DISTRICT COURT, HOKITIKA.

Grey River Argus, Volume XIII, Issue 1610, 2 October 1873, Page 2

DISTRICT COURT, HOKITIKA.

Monday, September 29. (Before his Honor Judge Harvey.) RE THE BELL HILL WATER-RACE COMPANY. la this case an application had been made by the official liquidator, Mr Archibald Scott, for an order that the contributories (the shareholders) should pay L 2 i9a per share, to enable the liquidator to pay the creditors 20s in the pound. His Honor delivered the followiag judgment: — This company was formed with a capital of L6OOO, in shares. "of Lsoeach. The shares, with the exception of forty, were all allotted, arid the full amount was paid up prior to the time hereinafter referred to. The forty unallotted shares were held in trust for the company. The company having got into debt, and having certain liabilities in contracts for finishing the work, which there appeared to. be no means of satisfying, called a special extraordinary meeting of the shareholders, to authorise the borrowing of money from ■. the Government to enable them to liquid ate their liabilities. The meeting was held, and was adjourned from time to time, and at length a resolution was passed to the .effect that the forty shares which were unallotted and held in trust for the compaDy, should be issued to the shareholders (pro.rata). in proportion to their several interests in the company, at a less rate than the nominal rate of the shares, viz., at the rate of Lls per jshare, thus treating the shares as if L 35 per share had been fully paid up. It may be a question whether this resolution could be properly cofnVto at this meeting, but lookiug to the fact that the object of the meeting was to raise the means to liquidate the then liabilities of the; company, I am not inclined to s,ay that the resolution was unlawful because it pro? vided the means in a measure not exactly set forth in the notice, particularly as all the shareholders in the company. agreed in the resolution. The shareholders who took up the shares have paid up the amount they agreed to pay, viz., Lls per share, and the company being now in liquidation, ' it is sought by the creditors, and by the official liquidator, to place them on the list '-of contributories in respect to the paid up portion of these shares. It is to be observed that the creditors of the company, have had the benefit of the amount paid by the shareholders for these shares, Lls each, and further that the fcowafißji of the arrangement has not been in anW/ way impeached. The creditors rely on Brunn's case, in 2, De Gex Fisher and Jones, 295, in support of their proposition. I have been unable to get this report in. Hokitika, and must take the dictum of the text from Lindly on Partnership, 2nd cd., p. 618, as authority oh the subject. It i& thus laid down on the authority of the above case— "That the issue of paid-up shares, otherwise than for fall value received, is prima facie a breach of trust on the part of the directors and the company, and its creditors are entitled to hav,e its shares treated as not paid up." Lindly also says (but without reference to any authority) that it is questionable whether a company, registered with limited liability, dan lawful!^ issue paid-up shares at a discount, and exonerate the holder from liability to pay up the unpaid nominal value, in the event of the company being wound up ; but 1 have not been able to find any decision to the effect that a company cannot lawfully do so. In Brunn's case, the issue of the shares otherwise than for full

value received being merely prima facie evidence of breach of trust on the part of the directors, that breach of trust may be rebutted, and I have no hesitation in saying that there was nr> breach of trust in this case, all the ' shareholders being equally cognisant of the transaction, and the creditors having had full notice that the company proposed to settle all claims by borrowing money for that purpose. I £ndJi laid down in Ltndly, also, that paid trj^Ktres may be given in payment of serais rendered, or property sold to the company. This under the authority of ex parte Currie and others, 32 Law Journal Reports, New Series Chanpery, 57, and, on perusal of that case,' I think the principle which should guide me in niy decision, may be discovered. This was a question aa to whether one Butcher should be made a contributory in respect to some paid up shares, and Lord Justice Turner says, " These shares have been allotted to Butcher as part of the agreement with him as paid up shares. That agreement with Butcher was either valid or invalid, "if the agreement was valid, then neither Butcher himself nor any alienee from him can be called on to contribute in respect of these shares But if, on the other hand, the agreement is invalid, the transaction mustbe disregarded altogether. For it would not be possible for a Court of Law or Equity to alter the terms of the agreement itself, and to treat as shares not paid up, shares which had been issued exactly as paid up. Fraud, if established, would warrant the Court in treating the transaction as void, and setting it altogether aside." Fraud or no fraud appears, to me, to be the key to this case, and, in the absence of fraud, I have no hesitation in saying that these shareholders ought not' to be made to contribute in respect of the afore-mentioned shares. The application was therefore dismissed.