PREFERENCE SHAREHOLDERS

Otago Witness, Issue 3861, 13 March 1928, Page 69

PREFERENCE SHAREHOLDERS

RIGHTS IN EVENT OF LIQUIDATION. A SUPREME COURT RULING. AUCKLAND, March 7. The rights of ordinary and of preference shareholders in the event of the winding up of a company was the main point dealt with in a judgment which Mr Justice Reed delivered in the Supreme Court to-day. Mr Richmond, representing the liquidator of Messrs Smeeton’s, Ltd?, had asked for a ruling. The ordinary shareholders were represented bv Mr M’Veagh and the preference shareholders bv Mr Hanna.

Hi’s Honor said that the nominal capital of the company was £40,000, consisting of 15,000 cumulative preference shares >f £1 each, all full paid up; and 25,000 ordinary shares, of which 12,600 had been subscribed and were fully paid up. There were 95 holders of preference shares, and two of ordinary shares. During 1926 and 1927 the company traded at a loss, and in those years no dividends whatever were declared. On July 4, 1927, the company went into voluntary liquidation. The preference shareholders claimed the arrears of preferential dividends for the two years. A motion had been entered by the liquidator for a ruling on the question, and an originating summons had been filed by the preference shareholders. Attention had been directed to the fact that the balance sheet disclosed a reserve fund of £4OOO, and it was claimed that this represented surplus profits and should be available for the payment of the preferential dividend. The reserve fund was built up in the years preceding 1926-27, and really represented the undrawn profits of the ordinary shareholders, which might have been divided amongst themselves, but which it was considered judicious not to divide so long as the company was carrying on business. After dealing at length with the legal aspect of the matter his Honor ruled that the preference shareholders had no claim upon tne assets, save as provided. in Article 30 of th e articles of association—that is to say, a right to the return of their capital in preference to the ordinary shareholders. Costs were allowed as between solicitor and client to the parties represented, such costs to be taxed by the registrar and paid out of the sums of the company. The liquidator was allowed the refund of the costs to which he had been put. The case had been brought as a court action in order that if the preference shareholders decided to take it to the Court of Appeal such course would be fully legal.