DRY SHAREHOLDERS.

Shannon News, 22 November 1921, Page 4

DRY SHAREHOLDERS.

CLAIM FOR DIVIDENDS FAILS

A case which excited considerable interest at the August sittings of the Palmerston North Supreme Court was that in which His Honour Mr Justice Hosking was called upon to adjudicate between Leonard Hcsketh Greenaway and Isaac McNaughton Greenaway and the Glen Oroua Co-operative Dairy. Company, Limited, and its directors, the plaintiffs claiming certain sums alleged to bo due to them as dividends from the company, of which both were nonsupplying shareholders. In a very lengthy review of the case, His Honour states, inter alia, that there was nothing in the constitution of the company to render" it .necessary that shareholders should be milk suppliers, although there was an article that every intending supplier should take such shares as tbc directors might appoint, according to the amount of milk supplied to the company. There was nothing binding a shareholder to supply his milk to the company, nor was there any provision for making periodical payments to butter-fat .suppliers, as was customary with dairy companies. An amendment to the original articles (which wore framed in 1899) provided that the directors might, with the sanction of the shareholders, declare an annual dividend pro rata on paidup capital not. exceeding 6 per cent., the balance of profits, after providing for working expenses, sinking fund, etc., to be divided among the suppliers according to the quantity of butter-fat supplied by each. Power was also given the directors to recommend any dividend and to set aside sums out of* profits for a reserve fund. A 6 per cent, dividend was paid to shareholders, whether suppliers or not, from 1910-19i3 inclusive, but since the latter year no dividends had been paid to ‘ ‘ dry'' (non-supplying) shareholders.' With reference to an agreement which the defendant company relied upon in justification for its appropriating the money to other uses, the plaintiffs alleged that this was ultra vires, and claimed that they were entitled to dividends on their respective shares at 6

per cent, per annum from 1916 to the present time. This agreement, which was entered into as between the suppliers and tbc company and dated December 31, 1915, recited that the suppliers had given a joint and several guarantee to a bank for the repayment of all moneys which the company might thereafter owe, to the extent of £5500, and each signatory bound himself to .supply one or other of the company's new cheese factories, when erected, with his whole milk output, the agreement to continue until the bank was paid off and the guarantee released. The .suppliers were to be paid for their butter-fat the whole of the proceeds from the factories, less expenses and interest on overdraft. In substance, the agreement stated that the suppliers .should eventually provide the money necessary to erect'and equip the cheese factories on condition that they should receive the whple of the net returns from the butter-fat, less 10 per cenff of the banks' advances; plus interest at the end of ten years, the company's assets would be free, in the benefit of which all shareholders, whether suppliers or not, must share in proportion to their holdings in the company's capital. His Honour ruled that this agreement was legal, giving numerous reasons for that decision. It was true that during the currency of the agreement the "dry" shareholders received no dividends, and that was because by reason of the agreement, thcro w T ere no profits out of which a dividend could be declared. Judgment would be given for the defendants, with costs on the lowest scale.