2. That the new shares be called A. shares, and that the holders thereof be entitled to a cumulative preferential dividend, at the rate of 6 per cent. per annum on the nominal amount of such shares, which dividend shall be payable halfyearly, on the and day of day of 3. That the company shall be entitled to create further new shares to rank in all respects pari passu with the said A. shares, but so that the aggregate amount of the A. shares for the time being issued, and of such further new shares, shall not at any one time exceed one-half the amount of the paid-up capital of the company. Where it is desired to reserve such a power as above, express provision should be made accordingly, otherwise the company will not be permitted to derogate from the rights of the holders of the preference shares. Thus in the recent case of the Argentine Tramways Co., Limited, the capital was divided into preferred and deferred shares. The latter (100,0007.) had been issued as paid-up to the vendor. Arrangements were made by the directors for the surrender of the deferred shares in consideration of 20,0007. new preferred shares to rank in all respects equally with the original preferred shares. Pursuant to this arrangement a resolution for the creation of the new shares was unanimously passed at an extraordinary meeting of the company and a further meeting for its confirmation was called. Meantime the action of Harper v. Paget was brought by one of the holders of original preferred on behalf of himself and all other the preferred shareholders in the company against Lord Alfred Paget and other directors and the company, seeking for an injunction to prevent the carrying of the resolutions into effect. The following order was made 16 March, 1876, on motion for an injunction before Jessel, M. R. "This Court doth declare that it is ultra vires of the defendants, the Argentine Tramways Co., Limited, to issue new preferred shares to rank in priority to or equally with the original preferred shares of the company either in exchange for deferred shares or otherwise. And it is ordered that an injunction be awarded against the defendants, Lord A. P., &c., the directors of the said company, to restrain the defendants from issuing any such new preferred shares in the company, either in exchange for deferred shares or otherwise. And it is ordered that the defendants pay to the plaintiff his costs of this action, including therein his costs of the said motion, such costs to be taxed by the taxing-master." [A. 599.] 4. That the A. shares shall not confer any right of voting at any general meeting of the company, nor shall they qualify any person to be a director of the company. 5. That in the event of the company being wound up the surplus assets thereof shall be applied in the first place in repaying to the holders of the A. shares, and of any other shares entitled to rank pari passu with them, the full amount Forms. Forms. paid up thereon, and that, subject as aforesaid, such surplus assets shall belong to and be divided among the other members of the company. 6. That the directors be and they are hereby authorised to issue the said 4,000 shares to such persons, and to be paid for by such instalments or otherwise as they think fit, and without being bound to offer the same or any of them to existing members of the company. 1. That the capital, &c. FORM VIII. 2. That the said new shares be called " new preference guaranteed shares," and that the holders thereof be entitled to a cumulative preferential dividend at the rate of 12 per cent. per annum, on the amount for the time being paid up on such shares, such dividend to be payable in priority to all other dividends except those payable to the holders of the existing preference shares. 3. That in the event of the company being wound up [supra, p. 293, mutatis mutandis]. 1. That the capital, &c. FORM IX. 2. That the said shares be called preference shares, and that the holders, &c. 3. That every holder of a debenture or debentures of the company shall be entitled upon the surrender thereof to the directors, before the day of next, to have allotted to him so many of the said preference shares as shall be equal, as nearly as may be, in nominal amount to the aggregate amount of the principal monies and interest due to him in respect of such debenture or debentures. 4. That the amount so due shall be credited as paid up on the shares so allotted. 5. That any of the said preference shares not allotted before the next, may be disposed of in such manner day of as the directors shall think fit. CONVERSION OF SHARES INTO STOCK. By Section 12 of the Act : Any company limited by shares may so far modify the conditions con tained in its memorandum of association, if authorised so to do by its regulations as originally framed or as altered by special resolution as (inter alia) to convert its paid-up shares into stock. The articles generally empower a company to convert any of its paidup shares into stock. Sometimes the sanction of the company in general meeting or by special or extraordinary resolution is required, but where this is not the case the directors can generally exercise the power under such a clause as 113, supra, p. 183. As to notice of conversion to be given to Registrar of Joint-Stock Companies, see infra, p. 313. Forms. FORM X. That the whole of the preference shares in the capital of the company be converted into stock, to be called preference stock. If the articles do not contain proper provisions providing for the event of shares being converted into stock, it will be necessary to alter them by inserting the usual clauses. See supra, p. 160. CONSOLIDATION OF SHARES. Section 12 of the Act of 1862 permits any company limited by shares so far to modify the conditions contained in its memorandum of association, if authorised to do so by its regulations as originally framed or as altered by special resolution in manner hereinafter mentioned, as to (inter alia) consolidate and divide its capital into shares of larger amount than its existing shares. It is usual to insert the necessary authority in the articles, (see supra, p. 162,) although it is but seldom exercised. If not inserted a single special resolution is sufficient. See supra, p. 265. FORM XI. 1. That the shares in the capital of the company be consolidated in such manner that every five of the existing shares shall constitute one 57. share, upon which the sum of 51. shall be credited as having been paid up. 2. That the existing certificates of shares be called in by the directors and cancelled, and that new certificates be issued, subject to the provisions contained in clauses. cles of association. SUBDIVISION OF SHARES. of the arti Sections 21 and 22 of the Act of 1867 provide as follows:Any company limited by shares, may by special resolution, so far modify the conditions contained in its memorandum of association, if authorised so to do by its regulations as originally framed, or as altered by special resolution, as, by subdivision of its existing shares or any of them, to divide its capital, or any part thereof, into shares of smaller amount than is fixed by its memorandum of association. Provided that in the subdivision of the existing shares the proportion Forms. between the amount which is paid and the amount (if any.) which is unpaid on each share of reduced amount shall be the same as it was in the case of the existing share or shares from which the share of reduced amount is derived. Section 22 provides that: The statement of the number and amount of the shares into which the capital of the company is divided, contained in every copy of the memorandum of association issued after the passing of any such special resolution, shall be in accordance with such resolution; and any company which makes default in complying with the provisions of this section shall incur a penalty not exceeding 1l. for each copy in respect of which such default is made, and every director and manager of the company who knowingly or wilfully authorises or permits such default shall incur the like penalty. Before this enactment it was illegal to subdivide shares. Holmes' Case, 2 Ch. 714; Fielding and Remington's Case, Ibid. See also Sewell's Case, 3 Ch. 131. In Holmes' Case, ubi supra, Cairns, L. J., said: "A consolidation and increase of the nominal value of shares preserves the same amount of capital but may bring it into fewer hands, and may be more beneficial to creditors by making the capital more easy of collection. A subdivision of shares, on the other hand, if valid at all, must be valid to whatever extent it may be carried, and thus creditors of the company may, upon a winding up, be left, and left without any previous notice given to them by the Act of Parliament, with the unpaid capital of the company scattered through such a number of hands that the sum recoverable from each would not pay for the trouble and expense of collection." However, the illegality, prior to the Act of 1867, did not merely depend on this view. To subdivide the shares was an alteration of the conditions contained in the memorandum, and as such was prohibited by Section 12 of the Act of 1862. See supra, p. 82. For clause to be inserted in articles giving the requisite power, see supra, p. 162. The power is to be exercised by special resolution; hence if the articles do not contain the necessary authority two special resolutions are necessary, as in the case of a reduction of capital. See infra, p. 300. Notice of a special resolution subdividing the shares must be given to the Registrar of Joint-Stock Companies. See infra, p. 314. FORM XII. That each of the existing 107. shares be divided into two 51. shares, upon each of which the sum of 47. shall be credited as paid up. FORM XIII. That each of the existing 507. shares be divided into five fully paid up 107. shares. FORM XIV. That each of the existing shares of the company be divided into two shares of 57. each, one of which shall be called a preference share and the other an ordinary share. That the holders of the said preference shares shall be entitled to be paid out of the profits of each year a preferential dividend at the rate of 5 per cent. for such year, and that the surplus profits of each year shall be applied in payment of dividends on the said ordinary shares. See The above resolutions would not seem to offend against the principles on which Hutton v. Scarborough Cliff Hotel Co. was decided. supra, p. 266. It would not seem to be an alteration of the constitution of the company, or a fraud on the minority, or otherwise ultra vires the company. However, the point remains to be decided. The AngloAmerican Telegraph Company, Limited, passed special resolutions, in 1876, for the division of its capital (stock) into preferred and ordinary stock; but the division was not compulsory: the resolution merely authorised the directors to receive the surrender of his stock from any member willing to surrender, and to issue to him preferred and ordinary stock in equal moieties to same nominal amount. See the power to subdivide shares contained in the specimen Act for the reconstruction of a company given infra, among forms relating to "Reconstruction." REDUCTION OF CAPITAL. The capital of a company limited by shares cannot be reduced except under the Act of 1867. The amount of capital is one of the conditions contained in the memorandum, and although the Act of 1862 (Section 12, see supra, p. 82,) permitted of certain alterations in those conditions, a reduction of capital was not one. The Act of 1867 (Section 9) provides that any company limited by shares may by special resolution so far modify the conditions contained in its memorandum of association, if authorised so to do by its regulations as originally framed, or as altered by special resolution, as to reduce its capital; but no such resolution shall come into operation until an order of the Court confirming the reduction is registered with the Registrar of Joint Stock Companies. After the passing of the resolution the words "and Reduced " must be added to the name-Section 10. A petition must then be presented to the Court for the confirmation. See form of petition, infra, among "Petitions." As to the further proceedings, see Buckley, 465, et seq.; Pemberton, p. 687, et seq.; Daniel Ch. Pr., Vol. II. p. 1978, et seq. The power to reduce its capital cannot be exercised except by special resolution. Hence it is impossible to delegate the power to the directors as in the case of an increase of capital. Thus where the articles provide simply that "The company may increase the capital," and there is a general delegation of powers to the directors, they can, by resolution, increase the capital. But if the articles provide that "The company may reduce the capital," the reduction cannot be effected without a special resolution of the company. If the articles do not contain power to reduce the capital they must be altered by special resolution so as to give the necessary power, and then a further special resolution must be passed resolving on the reduction. West India, &c., Co., 9 Ch. 11, n. But two special reso Forms. |