Limited, be wound up voluntarily, and that

and

be and they are hereby appointed liquidators;" or it may be framed more generally, e.g., for the purpose of considering and, if thought fit, passing a resolution for the voluntary winding-up of the company, and appointing liquidators." If the resolution is passed at the first meeting, and duly confirmed at the second, the windingup will thereupon commence.

As to sending a copy of a special resolution to the Registrar, see supra, p. 51.

Every special or extraordinary resolution for windingup must be advertised, as respects companies registered in England, in the "London Gazette." See sec. 132 of the Act of 1862. Upon a voluntary winding-up being resolved on, the powers of the directors cease, and the liquidator or liquidators assume the direction of matters.

The directors, or some of them, are very commonly appointed liquidators or liquidator, and they proceed to realise the property, pay the debts, and divide the surplus (if any) among the shareholders.

If any legal or other difficulties arise, the liquidators or any shareholder may apply to the Court to settle the

same.

A considerable number of the companies from time to time formed are completely abortive, i.e., never succeed in inducing anybody to takes shares, or only induce a very small number so to do, and never commence business. In such cases it is important to remember that the company continues to exist till wound up, and the members will be liable for heavy penalties if the proper annual returns are not made to the Registrar. Every such abortive company ought to be wound up voluntarily, and thus brought to an end. The process is exceedingly simple, and the expense trifling.

As to a voluntary winding-up under supervision:

Where the company has resolved on a voluntary windingup, the Court may, on the application of the company or any creditor or shareholder, order the voluntary windingup to be continued, subject to the supervision of the Court. The effect of this is to facilitate applications to the Court in connection with the winding-up. The voluntary liquidators are generally continued though sometimes the Court removes them and appoints others. In many cases

a voluntary winding-up under supervision is much less expensive, and more for the interest of all parties than a compulsory order. Accordingly, where a petition for a compulsory order is presented, which it may be difficult to resist, a resolution for voluntary winding-up is sometimes passed, and the Court is asked either to dismiss the petition or to make a supervision order.

HINTS TO CREDITORS AND OTHERS.

Every person who has dealings with a company, e.g., any person who buys from, or sells or lends to, or contracts with, a company, or with any director, agent, or other person acting on behalf of a company, is presumed to know the contents of the memorandum of association and

regulations of the company. This rule marks an important difference between partnerships and companies, for a person dealing with a partner in a firm is not presumed to know the contents of the partnership deed. Accordingly, greater caution is necessary in dealing with a company than with a partner.

The operation of the rule will be better understood from a few examples.

(a.) As we have already seen, a company can do nothing beyond its objects as stated in its memorandum of association (supra, pp. 6, 53, 72). Anything beyond the objects is ultra vires. Accordingly, if a company formed to carry on the business of a grocer contracts to buy the business of an ironmonger, or to do something not authorized by its memorandum, the contract is void. The person who has made it is not entitled to complain, because he is presumed to have read the memorandum, and therefore to have known that the company was acting ultra vires. So, too, if a company whose memorandum does not authorize it to enter into partnership with other companies or persons, enters into a partnership with outsiders, either directly or through nominees, who to the knowledge of such outsiders are trustees for the company, the arrangement is void, and the outsiders are under serious liabilities.

(b.) Suppose that the regulations say that "every acceptance of a bill of exchange by or on behalf of the company shall be signed by two of the directors and countersigned by the secretary; otherwise it shall be void."

An acceptance not duly signed and countersigned is void. It is no matter that in fact the holder did not know of the regulation, for the law presumes that he did. In like manner if the regulations require that a contract, receipt, release, or other document, shall be executed in a particular way, every person is presumed to know the fact, and will be dealt with accordingly.

However, there are some things which a person is not obliged to inquire into; e.g., a person may assume that the directors, who, in fact, are acting in the company's business, are duly appointed, and accordingly, can exercise the power vested in the directors by the regulations.

So, too, if the regulations provide that the directors may do something, e.g., borrow, with the sanction of the company in general meeting, a lender may assume that they have obtained the necessary sanction. If, however, the sanction of a special resolution is necessary, he should require evidence that it has been passed. And it is generally desirable to see that the proper sanction has been obtained.

From what has been stated, it follows that a person who is about to have dealings with a company ought to procure a copy of its memorandum and regulations, and see that the transaction is not ultra vires, and is duly carried out. If he cannot procure a copy, he should go or send to the Registration Office and inspect the documents.

In many cases persons do not take these precautions; they assume that the directors and other agents of the company will do everything in proper form, and that no difficulty will arise. Where, however, a transaction of importance is being entered on, or a person has considerable business relations with a company, the precaution ought not to be omitted, for ultra vires contracts and irregular proceedings are by no means uncommon. They result in most cases from ignorance of the law, mistake, or carelessness. Where a person has entered into an ultra vires contract with a company, or has been party to an irregular proceeding, e.g., taken a bill not properly accepted, it must not be assumed that he will not have any rights against the company in relation thereto. For example, where an irregular acceptance has been taken, the holder might be able to sue the company for the debt, on account of which the acceptance was given. But his position is critical, and he ought to take legal advice.

It is perhaps needless to point out that before dealing with a company inquiries should, except perhaps in trifling transactions, be made into the solvency of the company. It should be borne in mind that the mere fact that the company has a large nominal capital does not imply that it has even £5 of actual capital. The amount of the actual capital depends on the number of shares which have been taken, and on the solvency of the shareholders. Thus the nominal capital may be £20,000 in £1 shares, but only a small number may have been taken, e.g., 7, or 50, or 600, and in such case the actual capital is only £7, £50, or £600, as the case may be.

So.

If a

Perhaps, too, the shareholders have not paid up their shares in full, and if called on would be unable to do Moreover, even where a large number of shares have been taken and paid up, the capital may have been lost or misapplied. The number of shares taken, and the amount paid up thereon, and other facts, can be ascertained by an inspection of the company's register of members. person about to transact business with a company does not like to examine the register himself, he can get a friend to do it (supra, p. 64). An inspection of the returns and documents at the Registration Office (supra, p. 61), may throw some light on the question of solvency. But, of course, the best information as to the real position of a company is to be obtained from the directors, managers, secretary, or other persons cognizant of the facts. Such information may in many cases be obtained either directly or indirectly. In some cases a person is in a position to require evidence of the company's solvency, or references or sureties.

It may be convenient here to say a few words as to debentures, for many persons invest in the debentures of companies under the Act of 1862. Such persons should remember that there are two kinds of debentures: 1. [simple] debentures; 2. mortgage debentures.

The

The former are in the nature of a promissory note. holder has no preference over other creditors, e.g., holders of acceptances, trade creditors, servants, &c.; and if the company is wound up before the debenture is paid off, the holder will only be entitled to be paid out of the assets pari passu with other unsecured creditors, i.e., without any

preference over them. But mortgage debentures are specifically charged on the property of the company, or certain parts of it, and if the company is wound up, the property charged will be sold and applied first in paying off the debentures, the surplus, if any, being handed over to the unsecured creditors. Accordingly, a mortgage debenture is a better security than a simple debenture.

But of course the value of a mortgage debenture depends on the value of the property upon which it is charged, and the aggregate amount of the debentures charged thereon. Thus, if the property of the company is worth £10,000, it may form a poor security for £8,000 of mortgage debentures, a fair security for £6,000, and a very good security for £3,000.

Moreover, the value of a mortgage debenture is affected by the terms in which it is expressed and the mode in which it is secured. In regard to these matters, a legal opinion should be obtained.

Ordinary trade creditors of a company, e.g., holders of its acceptances, should bear in mind the right to priority to which holders of mortgage debentures may be entitled, in case a winding-up takes place. It not uncommonly happens, where mortgage debentures have been issued, and a winding-up ensues, that the ordinary creditors get nothing, the whole of the assets, or the only assets of any value, being subject to the debentures, and not sufficient to pay them off.

Whether in any particular case mortgage debentures have been issued can generally be ascertained by inspecting the register (supra, p. 65), but the register cannot be absolutely relied on, for a mortgage debenture is not void if unregistered, unless it was issued to a director or other officer whose business it was to see it registered.

As to the mode in which a creditor may enforce payment of a debt

Two courses are open to a creditor

1. He may bring an action against the company.

2. He may present a petition for the compulsory winding-up of the company.

Where the company is certainly or probably solvent, and the non-payment of the claim is caused by a dispute as to the amount or validity of the claim, the proper course