COMPANY LAW

Hokitika Guardian, 9 March 1928, Page 1

COMPANY LAW

I.M PORT ANT JU I) G MENT. RIGHTS OF PREFERENCE SHAREHOLDERS. AUCKLAND, March 7. The lights of ordinary and preference shareholders in the event of the winding up of a company was the main 1 h>i l l l dealt with in a judgment which Mr Justice Reed delivered in the Supreme Court. Air Richmond, representing the liquidator of Smocton’s Ltd.. ha<l asked tor a ruling, and the ordinary shareholders were represented by Mr M’Veagh, and preference shareholders by Mr Hanna. His Honour said that the nominal capital of the company was £40,000, consisting of 10.000 cumulative preference shares of £1 each, all fully paid up, and 2d,000 ordinary shares, of which 12,G00 had been subscribed and "ere fully paid up. There were ninety-live holders of preference shares and two of ordinary shares. During 1920 and 1927 tho company had traded at a loss, and in those years no dividends whatever were declared. On July 4tli .1927 .the company went into voluntary liquidation. The preference shareholders claimed tho arrears of preferential dividends for the two years, and a motion had been entered by tho liquidator for a ruling on the question, while an originating summons had been fdcd by the preference shareholders. Attention had been directed to the fact that the balancesheet disclosed a reserve fund of £4OOO, and it was claimed that this represented surplus profit®, and should bo available for the payment of preferential dividends. The reserve fund was built up in the years preceding 1920-27 and really represented the undrawn profits of the ordinary shareholders, which might have: liecn divided amongst themselves, hut which it was considered judicious not to divide, so long as the company was carrying on business. After dealing at length with the legal aspect of the matter his Honour ruled that the preference shareholders had no claim upon the assets, save as provided in Article .'SO of the Articles of Association, that is to say, a right to the return of their capital in preference to the ordinary shareholders. Costs were allowed as between solicitor and client to the parties represented. such costs to be taxed by the Registrar and paid out of the assets of tbe company. The liquidator was allowed the refund of the costs to which lie had been put. The case was brought as a Court action jn order that, if tho preference shareholders decided to take it to the Court of Appeal, such course would he fully legal.