CASE AGAINST DAIRY COMPANY

Dominion, Volume 14, Issue 280, 20 August 1921, Page 8

CASE AGAINST DAIRY COMPANY

CLAIM FOR DIVIDENDS NON-SUPPLYING SHAREHOLDERS’ POSITION From Our Own Correspondent. Palmerston North, August 19. A case of more than usual interest to shareholders and suppliers in dairy companies occupied tho Supreme Court at Palmerston all day, when Leonard Hesketh Greenaway, farmer, of Waikanae, and Isaac M'Naughton Greenaway, farmer, of Warwick, Queensland, proceeded against the directors of the Glen Oroua Dairy Factory, Ltd., the directors being cited individually.

The matter which caused the contention between the two parties arose out of an agreement which had been made between the company and its suppliers to the effect that the whole of the takings of the factory, less actual working expenses, should be credited to the suppliers in consideration of their guaranteeing a bank overdraft of Jl5OOO for a period of ten years to enable the company to erect cheese factories on its properties at Glen Oroua and Kaimatarau. Plaintiffs claimed that this agreement excluded them as non-supplying shareholders from participating in the dividend they claimed they were entitled to, and that the agreement was in contravention to the terms of the articles of association of tho company. Plaintiffs claimed that they were entitled to dividends on their respective shares at the rate of 6 per cent, per annum from the dates since which dividends had been paid. The defendants denied that they had been guilty of a breach of the articles of association in coming to such an arrangement) with tho suppliers, and further stated that up to and prior to July 31, 1915, the company had been manufacturing butter exclusively; that during the following season the suppliers had become dissatisfied with the returns from butter, and had requested the company to install two cheese factories—one at Glen Oroua and the other at Kaimatarau. During the negotiations the suppliers had intimated that unless their requests were complied with they would withdraw their supplies, which would have rendered tho company unable to carry on. At a-general meeting of shareholders on April 15, 1915, a resolution had been passed fixing prices to suppliers] - and this had been the basis of the company’s trading ever since. The object of this agreement had, been io retain the supply of milk required to carry on tho business of the company, and to raise the money necessary to erect the two factories. None of the payments mentioned had been made out of the profits of the company, but had been payments made as purchase money and the interest due to suppliers under tho terms and conditions agreed upo. The company had declared no dividend since 1915, nor had it ever been, nor was it now, in a position to do so. Evidence having been heard, Mr. Loughnnii, for defendants, claimed that tho agreement entered into with the suppliers was security against their joint and several guarantee with the bank for ten years. The company had used up its share capital, and it was necessary to find more money in order to proceed with the installation of the cheesemaking plants. He contended, that in entering into the agreement the directors had acted in an equitable manner towards the non-supplying shareholders when they offered to purchase the shares of tho latter at considerably more than they were worth.

Air. Ongley submitted for plaintiffs that as the directors, had already paid profits to suppliers, the shareholders were first entitled to the 6 per cent, dividend allowed for under the articles of association. He contended that the directors had no power to contract with the company, and claimed that the supplying shareholders were obtaining excess profite at the expense of the nonsupplying minority. After further argument, His Honour Mr. Justice Hosking' reserved his decision.