COMPANY LAW

Timaru Herald, Volume CXXXVII, Issue 19623, 18 October 1933, Page 3

COMPANY LAW

GENERAL OVERHAUL OUTLINE OF THE NEW LEGISLATION By Telegraph—Press Association WELLINGTON, October 17. In the House of Representatives this evening the Companies Bill was introduced by Governor-General’s Message, and read a first time. Mr M. J. Savage (Lab. Auckland West) asked whether the Bill would be referred to a Parliamentary Committee so that companies and others would have an opportunity to present their case. The Rt. Hon. J. G. Coates said that the Bill consisted of 264 pages and between 400 and 500 hundred clauses. He was not in favour of referring it to a Parliamentary Committee. A committee of the whole House would no doubt go very closely into each clause. The Bill was a result of some three years’ study by a committee set up by Sir Thomas Sidey and consisting of lawyers, accountants, auditors, company secretaries and company lawyers. If it were referred to a committee of the House it might be another two or three years before it was possible to pass it into law. Continuing, Mr Coates said that the Bill was as nearly as possible an adaptation of New Zealand's company law to that of the United Kingdom. The opinions of the Department of State had been sought and expressed on the subject. The Bill also dealt with some matters that had not been considered by the Committee. These included restrictions on what was commonly known as share hawking. The Bill had been based on the Imperial Companies’ Act, and some notice had also been taken of the Queensland Act and other contemplated amendments in Australia. Committee’s Report. Mr Coates read to the House a brief report submitted by the committee which had framed the legislation. The report stated that the committee had endeavoured to follow the Imperial Act as closely as circumstances would permit. The committee had also considered many suggested departures from the principles of company law which, although they seemed advantageous, might have been dangerous as alterations and, if adopted, might have been followed by unexpected effects and undesirable consequences. One important departure had been made from the existing law and practice both in New Zealand and England regarding the provisions for the registration of debentures. “In England," the report stated, “the practice is to file notice of particulars of the debentures. In New Zealand a copy of the instrument creating the charge is registered, and as doubts have been raised as to whether this registration was or was not notice of the contents of the instrument, it was decided to make a definite recommendation that the registration of a copy of the instrument should be notice of the contents of a document to all persons having dealings with the property charged. The committee realised the difficulty of the subject and that some unforeseen difficulties and consequences may arise.” The committee said it had not considered any recommendations as to the winding up rules which it considered was a most important part of the law of companies. The absence of such rules was a serious defect, and the committee trusted that winding up rules would be issued at the earliest possible date. It was emphasised by the committee that the Bill did not alter the general principles pertaining to private companies, but some additional provisions had been included imposing on them the necessity of disclosing more information and material to shareholders and creditors. The prohibition of house to house canvassing for the sale of shares was considered to be a desirable amendment. The committee believed that the Bill as now drafted would give greater protection to shareholders and creditors, and further protect the public in the matter of new flotations. In unanimously recommending that the Bill be passed this session, the committee, although holding differences of opinion, expressed the opinion that the measure in its present form was a very great advance in company law in New Zealand. Mr Coates expressed his appreciation of the work done by the committee. Mr W. E. Barnard (Lab. Napier), suggested that the Minister should refer the Bill to the Statutes Revision Committee which would not take two years to deal with it. He believed that the committee would merely fasten on to those aspects which involved change. He imagined that the work could be completed in, say, a week. Mr H, G. R. Mason (Lab, Auckland Central) expressed disappointment that the Bill contained no clauses to “clear up the mess about the winding up of companies.” He said the law on this subject was the most antiquated and the most hopeless part of New Zealand company law. Prospectuses. The issue of prospectuses, the provisions relating to auditing and the prohibition of house to house canvassing of shares are the three main factors in the Bill. Restrictions are placed on the 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 the shares or debentures of such company unless a form is issued with the prospectus complying with the above provision. A fine up to £SOO is provided for a breach of this Clause-

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. 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 the

Stock Exchange; (b) where the 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 or sale of shares. Breach of the provisions of this clause renders a person liable in the first case to a fine of £2OO or six months’ imprisonment or both these penalties. Insurance Business. 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 a paid up capital intact of £50,000. It may commence business, however, if it has a paid up capital intact of not less than £50,000 and an additional capital called up. 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 the paid up capital. It may also carry on the business of insuring the property of its own members only if it has an issued capital of not less than £50,000, of which not less than £2500 is paid up capital intact. In each case certain conditions are specified. 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 a limited liability is omitted in the Bill. A memorandum to the Bill states: “The undesirable effect of the existing provision is show’n hi 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, w’as originally incorporated W’ith a limited liability in New South Wales and could be so incorporated in New Zealand only by means of a private Act.” Private Companies. There are several important new provisions wtih 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 their 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. Winding Up. Under the present law the official assignee appointed under the Bankruptcy Act is by virtue of his office official liquidator in the winding up of all companies within his district. Under the terms of the Bill the official assignee is by virtue of his office 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 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. 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 voluntarily winding up of a company that is not declared to be solvent. In a winding 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 the worker are not protected by insurance. On application by a liquidator or any creditor or contributory, the court is empowered to make an order imposing personal liability without limitation on a director guilty of fraudulent trading. A company in course of being wound up will be obliged to disclose that fact on its invoices, correspondence and other documents.

A special provision is made to prevent the registration of companies with names containing such words as chamber of commerce, building society, royal imperial or national, municipal or chartered or 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.

Application Forms. 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 Act. Under the present law the minimum subscription without which a company cannot proceed to the 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 the prospectus. The. present Act does not fix a limit on the rate of commission that may lawfully be paid to a subscriber for shares. The Bill proposes a maximum rate of 10 per cent.

Companies having a share capital are required to make an annual return, including a certified copy of the balance sheet, to the Registrar of Companies. Auditing of Accounts. 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 auditor of a company unless he is either a member of the New Zealand Society of Accountants, the 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 auditor of a company before the commencement of the Act from acting as auditor or from being re-appointed 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. Provision is made to facilitate the construction and amalgamation of companies. Power is also given to a company to acquire the shares of shareholders dissenting from a scheme or contract involving the transfer of shares which is approved by a ninetenths majority of the shareholders.