'holders, and an equal debt payable immediately by the share- Section "holders to the company, and that each was accepted in full 4. "payment of the other, the company could have pleaded payment 66 66 "in an action brought against them, and the shareholder could have pleaded payment in cash in a corresponding action brought "by the company against him for calls.() Supposing the trans'action to be an honest transaction, it would in a court of law be "sufficient evidence in support of a plea of payment in cash, and “it appears to me that it is sufficient for this Court sitting in a "winding-up matter. Of course, one can easily conceive that the “thing might have been a mere sham, or evasion, or trick, to get "rid of the effect of the Act of Parliament, but any suggestion of sham, or fraud, or deceit seems to be entirely out of the question "in this case, because everybody in the company knew of the 'transaction; every shareholder of the company was present, and was a party to the resolution; there was no deceit practised on "any creditor, nor was there any registration of those shares, 'except as shares paid up. This seems to me to dispose of the "case." 66 66 "In order to prove a plea of payment," says Esher M. R. (then Brett L. J.),(y) "when there has been no payment in money, you "must bring the transaction within these two propositions. There "must be money due from the one to the other on both sides, and "the parties must agree to set one demand of money against the "other demand of money. Unless you can bring the transaction "within those terms, there is no payment, which is equivalent to "a payment in cash or would prove a plea of payment." The following are instances, in which the Court held that there had not been a good payment "in cash": Where a property was sold to a company for a specified sum to be paid in cash subject to an option exercisable by the company to issue fully paid shares in lieu of payment of cash and the company exercised such option and issued fully paid up shares, the Court held that shares had not been paid for in cash, because before the exercise of the option no money could be said to be due by the company and after such exercise the company was bound to allot the shares, but could not be said to owe any money to (x) See also Ferrao's Case 9 Ch. 355, White's Case 12 Ch. Div. 511. (y) White's Case 12 Ch. Div. 511, 517. 4. Section the vendors.(z) Again, where a newspaper proprietor agreed to advertise a company's prospectus in his newspaper during a specified period in consideration of an allotment of fully paid up shares in the company of a specified nominal value, the Court held that such shares were not paid in cash. (a) Section 4 (4). "First issue of the prospectus." Remedies against directors for contravention The date of the first issue of the prospectus (which is synonymous with the expression "the date of the publication of the prospectus" used in section 9 (1)) is by section 9 required to be specified in every prospectus. If the conditions specified in subsection 4 have not been complied with and the money paid by the applicant to the company of provisions of has not been repaid to him within 48 days after the issue of the section 4. Section 4 (5). Why subsection 5 is inserted. Meaning of prospectus, each director (whether he does or does not know that the provisions of section 4 have not been complied with) will be liable severally and jointly with the other directors to repay that money with interest at 5 per cent per annum, unless he can prove two things, namely, (1) that the money has been lost and (2) that it has not been lost owing to any misconduct or negligence on his part. Where shares have been allotted in contravention of section 4, the allottees have by virtue of section 5 (2) an additional remedy against a director, who knowingly contravenes or authorises such contravention. See infra section 5 (2) and the note thereon. It having been customary to insert a waiver clause in prospectuses waiving the benefit of the now repealed section 38 of the Companies Act 1867 (which provided that every prospectus was to be deemed fraudulent, unless it specified the dates and names of parties to contracts made prior to the issue of the prospectus), the legislature has thought it necessary to prevent the evasion of the provisions in the present Act, which relate to prospectuses, by the insertion of a waiver clause. Hence it is expressly provided by subsection 5 that "any condition" requiring or binding any applicant for shares to waive compliance with section 4 shall be void. The expression "any condition" (which occurs again in section 10 (5) of the present Act and also in sections 11 and 12 of the Companies Act 1862) appears to mean any stipulation or provision. (b) (2) Barrow's Case 14 Ch. Div. 432. (a) Pagin & Gill's Case 6 Ch. D. 681, Andres's Case 8 Ch. Div. 126, White's Case 12 Ch. Div. 511. of shares". The meaning of the expression "the first allotment of shares Section offered to the public" would appear to be the allotment of the 4. shares first offered to the public; thus, if Section 4 (6) a company with a Meaning of capital of £100,000 offers and allots to the public a first issue of first allotmen shares of the nominal value of £5000, it may subsequently issue a prospectus inviting subscriptions for the remaining shares of the nominal amount of £95,000 and may allot such shares without complying with any of the provisions of section 4 except the provision in subsection 3. But in such a case the prospectus inviting subscriptions for the second issue (£95,000) would have to disclose the amount of the first issue and the other particulars specified in section 10 (1 (e)) of this Act. Effect of allotment. 5.-(1.) An allotment made by a company to an Section 5. applicant in contravention of the foregoing provisions irregular of this Act shall be voidable at the instance of the applicant within one month after the holding of the statutory meeting of the company and not later, and shall be so voidable notwithstanding that the company is in course of being wound up. (2.) If any director of a company knowingly contravenes or permits or authorises the contravention of any of the foregoing provisions of this Act with respect to allotment he shall be liable to compensate the company and the allottee respectively for any loss, damages, or costs which the company or the allottee may have sustained or incurred thereby : Provided that proceedings to recover such loss, damages, or costs shall not be commenced after the expiration of two years from the date of the allotment. Subsection 1 provides that an allotment made in contravention Section 5 (1) Remedy of the provisions of section 4 shall be voidable (i.e. the contract to against comtake shares may be rescinded) within one month (c) after the pany for (c) "Month" in Acts of Parliament means calendar month, See 52 & 53 Vic. cap. 63 sec. 3. irregular allotment. Section holding of the statutory meeting (d) and not later, but makes no 5. provision for the case of an allotment of shares in contravention of such provisions subsequent to the expiration of such month. Hence it would appear, that section 5 (1) would be inoperative, if the memorandum of association is signed for a small number of shares and the first statutory meeting is held, before any prospectus is issued and subsequently, after the expiration of a month from the date of such meeting, a prospectus inviting subscriptions for the remaining shares is issued and the shares are allotted without complying with the provisions of section 4. In such a case the allottees would only be entitled to proceed against the directors under section 4 (4) or 5 (2) according to the circumstances. Section 5 (2). Subsection 1 enables a person, to whom shares have been allotted in contravention of the provisions in section 4 of this Act, to rescind even after the company has gone into liquidation. Prior to this Act a share-holder could not rescind his contract to take shares after the company had gone into liquidation.(e) The remedy of rescission must be resorted to by the allottee within one calendar month after the holding of the statutory remedy against meeting (subsection 1), but proceedings against a director for loss, for enforcing directors for irregular allotment. Section 6. damages or costs sustained or incurred by reason of a contravention of the provisions of section 4 may (under subsection 2 of section 5) be resorted to by the allottee and the company for two years from the date of the allotment. 6.—(1.) A company shall not commence any busicommencement ness or exercise any borrowing powers unless— (a) shares held subject to the payment of the of business. whole amount thereof in cash have been allotted to an amount not less in the whole than the minimum subscription; and (b) every director of the company has paid to the company on each of the shares taken or (d) This meeting must be held not less than one month nor more than three months from the date, at which the company is entitled to commence business. See infra section 12 of this Act. (e) Oakes v. Turquand L. R. 2 H. L. 325; Stone v. City & County Bank 3 C. P. D. 282. 6. contracted to be taken by him, and for which Section (c) there has been filed with the registrar a (2.) The registrar shall, on the filing of this statutory declaration, certify that the company is entitled to commence business, and that certificate shall be conclusive evidence that the company is so entitled. (3.) Any contract made by a company before the date at which it is entitled to commence business shall be provisional only, and shall not be binding on the company until that date, and on that date it shall become binding. (4.) Nothing in this section shall prevent the simultaneous offer for subscription of any shares and debentures or the receipt of any application. (5.) If any company commences business or exercises borrowing powers in contravention of this section, every person who is responsible for the contravention shall, without prejudice to any other liability, be liable to a fine not exceeding fifty pounds for every day during which the contravention continues. (6.) Nothing in this section shall apply to a company registered before the commencement of this Act. (7.) This section shall not apply to any company where there is no invitation to the public to subscribe for its shares. |