a case of fraud m passing a voluntary resolution is made out — e.g., that it was carried by a vote of a majority implicated in the transactions to bo 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 Company {11 Chancery Division, 701) is cited. Ths 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 p. resolution voluntarily winding up, the act gave the court power to order a compulsory winding-up. but they very strictly limited the esses where the court will order a compuliory winding-up after a voluntarily winding-up is commenced — that is, where the application for s, compulsory winding--.:? is at the instance of a contributory. In the present case I do not think it is shown by tha petition, nor can it be inferred from the petition, that there was anything in the nature of fraud in the resolution for a voluntarily winding-up. This resolution was passed at th« instance of the directors. There was oppoeition to the resolution, but it vru not th« opposition of independent shareholders. It was the opposition of the vendors and other p«fions who got paid-up shares; and th«y wished the operations of the company to be oairied 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 her« the resolution for voluntary winding-up was really carried in the interests of the independent shareholders. The begt thing that could have been done wa« thai 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 thosa statements That, however, if it be the case, seems to me to be more a subject of action ai law than an investigation into the winding-up. That the remedy is by action at law in a cub 6 of the kind is pointed out by Vice-ohancel-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.sayi: — "It is not the functior of a. winding-up order to give remedies for wrongs connected with the dealing in shares, to give reliei 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 tho nature of fraudulent misrepresentation for which the issuers of the prospectus are liable

If there was fraudulent misrepresentation the petitioners have their remedy. In refusing an •order for compulsory winding-up "it is not as if the court had no jurisdiction to intervene. On the contrary, section 198 of our Companies Act, •which corresponds to section 38 of the English Companies Act, gives the court the 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, then 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.