Chap. XVI. Contracts to issue shares otherwise The general effect of the Companies Acts is to render each member liable to pay the full amount of his shares, and, in the case of unlimited companies and companies limited by guarantee, a further sum in the event of a winding-up, but only in that event. This liability is in the nature of a specialty debt due to the company, accruing in respect of each share held from the time of its acquisition, and it is a liability which, in the case of limited companies, can only be discharged by payment in cash or money's worth.1 It was decided that, under the Act of 1862, shares might be fully paid up in money's worth as well as in cash; but s. 25 of the than for cash. Act of 1867 provided that all shares should be deemed to be held subject to payment in full in cash unless otherwise determined by a written contract duly filed. That section has now been repealed, and the following provision substituted :-3 "Whenever a company limited by shares makes any allotment of its shares, the company shall file with the registrar-(b) in the case of shares allotted in whole or in part for a consideration other than cash, a contract in writing constituting the title of the allottee to such allotment, together with any contract of sale, or for services or other consideration in respect of which such allotment was made . . . and a return showing the nominal amount of shares so allotted, the extent to which they are to be treated as paid up, and the consideration for which they have been allotted." 5 Under this provision the company is bound to register the contract, and the officers are liable to a penalty for default in so doing; but failure to register does not prejudice the allottee. No proceedings under s. 25 of the Act of 1867 can be taken after the commencement of the Act of 19006 (1st Jan. 1901). Thus it can be ascertained by reference to the filed contracts how much of the capital has been issued for some consideration other than cash or a liability to pay cash, as, for example, where shares are issued as paid up to a vendor as the price of property sold to the company, or to a person in payment for services rendered to the company." 1 Act of 1862, ss. 7, 9 (4), 16, 38, 75, 101, 102. Per Lindley, L.J., Re Pyle Works, 44 Ch. D. 582. 2 Act of 1900, s. 33. 3 Ib. s. 7 (1). 4 See White's Case, 12 Ch. D. 511; Re Johannesburg Hotel Co., [1891] 1 Ch. 119; Buckley on Companies, 635. Act of 1900, s. 7 (2). 6 Ib. s. 33 (2). See Re Brutton, [1901] 1 Ch. 637. Spargo's Cuse, 8 Ch. 407. 8 See per James, L.J., in Crickmer's Case, 10 Ch. 614; per Cotton, L.J., Re Almada Co., 38 Ch. D. 422; Ooregum Co. v. Roper, [1892] A. C. 125. Issue of shares A company limited by shares cannot issue shares, as fully paid Chap. XVI. up, at a discount, even though authorized by the articles of association. The whole nominal amount must be paid either at discount. in money or money's worth. If shares are issued at a discount, the shareholder will be liable to pay the amount of the discount. 3 discount, A company may, on the offer of shares to the public for sub- Commission, scription, pay commission to a person subscribing or procuring brokerage. subscriptions for shares, provided that the payment is at a rate authorized by the articles and disclosed in the prospectus; but a company may not otherwise apply any of its shares or capital in payment of commission, discount, or allowance to any person for subscribing or procuring subscription for shares. A company may, however, pay lawful brokerage.5 capital. The Act of 18796 provides that a limited company may, by Uncalled special resolution, declare that any portion of its capital, which has not been already called up, shall not be called up except in the event of and for the purpose of the company being wound up. Notice of increase of capital, also of its consolidation, division, Notice of or conversion, must be given to the registrar.8 Under the Companies Act, 1867,9 if authorized by its regulations as originally framed, or as altered by special resolution, a company limited by shares may, with respect to any fully paid-up share or stock, issue under their seal a share warrant to bearer, that is to say, a warrant transferable by delivery, stating that the bearer of the warrant is entitled to the share or shares or stock therein specified, and may provide by coupons or otherwise for the payment of the dividends thereon. Such a warrant entitles the bearer to the shares or stock specified in it, which may be transferred by the delivery of the warrant; and he is entitled to be registered as a member;10 but he is not a member of the company unless, and only so far as, it is so provided by the articles.11 1 Welton v. Saffery, [1897] A. C. 299. 2 Ooregum Co. v. Roper, sup.; Re Addlestone Co., 37 Ch. D. 191, 204; Re Eddystone Co., [1893] 3 Ch. 9; Welton v. Saffery, sup. 3 Act of 1900, s. 8 (1). Booth v. New Africander Co., [1903] 1 Ch. 295. Ante, p. 268. 4 lb. s. 8 (2). Hilder v. Dexter, [1902] A. C. 474. increase of capital, &c. Share warrants. Chap. XVI. Trusts. Certificateevidence of membership. Winding-up and dissolution of companies. Remedy of creditor of company No notice of any trust, expressed, implied, or constructive, is to be entered on the register or be receivable by the registrar.1 A certificate under the common seal of the company, specifying share or shares or stock held by any member, is prima facie any evidence of such member's title. With regard to the winding up of incorporated companies, it must be borne in mind that at common law a corporation cannot be dissolved by the will of all its members, but only by the surrender or cancellation of its charter, or in such other way as may be prescribed by the Act of Parliament or other instrument under which it is constituted, or by a special Act of Parliament, or by the total loss of all its members.3 The main objects of the modern enactments as to winding-up proceedings are to provide a method of effecting the dissolution of the company, and the due application of its assets in payment of its debts, and to compel the members to contribute such sums as may be required for that purpose, and for the adjustment of the rights of the members inter se. Under the former Winding-up Acts, referred to above, creditors might obtain payment of their debts by proceedings in bankruptcy against insolvent companies,* and shareholders could institute winding-up proceedings by petition to the Court of Chancery, in order to have the assets got in and applied in payment of debts, and any deficiency supplied by contribution among themselves. But these Acts still allowed creditors to sue the shareholders individually, and did not provide for a voluntary winding-up by the shareholders themselves without the intervention of the Court, or for a winding-up order on the application of a creditor.6 A creditor of an incorporated company has not as such any contract with the shareholders personally; but under the earlier scire facias or Joint Stock Companies Acts, creditors of such a company were given a remedy by scire facias or execution against the shareholders execution, 1 Act of 1862, s. 30. See Société 29. 2 Act of 1862, s. 31. As to estoppel by issue of certificate, see ante, p. 282. See Table A. (2). 3 See Lindley on Companies, 821; Grant on Corporations, 296 et seq. It seems that parliamentary corporations cannot surrender, nor be allowed to die out; ib. 308. 4 7 & 8 Vict. c. 111. 5 11 & 12 Vict. c. 45; 12 & 13 Vict. c. 108. See Lindley on Companies, 822 et seq., as to these Acts and their defects. personally; and, under the Act of 1855,2 creditors had the same Chap. XVI. remedy by execution against shareholders to the extent of the unpaid portion of their shares as creditors could use against shareholders of companies with unlimited liability under the former Acts of 1844, 1848, and 1849.3 The first Act which enabled a winding-up creditor to become a party to the winding up of a company was petition. the Act of 1856, by which, in lieu of the remedy by scire facias or execution against shareholders, it was provided that creditors, in default of payment by the company, should obtain payment only by means of a petition to wind up the company; and this is the remedy of the creditor under the Companies Acts, 1862-1900, now in force. The Act of 1856 provided that, in a winding-up, the shareholders were to contribute an amount sufficient to pay the debts of the company and the expenses of the winding-up, but that, if the company was limited, no contribution should be required from any shareholder exceeding the amount (if any) unpaid on the shares held by him. The effect of these provisions was to change the remedy of the creditor, so that, instead of issuing execution against individual shareholders, he obtained satisfaction of his debt by means of forced contributions, either by compelling a windingup of the company or by becoming a party to a winding-up which had already been ordered. Thereupon the assets were called in and (subject to the rights of mortgagees) distributed among all the creditors rateably as in a bankruptcy. Winding-up on the petition of a creditor under the Companies Act, 1862, as under the Act of 1856, which it superseded, "is but a mode of enforcing payment. It closely resembles a bankruptcy, and a bankruptcy has been called, not improperly, a statutable execution for the benefit of all creditors." By the Bankruptcy Act, 1883, incorporated companies cannot be made bankrupt.7 A railway company, if a warrant for the abandonment of its Railway whole railway has been granted, may be wound up under the companies. Companies Act, 1862.8 Whether a railway company can be 1 Ante, pp. 155, 266, 274. 218 & 19 Vict. c. 133, s. 8. 3 See per Ld. Chelmsford, Oakes v. Turquand, L. R. 2 H. L. 346, 360. 419 & 20 Vict. c. 47, s. 69. See 20 & 21 Vict. c. 78; 21 & 22 Vict. c. 60. 6 Per Ld. Cranworth, Oakes v. Turquand, L. R. 2 H. L. 363. 7 46 & 47 Vict. c. 52, s. 123. Apparently an unincorporated company might be adjudicated bankrupt; Lindley on Companies, 822. 8 The Abandonment of Railways Acts, 1850 and 1869 (13 & 14 Vict. c. 83; 32 & 33 Vict. c. 114, s. 4). Chap. XVI. registered under the Companies Acts and then be wound up, seems doubtful.1 Winding-up of unregistered companies. Effect of winding-up. Any partnership, association or company (except railway companies incorporated by Act of Parliament) consisting of more than seven members, though not registered under the Companies Act, 1862, may be wound up under that Act.3 The primary intention of the legislature in the provisions relating to the winding-up of companies under the Companies Acts is expressed in the Companies Act, 1862, to be that "the property of the company shall be applied in the satisfaction of its liabilities, pari passu, and subject thereto shall, unless it be otherwise provided by the regulations of the company, be distributed among the members according to their rights and interests in the company." Crown debts, however, and certain debts specified in the Preferential Payments in Bankruptcy Acts, are entitled to priority. By s. 10 of the Judicature Act, 1875, it is provided that in the winding-up of every company whose assets may prove insufficient for the payment of its debts and liabilities and the costs of winding up, "the same rules shall prevail and be observed as to the respective rights of secured and unsecured creditors, and as to debts and liabilities provable, . . . . as may be in force for the time being under the law of bankruptcy with respect to the estates of persons adjudged bankrupt." A company may be wound up either (1) compulsorily by the Court; or (2) voluntarily; or (3) subject to the supervision of the Court. 1 Re Ennis R. Co., L. R. 3 Ir. 94. 2 See G. N. R. Co. v. Tahourdin, 13 Q. B. D. 320; Re Brentford Tram Co., 26 Ch. D. 527; Re E. & W. I. Dock Co., 38 Ch. D. 576. 3 S. 199. See Re Free Fishermen of Feversham, 36 Ch. D. 329; Re South London Market Co., 39 Ch. D. 324, 332. This includes companies incorporated by special Acts; Re Isle of Wight Co., 2 H. & M. 597; Re Barton Water Co., 42 Ch. D. 585; Re Portsmouth Tramways Co., [1892] 2 Ch. 362. + S. 133 (1). 5 See as to the meaning of this, Birch v. Cropper, 14 App. Cas. 525. 6 Re Henley Co., 9 Ch. D. 469; Re Oriental Bank, 28 Ch. D. 643. 751 & 52 Vict. c. 62; 60 Vict. c. 19. Post, p. 324. 8 38 & 39 Vict. c. 77. See as to the rules in bankruptcy, post, Ch. XVIII.; and as to the case of secured creditors of a company, Quartermaine's Case, [1892] 1 Ch. 639; as to the position of mortgagees of a company which is being wound up, Re Pound, 42 Ch. D. 402. 9 That is, the High Court of Justice, the Palatine Court, or the County Court; see the Companies Winding-up Act, 1890 (53 & 54 Vict. c. 63), repealing s. 81 of 25 & 26 Vict. c. 89. |