PROTECTION OF PUBLIC

Taranaki Daily News, 18 October 1933, Page 7

PROTECTION OF PUBLIC

THE LAW OF COMPANIES

CHANGES IN LEGISLATION

EXPLANATION OF MEASURE

RULES FOR FLOTATIONS

By Telegraph—Press Association. Wellington, Last Night

The issue of prospectuses, provisions relating to auditing and the prohibition of house-to-house canvassing of shares are the three main factors of the Companies Bill, which was read a first time in the House of Representatives to-night Restrictions are placed on sales of shares and debentures, it being made unlawful for any person to issue in New Zealand any prospectus offering for subscription shares in or debentures of a company incorporated outside New Zealand, whether the company will or will not establish a place of business in New Zealand, unless before the issue of the prospectus in New Zealand a copy of it, certified by the chairman and two other directors, has been delivered for registration to the registrar.

Similarly, with certain exceptions, it is made unlawful for any person to issue in New Zealand a form of application for shares or debentures of such a company unless the form is issued with a prospectus complying with the above provision. A fine of up to £5OO is provided for a breach of this clause.

The particulars to be disclosed in prospectuses issued in New Zealand by overseas companies are defined by another clause. The Bill prohibits any person going from house to house offering shares for subscription or purchase to the public. The word “house” does not include an office used for business purposes. It shall not be lawful to make an offer in writing to any member of the public of any shares for purchase, unless the offer is accompanied by a statement in writing containing exact particulars regarding the status of the person making the offer and the financial position and constitution of the company concerned. EXCEPTIONS MADE. This prohibition does not apply (a) where shares to which the offer relates are shares which are quoted or in respect of which permission to deal has been granted by any stock exchange registered under the Sharebrokers’ Act, and the offer states and specifies a stock exchange; (b) where shares to which the offer relates are shares which a company has allotted with a view to their being offered for sale to the public, or (c) where the offer was made only to persons with whom the person making the offer has been in the habit of doing business in the purchase onsale of shares. Breach of the provisions 'in this clause renders the person liable in the first case to a fine of £2OO or six months’ imprisonment, or to both these penalties. A special section of the Bill deals with companies carrying on insurance business other than life or accident insurance. No limited company shall carry on in New Zealand such insurance business unless it has paid up capital intact of £50,000. It may commence business, however, if it has paid up capital intact of not less than £25,000 and additional capital called and payable within six months of the date of registration of the company of an amount not less than the difference between £50,000 and the amount of paid-up capital. It may also carry on the business of insuring the property of its own members only if it has issued capital of not less than £50,000, of which not less than £25,000 is paid up capital intact. In each case certain conditions are specified. INSURANCE COMPANIES. The section of the existing Act which declares that with certain exceptions no company carrying on the business of insurance, whether or not in common with any other business, is to be registered with limited liability is omitted in the Bill. The memorandum to the Bill states: “The undesirable effect of the existing provision is shown in the history of the Dominion Life Assurance Office of New Zealand, Ltd., which though consisting exclusively of shareholders domiciled in New Zealand and carrying on business exclusively in New Zealand was originally incorporated with limited liability in New South Wales, and could be so incorporated in New Zealand only by means of a private Act.” There are several important new provisions, with respect to private companies. It is now made obligatory for new companies to register their articles of association, and existing private companies will be required to register articles.. Private companies are required to furnish an annual return to the registrar. Provision is made whereby in the event of an increase in capital of a private company the increase must be fully subscribed for in a document executed in the same manner as the memorandum of association.

Under the present law the official assignee appointed under the Bankruptcy Act is by virtue of his office an official liquidator in the winding-up of all companies in his district. Under the terms of the Bill the official assignee is by virtue of his office a provisional liquidator, but the Court has power to appoint the official assignee or any other person as liquidator. The Court has also power to appoint a special manager to assist the official assignee in the administration of any estate or business requiring special knowledge or other qualification. A company being wound up by the Court is required to submit a verified statement of its affairs to the official assignee. INSPECTION committee: . Provision is made for the constitution and proceedings of a committee of inspection, replacing the supervisors which may be appointed under the existing Act. The Court is empowered to restrain a fraudulent director, promoter or officer from taking part in the management of companies for a specified period not exceeding five years. Provision is made to increase the powers of creditors in the voluntary winding-up of a company that is not declared to be solvent. In a wind-ing-up priority of payment is given to compensation under the Workers’ Compensation Act. It is limited in its application to cases where the rights of a worker are not protected by insurance. On an application by the liquidator or any creditor or contributory the Court is empowered to make an order imposing personal liability without limitation on directors guilty of fraudulent trading. A company in ccrirse of being wound up will be obliged to disclose that fact on its invoices, correspondence and other documents. Special provision is made to prevent the registration of companies with names containing such words as chamber, of commerce, building society, royal, imperial, national, municipal, chartered, bank, co-operative, trust, trustee or stock exchange which are likely to deceive the public as to the true nature and functions of the companies. Subject to certain limited exceptions the issue of forms of application for shares or debentures in a company is prohibited unless they are accompanied by a prospectus complying with the requirements of the Under the present law the minimum

subscription without which a company cannot proceed to allotment of shares may be arbitrarily fixed in the memorandum of association without reference to the requirements of the proposed, company. The Bill provides that the minimum subscription shall be fixed by reference to the requirements of the company in respect to preliminary expenses and Working capital. A company not issuing a prospectus is required to lodge with the registrar before proceeding to allotment a statement in place of a prospectus. J . The present Act does not fix a limit on the rate of commission that may lawfully be paid to a subscriber for shares. 1U Bill proposes a maximum rate of 10 per cent.* Companies not having a share capital are required to make an annual return, including a certified copy of its balance-sheet, to the registrar of companies. A series of new provisions is made concerning the keeping and auditing of companies’ accounts and the preparation of balance-sheets. An important new provision declares that except with the approval of the Minister of Finance no person shall be qualified for appointment as an auditor of a company unless he is either a member of the New Zealand Society of Accountants, Incorporated Institute of Accountants of New Zealand, or the New Zealand Accountants and Auditors’ Association, Incorporated, or a member, fellow or associate of an association of accountants constituted elsewhere in the British Empire. This provision does not disqualify any person appointed as an auditor of a company before the commencement of the Act from acting as auditor or from being reappointed to that position. Another clause of the Bill requires a statement regarding the remuneration of the directors to be furnished to the shareholders. Directors are required to disclose any interest they may have in any contracts with the company. vision is made to facilitate the reconstruction and amalgamation of companies, Power is also given to a com- . pany to acquire the shares of shareholders dissenting from a scheme or contract involving the transfer of shares which is approved by a nine-tenths q majority of the shareholders.