COMPANIES ACT

Dominion, Volume 28, Issue 104, 26 January 1935, Page 9

COMPANIES ACT

Loopholes Still Exist For Dishonesty

EXPLOITING OF PUBLIC

An address dealing comprehensively with the company legislation now operating in New Zealand was given by Mr. J. S. Barton to the executive of the Associated Chambers of Commerce in Wellington yesterday. Mr. Barton was chairman of the recent Companies Promotion Commission.

“I have little patience with the suggestion that the Act should be given a trial, and that proposed amendments should be deferred until its effect is fully known,” said Mr. Barton. He commented upon the many loopholes still existing in the 1933 Act for questionable practices, stating that the experience of tile last <_'.v years showea that the gains and profits of questionable company promotion were apt to be high—so high as to form a continuous incentive to unscrupulous men to exploit the public to the limits pertnitte-1 by law. He pointed out that a company might be incorporated and run by dummy subscribers and directors; that the subscribers to a company’s memorandum of association need not be persons within the jurisdiction; that there was no penalty applicable to non-disclosure iu a prospectus of matters that should be disclosed according to the provisions of the Act, the only remedies that might he created being civil remedies; that the information in the prospectus could be grossly misleading without necessarily affording any remedy whatever to an aggrieved investor; that the directors of a company might be In fact, and probably were, venders of land upon which the future of the company depended,’ and which had changed hands five or six times within as many weeks for the express purpose of being unloaded on to the public by means of the prospectus, but this fact might easily be hidden by the device of a subsidiary company with dummy names; that the directors of a company might be also proprietors of a subsidiary brokerage company, ami were not obliged to disclose the brokerage in the prospectus or in the accounts of the parent company ; and that there was no check at all to any of the questionable devices usually associated with the use of subsidiary companies which, although it might be a legitimate and useful device, was the means without which few of the big series of company frauds would have been possible.

The point was also emphasised by Mr. Barton that the debenture-holders in such companies were helpless as long as the operators could avoid doing something which had been stipulated as a ground for winding-up. The right of going to the court for an inquiry was limited to shareholders, and there was nothing in the 1933 Act to stop the directors from shifting their office with all the securities and records to some place outside the jurisdiction of the New Zealand courts.