LIABILITY OF
MEMBERS OF
COMPANIES

OF 1862.

was offered to the Court, on the strength of that enactment, and declined; and, in the course of the relative discussion, doubts were expressed whether such association could, as a company merely incorporated under the Act of 1862, and not having a special Act of Incorporation, be held to be incorporated by Act of Parliament,' in the sense of the Pupils Protection Act.1

Your attention will now be called to the important subject of the liability of the members of companies formed under the Act of 1862. UNDER THE ACT On that critical point, the Act (sect. 38) provides that, in the event of a company so formed being wound up, every present and past member of such company shall be liable to contribute to the assets of the com'pany, to an amount sufficient for the payment of the debts and lia'bilities of the company, and the costs, charges, and expenses of the 'winding-up, and for the payment of such sums as may be required for the 'adjustment of the rights of the contributories' (that is, not only the persons liable to contribute, but those alleged to be so liable, until they are legally exempted), amongst themselves, with the qualifications. 'following' (that is to say)-(1.) No past member shall be liable to 'contribute, if he has ceased to be a member for a period of one year or upwards prior to the commencement of the winding-up. (2.) No past member shall be liable to contribute in respect of any debt or liability of the company contracted after the time at which he ceased to be a 'member. (3.) No past member shall be liable to contribute, unless it 'appears to the Court' (that is, in Scotland, the Court of Session, in either of its divisions) that the existing members are unable to satisfy the contributions required to be made by them in pursuance of this Act. (4.) In the case of a company limited by shares, no con'tribution shall be required from any member exceeding the amount, if any, unpaid on the shares in respect of which he is liable as a present or past member. (5.) In the case of a company limited by guarantee, no 'contribution shall be required from any member exceeding the amount ' of the undertaking entered into on his behalf by the memorandum of 'association.'

In regard to unlimited companies formed under the Act, this enactment leaves the liability of existing members, as at the time of the commencement of the winding-up, just as it was. But with regard to past members, the Act makes some material changes on what would formerly have been such members' liability by the law of Scotland. In the first place, as to debts contracted by the company before the membership ceased, every past member would, under the old law, be liable to the creditor in a public equally as in a private company, until the debt was paid, or (as to him) discharged, the past member having right of recourse against the existing members for obtaining relief from all such debts. Now, a past member of a company formed under the Act is free of liability, even for debts contracted during his membership, if he has ceased 1 Sim, 5th Dec. 1863, 2 Macph. 205.

to be a member for one year before commencement of the winding-up. In the second place, in regard to debts contracted by a company after the membership ceased, the exact limit of a past member's liability, and the mode in which he was to proceed in order to secure immunity from future liability, were perhaps not very clearly defined by the old law. But it is thought that a past member, notwithstanding his ceasing to be a member, would remain liable to the creditors in all debts contracted by the company up to the time when, by the appropriate steps being taken, such creditors respectively were certiorated, or in point of law were bound to have known, of the fact of his having ceased to be a member; the past member having in this case right of recourse as aforesaid. Now, a past member of a company formed under the Act of 1862 is free of all debts contracted by the company after he ceases to be a member. And, in the third place, it is at once placed in the discretion of the Court, and withdrawn from the direction of any private party, whether, in the circumstances of each company being wound up, a past member, liable, if need be, to contribute, ought to be called on to contribute to the assets of such company. This provision may be practically of very great value. Trustees or others acting for creditors are naturally over anxious to secure the full payment of the debts due by an insolvent or bankrupt company, and they may fear possible liability to themselves if they allow any one legally liable in payment to escape making contributions. From all unnecessary inconveniences in such cases the Court is now entitled to afford protection.

These changes in the law, though fully expressed only with reference to companies formed under the Act of 1862, appear, by sect. 176, to apply also to companies formed and registered under the repealed Acts of 1856, 1857, and 1858. By sects. 177 and 196, they appear further to apply to companies registered, though not formed, under the Act of 1862, or the Acts of 1856, 1857, and 1858, subject always to the provisions and qualifications expressed in these sections. The effect of these provisions clearly is (inter alia) to prevent registration, by itself, from operating relief from liability to the creditors in debts due by the company at the time of such registration. As to companies neither formed nor registered under the Act of 1862, the liabilities of members, past as well as existing at the commencement of the winding-up, are not to be affected by that Act.

LIMITED BY

In regard to companies with liability limited either by shares or LIABILITY guarantee, it may be useful to notice that the members are not severally SHARES OR liable to contribute to the assets for payment of the debts of the com- GUArantee. pany to the extent of the aggregate amount of the subscribed capital not

paid up.
When the limitation is by shares, each member is liable only
for the unpaid portion, if any, of the shares subscribed for by himself.
When the limitation is by guarantee, each member is liable only to the
extent of the unpaid portion, if any, of the sum he himself has under-
taken to contribute; and the limitation holds in either case, although by

POWER OF

the failure of copartners a portion of the debts lawfully contracted by the company from third parties may remain unpaid. The mere list of the names of the members, therefore, of a company, limited either by shares or by guarantee, forms no criterion of the responsibility of such company for its ordinary debts and engagements.

It is to be observed, however, that by sect. 182, which is placed in Part VII. of the Act (being the part which relates to companies authorized to register, but not formed, under the Act), no banking company claiming to issue notes shall be entitled to limited liability in respect of such issue. The members are to be liable for the whole amount of the issue, in addition to the sum for which they would be liable as members of a limited company. From the position in which this provision is placed, it may be doubted whether it is applicable to companies formed under the Act, though such companies are not expressly excluded from its operation.

It is further worthy of observation, that, by sect. 188, every banking company existing at the date of the Act, which registers itself as a limited company, is required, in order to make the registration effectual in the case of each party concerned respectively, at least thirty days previous to obtaining a certificate of registration with limited liability, to give notice of the intention so to register, to every person and partnership-firm who have a banking account with the company. Failure to give the notice, in any case, leaves the liability in such case as it was before the registration. And, by sect. 194, the registration of any company in pursuance of Part VII. is not to affect or prejudice such company's liabilities or rights, in regard to any debt incurred or contract entered into previously to such registration.

With regard to holding land, the Act of 1862 appears to impose no HOLDING LAND. restriction on companies formed for purposes of gain. But, by sect. 21, no company formed for the purpose of promoting art, science, religion, charity, or any other like object not involving the acquisition of gain, can, without the sanction of the Board of Trade, hold more than two acres of land. The Board of Trade, however, may empower any such company to hold lands in such quantity, and subject to such conditions, as they think fit.

TRUSTEES AND

EXECUTORS

HOLDING

SHARES.

The Act of 1862 makes some material alterations on the former law, as regards trustees and executors having right to shares in companies formed under the Act.

The Companies Clauses Act of 1845 provided, by sect. 21, that companies under that Act were not to be responsible for the due execution of trusts by trustees holding shares; and the Acts of 1856 and 1857, now repealed, provided that, whilst the register of the shareholders should be the proper evidence as to who were the partners, no notice of any trust should be entered on that register or receivable by the company. Under this provision, apparently, trustee-shareholders must have been rendered personally responsible in the first place to the creditors of the company

for the debts of the company, reserving to such trustees any claim competent for relief out of the trust-estate under their management.

The Act of 1862, sect. 30, contains a provision on this point similar to that of the Act of 1856, but only as applicable to the case of companies formed under the Act of 1862, and registered in England or Ireland. Apparently, therefore, there is nothing in the general Statute law to prevent trustee-shareholders, under the Act of 1862, in a Scotch company, from being entered as such in the register of shareholders, or from having notice of the trust under which they act received by the company, and entered in that register. In the case of Lumsden1 the question was, whether trustees who had express power by their trustdeed to invest the trust-funds in the stock of any bank in their own names, and who bought shares in a bank which made calls on them as shareholders for contributions towards payment of its debts to third parties, were liable to make good such calls personally, or only as trustees, and to the extent of the trust-funds in their hands. The decision in the Court of Session was that they were liable only quá trustees, and to the extent of the trust-funds in their hands; but, on appeal, the House of Lords held that the trustees were personally liable, not only to the creditors of the company, but also in questions of contribution inter socios.

A very material amendment of the law is made by the Act of 1862 TRANSFER BY in reference to the position of the personal representatives of a deceased EXECUTORS. member of a company under the Act of 1862, when such representatives wish to avoid incurring such risk as may attach to membership in such company. By the law as it formerly stood, such representatives, however unwilling to be members of the company, could not dispose of the shares to which they had right in their character of representatives, without, in the first place, being entered and registered as members in the company's books, and, of course, incurring whatever liability such entry and registration legally involved; but, by sect. 24 of the Act of 1862, Any transfer of the share or interest of a deceased member of a company under this Act, made by his personal representatives, 'shall, notwithstanding such personal representative may not him'self be a member, be of the same validity as if he had been a 'member at the time of the execution of the transfer.' This enactment, whilst perfectly equitable as regards the creditors of the company, must operate in many cases as a great relief to the representatives of parties. deceased.

CUTED ABROAD.

The Act makes the following provisions as to the execution of pro- BILLS AND missory-notes and bills on behalf of companies under the Act, and of DEEDS EXEdeeds executed abroad, on behalf of such companies :-'Promissory-notes 'or bills are,' by sect. 47, 'to be made, accepted, or indorsed in the name

' of the company, or by or on behalf or on account of the company, by 'any person acting under the authority of the company.'

1 Lumsden, 26th Feb. 1864, 2 Macph. 695; reversed 22d June 1865, 4 Macq. 950.

PROVISIONS AS

OF PUBLIC COM

By sect. 55,Any company under this Act may, by instrument in writing under its common seal, empower any person, either generally, or in respect of any specified matters, as its attorney, to execute 'deeds on its behalf in any place not situate in the United King'dom; and every deed signed by such attorney on behalf of the 'company, and under his seal, shall be binding on the company, and ' have the same effect as if it were under the common seal of the company.' This last provision appears not to have been practically sufficient for its purpose. Supplementary enactments on that subject have been made by The Companies Seals Act, 1864.' By sect. 2, any company under the Act of 1862, whose objects require or comprise the transaction of business in foreign countries, is empowered to prepare an official seal, to be used in authenticating deeds, etc., on behalf of the company, in every place out of the United Kingdom in which the business of the company shall be carried on. The Act gives minute directions as to the character of the official seal; and the person by whom, and the manner in which, it is to be affixed to such deeds, etc., but these, of course, need only to be referred to here.

The Act of 1862 contains elaborate and minute provisions for the TO WINDING-UP Winding-up of companies under it' (not merely formed' under it, but generally 'under it'), judicially or voluntarily; and the Court may direct a voluntary winding-up to be conducted under judicial supervision.

PANIES.

By sect. 79, a company under said Act may be wound up judicially in the Court of Session, in the following circumstances, viz. :—(1.) Whenever the company has passed a special resolution, requiring the company to be wound up by the Court; (2.) Whenever the company does not commence its business within a year from its incorporation, or suspends its business for the space of a whole year; (3.) Whenever the members are reduced in number to less than seven; (4.) Whenever the company is unable to pay its debts; and (5.) Whenever the Court is of opinion that it is just and equitable that the company should be wound up. And, by sect. 80, a company under the Act shall be deemed unable to pay its debts, in the following cases :-(1.) Whenever a creditor in a sum exceeding £50 then due, has served on the company, by leaving at their registered office, a demand, under his hand, requiring the company to pay the sum so due, and the company has, for three weeks after the service of such demand, neglected to pay the debt, or to satisfy the creditor. Case (2.) does not apply to Scotland. Case (3.) Whenever, in Scotland, the induciæ of a charge for payment on an extractdecreet, or an extract registered bond, or an extract registered protest, have expired without payment being made; and (4.) Whenever it is proved to the satisfaction of the Court that the company is unable to pay its debts.

1 27 & 28 Vict. c. 19.