SOUTHLAND WOOLLEN MILLS.

Otago Witness, Issue 3899, 4 December 1928, Page 26

SOUTHLAND WOOLLEN MILLS.

PETITION FOR WINDING UP. HEARING BEFORE SUPREME COURT. The Supreme Court was engaged on Tuesday in hearing a petition from a number of shareholders in the Southland Woollen Mills, Ltd. (Gore) to wind up the company. Mr Justice MacGregor was on the Bench; Mr H. E. Barrowclough appeared for the petitioners, and Mr F. B. Adams (with him Mr E. C. Smith, of Gore) to oppose the petition on behalf of the company. This was a petition by Charles Augustus Brown, of Ida Valley, farmer, Andrew Scoular, of Matakanui, runholder, Frank Mortimer Pyle, of St. Bathans, sheep farmer, and Robert Mee, of Becks, hotel proprietor. The petition prayed for the winding up of the above-named company by the court, and the petitioners claimed to have the support of the holders of considerably more than half the shares in the company. The petition was opposed by the directors acting on behalf of the company. The petition alleged that the company had not commenced business within a year of its incorporation, and that there was no reasonable prospect that the company, if allowed to go on would succeed. It was also alleged that it was just and equitab'e within the meaning of the Companies Act that the company should be wound up on the grounds that: (a) The majority of the shareholders were convinced that it was not a sound commercial investment, and were in favour of it being wound up; (*\) that the directors had abused their privileges in entering hurriedly into a contract for the purchase of machinery, after having been advised that the majority of shareholders -were against the proposal, and asked them not to enter into any commitments till the petition had been disposed of; (c) that the amount of capital subscribed was insufficient for the purposes of the” company; and (d) that the mill now proposed to be erected was a widely different proposition from that originally contemplated arid that the shareholders had not been consulted regarding this essential change of policy. -

The defence was that the delay in incorporating the company was necessitated by the unfavourable circumstances of the northerns mill industry and a general traversing of the remainder of the allegations in the petition. ' _ After explaining the nature of the pettion, Mx* Barrowclough stated . that the company, was incorporated with an authorised capital of £200,000. It

was proposed to allot in the first place 100,000 shares, but the minutes -of the first meeting of the provisional directors, held on September 25, 1924, showed that it was resolved to make no forward move until a minimum of £85,000 had been reached. At a meeting of directors on January 29, 1926, when the difficulty in getting capital had become very acute, only three directors were present. Notice was given to rescind the resolution providing that no forward move be made until £85,000 had been subscribed. That resolution was rescinded. In the directors’ annual report there was no word about that decision, and so far as the petitioners were aware no intimation of it was made to the shareholders. On the file there was an affidavit that the decision was not communicated to the shareholders at any time. Mr Wallis said it had been communicated to them, but there was nothing in the company’s report, the minutes, or the, newspaper reports to beai - out that statement. Counsel went on to quote from the minutes of the company to show the steps taken by Mr Wallis to get the company going, and quoted contradictory resolutions that had been adopted. Mr Halliday had protested against a proposed referendum of the shareholders regarding the company being gone on with not being held. Mr Barrowclough said that according to the last balance sheet just over £5OOO had been paid out in preliminary expenses. The bulk of the money was probably for brokerage. Counsel said that subsequently a circular had been issued by his firm to shareholders, and the question was asked on it, Are you in favour of the company being wound up? Eventually the petitioners received answers to the circular in favour of winding up the company from the holders of more than half the shares in the company. The directors were notified on August 22 that a petition for winding-up would be prepared,’ and they were asked to refrain from taking any further action in the direction of erecting the mills, and not to make any further commitments until the petition had been disposed of. Until then nothing had been done in the way of establishing the mills except that preliminary inquiries had been made in regard to the cost of machinery and that a leasehold site had been secured at a rental of £55 per annum. Notwithstanding the intimation regarding the petition, the directors almost immediately afterwards let a contract for the whole of the machinery for the mills. His Honor: If the facts stated by you are approximately correct there is no doubt that it did not commence business within a year.

Mr Barrowclough went on to say that the directors had altered their ideas, and were now going to erect a worsted mill, not a woollen mill. The worsted mill was now to have a capital of £70,000 or less. His Honor said it appeared clear that the company had hurried up after it had recived the letter from Mr Barrowclough’s firm stating that the petition was to be presented. Mr Barrowclough, dealing with the question of the law on the point of “ deadlock,” said that this had arisen in the company because the majority of the shareholders were against the company going on. The deadlock was not amongst the directors, but amongst the shareholders. His Honor: A majority in all but numbers, as was stated in Ireland on one occasion. Mr Barrowclough said that there were two opposing factors—the interests of Gore and the interests of other parts of New ZealandMr Adams submitted that the court could not, in view of the emphatic decision of the shareholders at that meeting, base its decision now upon matters which had arisen prior to that date, and which had arisen prior to March, 1927, and which could have been discussed in the domestic forum of the company itself. The company had been floated on a prospectus which showed that 5 per cent, commission was to be paid on the capital raised of £70,000, so that something like £3500 had to go in brokerage. Every shareholder knew the position. His friend had referred to the fact that his clients could not vote be-, cause they were in arrears with thencalls and have the right to vote, and if, on the other hand, their calls were in arrears then they had no right to vote. Counsel went on to refer to the question of “ deadlock,” -and his Honor, remarked that if a body of shareholders were almost equally divided on a point, how could the company hope to succeed? Mr Adams said that they could replace the directors. His Honor: And then pass a resolution to wind up? Mr Adams: Or carry the business on in another way. His Honor: They say not —they want their money back. Mr Adams repeated that the directors were prepared to bow to the view of the shareholders expressed -in a general meeting, but they objected to a decision being taken in this irregular manner. Clauses 1,2, 3,4, and 5 in the petition were routine. matters. Clause 5 gave the amount of capital subscribed at £70.840. which was the correct amount of the subscribed capital. The amount called up ■was correctly given as £42,504, which represented 12s per share, not 10s per share as had been suggested in the morning. It was impossible to go ahead with tlie mills until the company had a substantial proportion of the capital in hand. At the annual meeting in March, 1927, the directors had only a small proportion of the capital. The shareholders voted with that knowledge, and whatever the directors wished to do they could not go on with the erection of the mills for some considerable time. Mi' Wallis had stated that he did not know of any circumstances which would lead to the non-success of his company. Counsel submitted that in view of the delay, it would be hopeless to expect many people to put money into it at this stage, but the fact remained that the company had £lOOO of subscritions in hand, awaiting the result of this petition. The total number of shares to which exception could be taken on the point of unfinancial status of their holders was 1610, which was only a fraction of the total amount. Counsel dealt further with the allegations regarding the unfavourable prospects of the company and with various other allegations in the petition for winding up.

It was never intended to issue £200,000, and there was subsequently a cancellation of unneeded unissued capital. The amount of £13,061 uncalled share capital in March, was brought about by the fact that 2s pei' share had been called just prior ’ ssue balance sheet. Mr Wallis had said that no serious effort had been made in some instances to collect the calls. His Honor: Why not? . Adams said up to that time there had been only’ a few calls made, and there was no desire to press shareholders unduly.

His Honor said it seemed extraordinary that such a large sum was left in arrears, they wanted to get the mill erected, and it seemed the company would want all its money. Dealing with the delay in starting the company’s operations, Mi- Adams said that had the directors driven ahead they would undoubtedly have driven the company disaster. There were no dark corners, and the shareholders knew what had been done. Mr Halliday had not paid his calls and had been struck off the directorship. Mr Adams submitted that, whether iIL advisedly or not, the directors had acted within their rights in making the contract for the machinery. The petitioners, had they really intended to proceed, ought to have acted promptly and should have been able to get their petition filed before August 22, and long before the contract was let for the machinery. The contract had been let on September 18, 27 days after the filing of the petition. The petitioners had no right to complain if they did not do what they’ should have done long before. Counsel maintained that the directors were quite justified in entering into the contract for the machinery. The position at present was that the building had not been commenced, but tenders for its erection were in hand, and a contract for the construction for the machinery had been let. The company had a suitable manager in view, and could engage him when a suitable time arrived. The administration of the company had been carried out at a low cost. The directors had never received one penny for their work. The building should be completed and the machinery at work within nine months. Mr Adams said that as he understood the position, the court would not set itself up as an arbiter of commercial soundness or unsoundness. That was a matter for the directors, and in this case the evidence of the directors was overwhelming as to the prospects of this concern. Counsel agreed to this suggestion, and ing the following day’.. Mi' Adams, continuing his address, said that before leaving the court on the previous night he had settled the question with Mr Barrowclough of the number of shareholders in favour' of winding up as against those .opposed to it. Taking the figure x of 41,600 in favour, that, of course, included the vote obtained since the filing of the petition. Counsel went on to detail the cases where he submitted deductions should be made from the total, and referred to the ordering of the machinery and the fact that tenders were in hand for the building. His Honor: What is the cost of the site?

Mr Barrowclough said it was a leasehold on a rental of £5 a year. Mr Adams submitted that in a case of this kind the court would not determine the matter on a bare margin of votes. The ..essence of the matter was the company’s intention, and equally with the evidence of intention the court should consider the question of the possibility of carrying on the business, which was to some extent one and the same thing. Mr Barrowclough referred to the votes which he considered should be recorded on the side of the petitioners, and went on to deal with the holders of 5390 shares who had withdrawn their support of the petition. He said he had spoken to one shareholder who had been waited on by a director, and who said that he was not told quite a number of things which had been told to the court. It was the absolute intention of the directors to have some sort of a woollen mill in Gore whether the shareholders wanted it or not. Even abandoning the 700 votes signed by agents, the petitioners «*had 40,900 votes in their favour, which represented a substantial majority. There was a vast body of shareholders who had not replied at all. His Honor said he would take time to consider' his decision.