INTEREST PAYMENT

Southland Times, Issue 23346, 2 November 1937, Page 8

INTEREST PAYMENT

APPEAL AGAINST REFUSAL OF APPLICATION (United Press Association) WELLINGTON, November 1. The Court of delivered its reserved judgment on the application brought by the Hume (Cobb River) Electric Power Co. Ltd., under Section 66 of the Companies Act, to authorize the payment of interest by the company on its paid-up share capital. The application was originally refused by Mr Justice Northcroft in the Supreme Court, Christchurch, it being held that the company’s application was premature as the Stature contemplated that the sanction of the court, which was necessary in such a case as this, should be given at the time when the company proposed to make the payment of interest and when the propriety of the proposed payment could be examined in the light of events. The company then brought an appeal against this refusal. The section of the Companies Act which called for interpretation was designed to authorize the payment of interest on paid-up share capital by a company where its shares are issued for the purpose of raising money to defray the expenses of the construction of any works or buildings or of providing plant which cannot be made profitable for a long period. li. its judgment the court stated the section provided an inducement to the public to invest in the shares of the company engaged in such works. This constituted, in effect, a statutory relaxation of the rule ■ that the shareholder cannot receive dividends except out of the profits. Although under the section what he received would be called “interest” in the interests of the creditors of the company this relaxation is subject to safeguards and restrictions. It had also to be determined whether the company must apply only in respect of the shares which had been issued before application was made to the court or whether it might also apply in respect of shares which the company would issue in the future. On this point it was held that the section contemplated that the company might pay interest during the period which extended beyond the date of the court’s sanction. The application, which is the first of its kind under the present statutory provisions, is accordingly successful, the following formal order being made: That the company may pay interest at a rate not exceeding 5 per cent, per annum on so much of the share capital as is for the time being paid-up on 150,000 contributing shares in the company other than a special class of 18,000 specially identified contributing shares for the period ending either (a) with the close of the half-year next after the half-year during which the works or buildings have been actually completed or the works provided or (b) on August 18, 1938. whichever of these dates shall be the earlier. The company was empowered to charge the capital the sum so paid by way of interests as part of the cost of construction of work, or building or the provision of plant.