REPAYMENT TO COMPANY

Southland Times, Issue 23307, 17 September 1937, Page 5

REPAYMENT TO COMPANY

DIRECTOR OF DRAPERY FIRM ORDER BY SUPREME COURT The reserved judgment of his Honour Mr Justice Kennedy in the action in which George Maddams, of Rangiora, draper, sought an order declaring invalid certain resolutions passed, and shares transferred in the drapery company of Millers (Invercargill) Ltd., was read in the Supreme Court yesterday. His Honour made an order that defendant, James Thomas Sharp, repay to the company the sum of £560 and that Alice Sharp repay £2O, the former defendant to pay the plaintiff costs according to scale as on a claim for £6OO. At the hearing on May 25 and 26, plaintiff was represented by Mr H. J. Macalister and Mr L. J. Hensley, of Christchurch, appeared for defendants, Millers (Invercargill) Ltd., an incorporated company, with James Thomas Sharp, Invercargill, manager; Alice Sharp, Invercargill; Walter Gurwood Winnicott, Christchurch, draper; Thomas Loftus Jones, Christchurch, engineer; Charles Laidlaw Purdie, Christchurch, retired; William Alfred Thomas, Christchurch, tailor; William Josiah Love, Christchurch, retired. “Plaintiff, as a shareholder in Millers (Invercargill) Ltd., claimed a declaration that a resolution of directors of that company purporting to approve certain transfers of shares, a resolution of the company to increase the number of directors and appointing two, a resolution of the company recommending leave of absence and of the company granting such leave to the manager and voting directors’ remuneration and a subsequent directors’ resolution allocating that remuneration were each and all of them invalid,” his Honour. “Plaintiff also claimed an order setting aside the registration of the transfers and restraining the defendants, the directors of the company, from proceeding upon the resolutions and an order for refund of directors’ fees paid. The company, which carried on the business of drapers at Invercargill and Gore, was incorporated in 1933 with a capital of £lOOO, the shareholders being James Thomas Sharp, 350 shares, plaintiff George Maddams, 300 shares, and Sydney Albert Hanchard, 350 shares. The company was very successful. Sydney Albert Hanchard decided to retire. He offered half his shares to plaintiff, who suggested that he should make up his difference with James Thomas Sharp. He went down to James Thomas Sharp and in the end arranged to sell him his shares. Finally, transfers of his shares were executed as follows: —to Mrs Sharp 50 shales, to James Thomas Sharp 267 shares, the transfers being dated October 2, 1934 and to George Maddams 33 shares, the transfers being dated December 2, 1934. Mrs Sharp was appointed a director and on Mr Hanchard’s retirement James Thomas Sharp became in complete control of the business of the company. DIRECTORS’ FEES “Plaintiff claimed that there was a breach of understanding in James Thomas Sharp taking a transfer of these shares,” stated his Honour. “The disagreements relate to these shares, to a projected trip of the manager to England and to directors’ fees. Some time after the end of the first year, it was resolved by minute that directors’ fees should be £750 allocated as follows:— James Thomas Sharp, £675; plaintiff, £75. This was signed by Mr Hanchard and also by the plaintiff, although he says he signed because he could not do otherwise.

“The Court will not pursue an investigation into the regularity or otherwise of certain of the resolutions, but will treat them as matters, whether rightly or wrongly done, of which the company may complain and not as being matters in which the Court will interfere at the instance of individual shareholders. I think the question of the expenses of the trip to England in the interests of the company is a matter of internal management. I am unable to conclude that it has been shown that payment for that purpose in' the circumstances was of a fraudulent character. The submission was made, however, that this and the payment to directors were of a fraudulent nature and an improper distribution of the company’s funds to the majority in deprivation of the rights of the minority to share in those funds. If this submission is well founded the objection that the matter is one of internal management will not prevail, for the Court will interfere to prevent a majority using voting power to make a present to themselves of the company’s funds. The Court will interfere if what is proposed is ultra vires of the company, for no majority of shareholders can sanction that which is ultra vires. No such question arises in this matter, however, for Table A which has statutory force contemplates the payment of remuneration to directors.

“Defendant James Thomas Sharp, it is said, used his superior voting power to vote an inordinate amount of directors’ fees and by his own and his wife’s votes or by his own and the votes of dummies allocated that fee to himself. I think it follows that in a proper case the Court will interfere, but the question must be whether the proof is satisfactory as there are great difficulties either way.

“The sum voted as directors’ fee and also its allocation follow the direction of defendant James Thomas Sharp either in virtue of his own vote or in virtue of the votes of his nominees to whom he had transferred shares. Those who voted for the remuneration, apart from the votes of James Thomas Sharp's wife, were none other in fact as distinct from form than defendant James Thomas Sharp. Payments of remuneration to directors are not ultra vires of a company. Remuneration is contemplated by the articles and by the constitution of the company all shareholders may vote upon it. No doubt a director as a shareholder may vote upon a question of directors’ remuneration. After expressing the opinion that the payment voted to Sharp as director’s remuneration was out of all proportion to his work done as director his Honour concluded: “In all the circumstances I am forced to the conclusion that the voting and the taking of director’s fees to the amount complained of in substance amounts to an appropriation of the company’s funds and an abuse of his undoubted majority powers and a deprivation of the minority of their rights and that action is, within the meaning of the cases, of a fraudulent character. An alteration of the articles to deprive the shareholders of their rights and to give a differential dividend on the shares held by the defendant James Thomas Sharp would obviously be oppressive. James Thomas Sharp may not accomplish the same object in the guise of a vote of director’s fees to himself. The order that is made will not prevent the company afresh voting remuneration to the directors provided that the majority do not abuse their powers and deprive the minority of their rights.”