" SUBSCRIBED" CAPITAL.

Te Aroha News, Volume VI, Issue 320, 28 November 1888, Page 2

" SUBSCRIBED" CAPITAL.

The Chancery Division has had a vast and vaiied experience of fraudulent prospectuses used for the formation and floating of companies, lv the recent oase of Arnison and others, v. Smith and others at Home, the question waa as to the meaning of " subscribed capital." The prospectU3 issued by the City of. Genoa Waterworks Co., Ltd., shortly after its incorporation, stated that £200,000, out of £300,000, share capital, had been " subscribed ." On the faith of this statement, the plaintiffs, over 50 in number, took debenture stock in the company, to the amount of over £30,000, They now brought an action of deceit against tho promoter and the original directors of tho company, to i recover damages, on (he ground that this allegation in tho prospectus, that the capital had so far been subscribed, was false, in fact, because, although two sums of £100,000 each for construction and purchase contracts had been paid in fully

paid up shares to that amount, these shares were not » subscribed " in the legal and business and ordinary meaning of the term. Mr Justice Kekewich took this view of the matter, and gave judgment for the plaintiffs, with damans, to be estimated upon the basis of the difference between the actual value of the debenture stock which they were deceived into buying and the price they paid for it. If, therefore, it is found to be worthless, the promoters and directors will have to return all the money, with some considerable costs. The actual phrase in the prospectus ran thus : " Issue of £150,000 0 per cent debenture stock, ranking in priority to £300,000 share capital (£200,000 of which hns been subscribed)." This ai'-jfunted to a statement that all this capital had been thrown into the company, whereas in fact nothing of the soit had happened. The vendor and contractor had taken payment in share?, but that was very far from being the same thing ns a subscription of shares to th.tt amountby the investing public. Of course, this clause in the prospectus brought in the money ; but the judgment in this case shows how dangerous is the game. — Tl-e Mercantile and Bankruptcy Gazette, Nov. 17th.