Forms.

FORM XLV.

AUDIT OF ACCOUNTS BY COMMITTEE.

Compare with clauses, supra, p. 192, et seq.

1. The accounts of the company shall be audited by a com- Committee to mittee of five members, to be called the Audit Committee.

audit accounts.

First mem

2. The members of the first audit committee shall be nominated by the directors out of the general body of members. bers. Subsequent audit committees shall be nominated by the members at the ordinary general meeting in each year.

3. The audit committee shall be supplied with a copy of the Duties. balance-sheet, and it shall be their duty to examine the same with the accounts and vouchers relating thereto.

4. The audit committee shall have a list delivered to them of all books kept by the company, and they shall, at all reasonable times, have access to the books and accounts of the company; they may, at the expense of the company, employ accountants or other persons to assist them in investigating such accounts, and they may, in relation to such accounts, examine the directors or any other officer of the company.

Rights of committee.

5. The audit committee shall make a report to the members Report. upon the balance-sheet and accounts, and in every such report they shall state whether in their opinion the balance-sheet is a full and fair balance-sheet, so as to exhibit a true and correct view of the state of the company's affairs, and in case they have called for explanation or information from the directors, whether such explanation or information have been given by the directors, and whether they have been satisfactory, and such report shall be read, together with the report of the directors, at the ordinary meeting.

FORM XLVI.

DISTRIBUTION OF ASSETS IN WINDING UP. PREFERENCE.

Unless the holders of preference shares are given a preference in the distribution of assets, they will stand on a level with the other members in the winding up. In re London India-rubber Co., 5 Eq. 519. See supra, p. 253.

It is comparatively seldom that the articles as originally framed contain any provisions giving a preference in the distribution of assets upon a winding up. Such provisions, however, are common enough in resolutions to increase capital, see infra, p. 294; and they are some

Forms.

times inserted in the case of a reconstruction or amalgamation, see infra, "Reconstruction" and "Amalgamation."

In connection with these clauses, it may be well to consider the mode in which surplus assets are dealt with upon a winding up, in the absence of special provisions.

It is the duty of the liquidators in a voluntary, and the Court in a compulsory winding up, to adjust the rights of the contributories inter se (Section 133, Subsection 10, and Section 109 of the Companies Act, 1862).

If all the shares are fully paid up, no difficulty can arise; the assets are divided pro rata. But generally some shares are fully paid up, some not. The question is how in such case to adjust the rights of the contributories.

It is now well settled that in the absence of special provisions in the articles, or a special contract made on the issue of the shares, the adjustment should, as far as possible, throw the losses on the members in proportion to the nominal amount of capital held by them respectively.

Thus, suppose a company with 1,000 shares of 107. each, 400 of which are fully paid up, or to be deemed fully paid up, and 600 paid up to the extent of 51. each, this gives a paid-up capital of 7,000l. Suppose that the company is being wound up, and that, after paying all the debts and providing for the expenses of winding up, there remains only 3,000l. In such case the loss being 4,000l., i.e., 4l. per share, the surplus must be so distributed as to equalise the loss, viz. : to holders of fully paid-up shares, 67. a piece=2,4007.; and to the holders of the 600 shares, 17. each=6007. -total, 3,000l.

Or suppose, in the same case, the loss to have been 6,000l., i.e., 61. per share. Then the holders of the 600 shares must be called on to pay up 17. per share=6007., which, added to the 1,000l. of assets, will pay the holders of the 400 shares 47. per share, thus placing all the members on a level.

Another way of effecting the adjustment in the first case is, to apply the surplus assets, first, in repaying to the holders of the 400 shares, 51. per share, so that they may stand on same footing as the holders of the 600 shares. The residue will give 17. per share all round.

The principle on which such an adjustment is based, was first settled in the case of the Anglesea Colliery Co., 1 Ch. 555. See also In re Scinde, &c., Corporation, 6 Ch. 53, note; In re Holyford Mining Co., Ir. L. R. 3 Eq. 208.

The leading authority is Maude's Case, 6 Ch. 51, in which a decision of Malins, V.-C., was reversed on appeal. In that case Mr. Maude and others were the holders of fully paid-up shares of 251. each, in Hodge's Distillery Company. He had applied for shares, and paid up the full amount in cash. There were other shares on which only 207. had been paid up. The articles contained the common clause (22) that a member might advance the money due on his share beyond the sum called for, and receive interest thereon. Mr. Maude applied, in the winding up, that in distributing the assets of the company, he might be repaid the 51. which he had paid upon each share above what the other members had paid before the surplus assets were divided. Mellish, L.J., said, "The real question appears to be, how the losses of the company ought to be borne. Ought they to be borne in proportion to the amount which happened to be paid up by each shareholder at the time when the winding-up order was made, or ought they to be borne in proportion to the subscribed capital, whether the shares happened to be fully paid up or

not? In my opinion the surplus ought, according to the true construction of the Act, and of the articles of association of this company, to be distributed so as to divide the losses equally among the two descriptions of shareholders. . . . In my opinion the 22nd article has no bearing on this case, for it does not appear that Mr. Maude agreed to advance any money; but he applied for paid-up shares, they were allotted to him, and he paid the full amount, not treating it as an advance, but as on paid-up shares. . . In many cases a considerable portion of the shares is expended in buying that which is the foundation of the company; and when the company is wound up, it would be very unjust that the person who had been paid for his property in shares should have to bear the losses, and that none of the losses should fall on the other shareholders. It appears to me that this application ought to be granted." James, L.J., took the same view.

In the case of the Eclipse Gold Mining Co., 17 Eq. 490, the original capital was in 17. fully paid-up shares, and it was all lost. New shares of 11. each were created, and 16s. called up thereon. There was, in the winding up a sum of 3,500l., surplus assets to be distributed, and it was contended that out of this 48. per share ought to be paid, in the first place, to the holders of the paid-up shares; but Malins, V.-C., held that the surplus assets must be distributed among the members in proportion to the amounts paid up by them respectively.

By the conditions on which the new shares were issued, it was provided that if the company should be wound up, no call should be made on the holders thereof, except for payment of debts and costs of winding up, and except as aforesaid the new shares were to be deemed ordinary shares and part of the ordinary capital. Hence, there was no special contract with the holders of new shares to prevent the application of the ordinary rule, that surplus assets must be distributed so as to equalise losses. It is difficult to reconcile the decision with the principles laid down in Maude's Case; and where new capital is created, it is expedient, when the ordinary rule is not intended to apply expressly, to provide accordingly.

The surplus assets of the company upon the winding up thereof shall be applied: first, in repaying to the holders of the said preference shares the amount paid up thereon; then, in repaying to the holders of the deferred and other shares the amount paid up on such shares; and the residue (if any) shall be divided among the members in proportion to the nominal amount of the capital held by them respectively.

FORM XLVII.

DISTRIBUTION OF ASSETS IN WINDING UP.

Another form.

PREFERENCE.

Forms,

How surplus assets to be

distributed.

Preference.

holders of A. shares.

If the company shall be wound up the surplus assets shall Preference to be applied, in the first place, in repaying to the holders of the A shares the amount paid up thereon, and the residue shall belong to the holders of the B shares.

Forms.

FORM XLVIII.

How assets to be distributed.

When company to be dissolved.

DISTRIBUTION OF ASSETS IN WINDING UP.

OF VENDOR'S RIGHTS.

QUALIFICATION

In the event of the company being wound up the surplus assets thereof shall be applied: first, in repaying to the holders of the shares, other than those to be issued pursuant to the said agreement of the day of the full amount paid up on the shares held by them respectively; secondly, in paying to the holders of the shares, to be issued pursuant to the said agreement, the amount credited as paid up thereon; and the residue (if any) of such surplus assets shall belong to and be divided among the members in proportion to the nominal amount of capital held by them respectively.

FORM XLIX.

DISSOLUTION.

If at any time the directors shall resolve that the winding up of the company is expedient, the company shall be dissolved.

By Section 129 of the Act of 1862, it is provided that a company may be wound up voluntarily.

(1.) Whenever the period (if any) fixed for the duration of the company by the articles of association expires, or whenever the event (if any) occurs, upon the occurrence of which it is provided by the articles of association that the company is to be dissolved, and the company in general meeting has passed a resolution requiring the company to be wound up voluntarily.

(2.) Upon a special resolution.

(3.) Upon an extraordinary resolution.

The object of the insertion of such a clause as above, is to facilitate a winding up. In order to pass a special resolution, or an extraordinary resolution, a very large majority of the members present in person, or by proxy at a meeting, is required. See infra, p. 288.

But if such a clause as above is inserted, a simple majority of a general meeting will, under Subsection 1 of the above section, effectually bring the winding up into operation.

Of course, the clause can be modified, so that the event shall be the loss of the original capital, or a resolution of the directors that the company cannot by reason of its liabilities continue its business, or any other contingency; or it may be provided that the company shall be dissolved at the expiration of a specified term of years, or otherwise.

RESOLUTIONS.

INTRODUCTORY NOTES.

resolution.

THE regulations of a company generally provide that divers Ordinary acts shall be done by the company in general meeting-e. g., that officers shall be appointed at the ordinary general meeting, or that the directors may borrow money or declare a dividend or convert shares into stock with the consent of the company in general meeting. See supra, p. 178, Clause 96, p. 163, Clause 54, p. 190, Clause 115, p. 162, Clause 53, p. 160, Clause 45. In such cases the act will be done on the consent given by a resolution of the members present in person, or by proxy, at a general meeting of the company. Whether the meeting should be an ordinary or an extraordinary one must depend on the nature of the business and the regulations. [supra, p. 166]. The meeting must have been duly called [supra, p. 195]. A proper quorum must be present [supra, p. 167]. If a poll is demanded regard must be had to the number of votes to which each member is entitled by the regulations of the company.

:

With regard to "special" and "extraordinary" resolutions It is extremely common to provide by the regulations that certain acts shall only be done by special resolution of the company, or by extraordinary resolution. And, moreover, the Acts of 1862 and 1867 require or enable a company to do various things by special or extraordinary resolutions, as will be seen in the notes to the following resolutions. See also index under "Special Resolution."

It will be convenient here to state what is meant by the expressions special resolution and extraordinary resolution respectively :

1. As to a special resolution: Section 51 of the Act of Mode of 1862, provides that:

"A resolution passed by a company under this Act shall be deemed to be special whenever a resolution has been passed by a majority of not less than three-fourths of such members of the company for the time being entitled according to the

passing special resolution.