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Hawera Star, Volume XLVIII, 13 December 1924, Page 12

DAIRY INDUSTRY AMENDMENT ACT, 1924. The secretary of the National Dairy Association of New Zealand, Ltd., sends to us an explanatory meniorandum as preoared by the association’s solicitor, Mr. R. Kennedy. In conclusion he says he would like to add that' he regrets the Government could not see its way to embody in the Bill all the proposals contained in the original draft of the measure as prepared by Mr. Kennedy, and although the Act as passed does not even go so far as the Bill as introduced went, yet he recognises that a considerable advance has been made, and the way has been prepared fpr still further advances in the future. .The explanation of the Act as supplied by Mr, Kennedy is as follows: (1) The essential feature of co-opera-tive dairy companies. in New Zealand is that suppliers must be shareholders. The articles of association of such companies usually, fix the minimum number of shares which each supplier is to take. This is done by providing that a supplier shall contribute to the capital of the company by taking shares in proportion to this supply, so that, as the supply of the shareholder increases. lie is - bound to increase his shareholding proportionately. The number of cows milked by a supplier was at one time taken as the test of how many shares each supplier should hold, but at the present time the quantity of butter-fat supplied is generally taken as the bSsis.

(2y Suppliers then pay the company in . proportion to the services rendered by the company. If they have a large supply, then they must take a large number of shares. If the supply is sriiall, the shareholder need take only a small number of shares. Co-opera-tive dairy companies have in the past endeavoured , J to secure this result by provisions in their articles empowering their directors to allot further shares to suppliers in proportion to their supply. For example, the article considered in Macdonald v. the Normanby Co-operative Dairy Company, Ltd., 1923; N.Z.L.R., 122, provided as follows: “The directors may at any time, add "from time to time, if and when they think it expedient in the interests' of the. company so to do, require any shareholder, ■'b'y ; notice in ; writing, to take' up additional shares beyond the number held ’by him, so that such shareholder shill hold 1 shares in the company to the number computed on the basis of three \ shares for every 2501 b. of butter-fat supplied by him between the Ist day of July in any year and the 30th day of June following, as shown by the company’s books. At any time after the lapse of thirty days from the date of the abovementioned notice in writing the chairman of directors for the time being may,' on failure or neglect of, such shareholder to do so, sign an applica-tion-for such additional shares in the name and on behalf of any such shareholder, and the .directors may thereupon allot such additional shares to such shareholder as if they had been applied for in the ordinary way, and the application had been signed by the shareholder.”

; (3) Many cb-bperative dairy companies have similar provisions in their articles, and directors have acted upon the Tn. ' Those provisions may have been inserted in the articles by amendment or they may, when once inserted in the articles, have been subsequently altered from time to time as the company needed additional capital. 'Relying on articles similar to the one quoted, directors of co-operative dairy companies have from time to time allotted shares to suppliers in the belief that such an article, although altered from time to time, operated in all cases as a contract between the company and the shareholder, obliging the shareholder, if increasing his supply, to accept the further shares allotted to him.

(4) It.appears that from Macdonald’s ease, however, that many such allotments made in entire good faith by directors in reliahpe ofi the powers expressed to be given to them by the company’s articles, were invalid. What j indeed, the law was will be seen from the following extracts from Mr. Justice Salmond’s exposition in Macdonald’s case —

“A company cannot issue or allot shares to a person who has agreed with the company to accept them. .“Shares have their sole origin in a contract between the company and the person to whom they were originally issued.”

“The company cannot by amending its articles force additional shares upon a dissenting member under the plea that the articles constitute by virtue of that Act a, contract by the member to accept those shares.” “What is required, therefore, in order to create an obligation to take up additional shares is an actual contract to do —as opposed to the merely constructive contract constituted by Section 24$of the Companies Act.”

“I do not doubt that the terms of such an actual contract may be properly and validly inserted as the clause in the company’s articles, instead of expressed in a separate document.”

“In such a case I do not doubt that every person who accepts from the company an allotment of shares does thereby in fact agree- with the company to accept additional shares in pursuance ; of the articles as they then stand.”

- “By so-becoming a member by agreement with the company he does in lact accept by; his own act and contract the obligation. set out in the articles ot acquiring additional shares.” “But, a . contract so entered into is not alterable at the will of the company.”.

(5) Many shares have been allotted by directors relying on the validity of articles similar to those considered in Macdonald’s case. Some of 'such allotments were undoubtedly valid. Some others indeed might have been repudiated at the time, but the supplier either subsequently agreed to the shares or else by his conduct estopped himself from denying that the shares were validly allotted to him. Some allotments, however, made in good faith by directors and, after suppliers had had the benefit of the services of the company, might have been redupiated.

(6) The Dqiry Industry Amendment Act. 1924' deals only with the past allotments of shares. It does not deal with" allotments subsequent to the Act. It applies only to co-operative dairy companies. That Act validates any allotments of additional sharps mad© to shareholders if the shares Were allotted in conformity with the articles of association or any amendment thereof. But the Act does not validate an allotment of shares to any shareholder who within six months "of the allotment gave notice in writing to the company of his objection to receive the shares, and also within that time permanently ceased to be a supplier of milk, cream, or other dairy produce to the company It will be noted that a shareholder is not bound, by force of the Act