Francis Beaufort Palmer.

Company precedents for use in relation to companies subject to the Companies acts, 1862 to 1890 ... (Volume 2) online

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the person intending to use the same shall, not less than fifteen days before the day
appointed for hearing the application, give notice of such intention to each person
against whom it is intended to use such notes, or any of them, specifying the notes
or parts of the notes which it is intended to read against him, and furnish liim with
copies of such notes, or parts of notes (except notes of the person's own depositions),
and provided also that every person against whom the application is made shall
be at liberty to cross-examine or re-examine (as the case may be) any person the
notes of whose examination are read, in all respects as if such i)erson had made an
affidavit on the application.

As to the portion of the above rule in italics, sect. 8 (7) of 1890, says that the
notes of examination "shall be read over to or by, and signed by the person
examined, and may thereafter be used in evidence against him."

As against others the deposition can only be treated as an affidavit, i.e., the
deponent must bo produced for cross-examination. London and General Bank, W. N.
(1891) 101 ; and compare In re Briinner, 19 Q. B. D. 572, in which Cave, J., pointed
out the injustice and hardshiii which would bo likely to result if the answers of a
bankrupt at his public examination were held admissible as against persons not
present.

Some doubts have been expressed as to whether the portion of R. 27, in italics, ia



MISFEASANCE AND BREACH OF TRUST. 541

not ultra vires ; but soo Institute of Tatent Agents v. Loelcirond, (1894) A. C. 3-17, and
London and General Bank, supra.

As to using a private examination for the purpose of obtaining discovery in aid
of other litigation between the company and the examinee, see Korth Australian
Territory Co., 45 Ch. Div. 87. As to using a private examination to obtain
materials for a public examination, see E.v parte Barnes, (1896) A. C. 146, 157.

The section ap^jarently applies wherever an officer of the company has "com-
mitted a breach of his duty to the company, the direct consequence of which has
been a misapplication of its assets, for which he could be made responsible by an
action at law or in equity." Kingston Cotton Mill Co. (2), (1896) 2 Ch. 283.

The following are some of the cases in which orders have been made under Examples of
the above section: — Stringer^ s Case, 4 Ch. 475 ; London and General Bank (1), (1895) misfeasance
2 Ch. 673: Dk-ector and auditors ordered to repay dividend declared and paid and breach of
under delusive balance sheet. Bance's Case, 6 Ch. 104 : Director ordered to
repay bonus improperly paid to him. National Funds Assurance Co., 10 Ch. D. 118 :
Directors ordered to repay dividends improperly paid to shareholders out of
capital. Alexandra Palace Co., 21 Ch. D. 149 ; FUtcroft''s Case, 21 Ch. Div. 519 ;
British Imperial Assurance Corporation, 5 Ch. D. 749 ; Oxford Building Society, 35
Ch. D. 502 ; Leeds Estate Co. v. Shepherd, 36 Ch. D. 787 ; Denham 4- Co., 25
Ch. D. 752; Be Sharpe, (1892) 1 Ch. 154; 40 W. R. 241; Lotidon and General
Bank: (2), (1895) 2 Ch. 673 : Similar orders against directors and auditor.
McKay'' s Case, 2 Ch. Div. 1 : Secretary ordered to pay full nominal value of paid-up
shares given him by vendor. Be Euvigne''s Case, 5 Ch. Div. 306 ; and Pearson'' s
Case, 5 Ch. Div. 336 : Similar orders against directors whose qualification shares
had been given them. M'ltcalfe's Case, 13 Ch. Div. 169 ; Carriage Co-operative
Association, 27 Ch. D. 322 ; and where promoter has purchased his qualification
shares from him pursuant to agreement entered into when he became a director.
Archer'' s Case, (1892) 1 Ch. 322 : Similar orders against directors who had accepted
shares from promoter. National Funds Assurance Co., W. N. (1876) 192: Another,
notwithstanding all the shareholders knew of it. Postage Stamp, (^-c. Co., (1892) 3
Ch. 566 : Directors ordered to make good amount which ought to have been
invested in Government securities, viz. , half the premiums paid by policy holders.
See Form 632, infra. Similar order against directors in British Guardian Life
Assurance Co., 14 Ch. D. 335. Englefeld Co., 8 Ch. Div. 388, and Form 627, infra :
Directors ordered to make good a sum paid to a promoter ' ' for preliminary
expenses," out of which the dii'ectors' qualifications were provided. Railway, ^c.
Co., Marzetti's Case, 28 W. R. 541 : Director ordered to repay sums paid nominally
for preliminary expenses, but really for rigging the market. Public Supply Associa-
tion, W. N. (1880) 106 : Be facto director ordered to pay nominal value of shares
taken and paid for by him, with fees improperly paid by the board. And see
Coventry and Bixon^s Case, 14 C. D. 660, as to de facto ofiicers ; International Cable Co.,
66 L. T. 253 ; London Trust Co. v. Mackenzie, W. N. (1893) 9 : Directors ordered to
return secret benefits. George Netcman ^- Co., (1895) 1 Ch. 674 : Dii-ector held liable
for present made to himself out of company's assets.

It was held that sect. 165 did not create any new liability or right, but only pro- Section con-
vided a more convenient means of enforcing rights and remedies which would have ^f^^ ^^ ^^^
been enforceable by action if there had been no winding-up. Canadian Land, ^-c. "^
Co., Coventry and Dixon' s Case, 14 Ch. Div. 666 ; Cavendish Bentinck \. Fenn, 12 App.
Cas. 652. See also Forest of Bean Co., 10 Ch. D. 450. And the object of sect. 10
of 1890 is the same as that of the section which it has replaced, but it does not apply
to all cases in which actions will lie by the company for the recovery of damages
against the persons named in the section. Kingston Cotton Mill Co. (2), (1896) 2 Ch.
279, 283.



542



WINDING-UP BY THE COURT. [ChAP. XLV.



Delay.



Statute of
Limitations.



"WHO AEE
OFFICEES.



Bankers.

Solicitors.

Auditors.



Nonfeasance.



Set-off.



Trafficking
in right to
proceed.



CofttH.



An order under sect. 165 could not be made against the executors of a deceased
director. In re British Guardian, ^-c. Co. , ubi supra. But they may in some cases
be made liable in an action.

Where the alleged misfeasance consists of an act which is not ultra vires the com-
pany, and not fraudulent or dishonest, the directors are not liable unless it can be
shown that they did not really exercise their discretion and judgment as such
directors, and that the omission to do so resulted in loss or damage to the company.
Miv Mashonalancl Co., (1892) 3 Ch. 577 ; and see Faure, ^e. Co., 40 Ch. D. 141.

As to delay barring a claim, see Metropolitan Bank v. Seiron, 5 Ex. Div. 319 ; lie
Alexandra Palace Co., ubi supra; London Financial Association v. Kclk, 26 Ch. D.
706 ; Fitzroy Bessemer Co., 50 L. T. 144 ; Re Sharpe, supra.

Where more than six years have elapsed after a breach of trust which is not
fraudulent, the benefit of sect. 8 of the Trustee Act, 1888, is available as a defence.
Lands Allotment Co., (1894) 1 Ch. 616.

Where a director was ordered, under sect. 165, to pay the full nominal value of
the shares, it was held that he was not ' ' a trustee or person acting in a fiduciary
capacity," within the third exception to sect. 4 of the Debtors Act, 1869, and
accordingly could not be committed to prison for default in paying. Diamond Fuel
Co. (2), 13 Ch. D. 815.

The summons usually seeks a declaration of liability. See Form 625 and orders
below, and British Seamless Co., 17 Ch. D. 470; Alexandra Palace Co., ubi supra;
Great Wheal Polgooth Co., 53 L. J. Ch. 42.

Bankers of a company are not its officers : Imperial Land Co. of Marseilles, 10 Eq.
289.

Prima facie the company's solicitor is not an officer within this section (Great
Wheal Polgooth Co., ubi supra; Great Western Forest of Dean Co., 31 Ch. D. 496);
but he may be, e. g., when he does all the work for a fixed salary. Liberator Build-
ing Society, 71 L. T. 406. An auditor is an officer when appointed under the pro-
visions now commonly inserted in articles of association, i.e., substantially the same
as those in Table A. to the Act of 1862, whether the company is a limited bank
under the Companies Act, 1879 [London and General Bank, (1895) 2 Ch. 166), or an
ordinary trading company. Kingston Cotton Mill Co. (1), (1896) 1 Ch. 6. But
every auditor is not an officer, and certainly not an accountant, who is casually
called in to audit accounts or prei^are a balance sheet, but not appointed in the
manner pointed out by the articles. Western Counties, ^c. Co., (1897) 1 Ch. 617.
As to what acts constitute misfeasance on the part of an auditor, see London and
General Bank (2), (1895) 2 Ch. 673; Kingston Cotton Mill Co. (2), (1896) 2 Ch. 279.

Nonfeasance is not misfeasance within this section. Forest of Dean, tibi supra;
Wedgwood Co., 31 W. E.. 181 ; New Mashonaland Co., ubi supra. But negligence
amounting to a breach of trust is misfeasance. Liverpool Household Co., 62 L. T.
873 ; see Marquis of Bute's case, (1892) 2 Ch. 100.

No set-off is allowed upon a proceeding under this section. Flit croft's case, ubi
supra; Anglo-French Society, 21 Ch. D. 492 ; Milan Tramways, 25 Ch. D. 587; see,
however, Cardiff Savings Bank, 45 Ch. D. 537.

A claim under the section is a chose in action, which may be sold and assigned
under sect. 95. Park Gate Co., 17 Ch. D. 234. In Wood v. Jf'oodhouse and Rawson
United (W. N. (189G) 4), an order was made for sale of the right to take proceedings.
A sale was effected, and proceedings were commenced but compromised. Accord-
ingly, parties who arc liable to proceedings under that section sometimes find it
worth while to buy the whole assets, paying a comjiosition to creditors, and the
costs of the winding-up.

Afl to the costs allowed on a misfeasance summons, see Anglo- Austrian, 6;c. Union,
(1894) 2 Ch. 622, and consequent new rules, infra, p. 570.



MISFEASANCE AND BREACH OF TRUST. 543

And as to payment of such costs when all the assets arc covered by, but are
insufficient to pay off in full, the debentures, see Ai'fflo' Austrian Prmting, ^-c. Union,
(1895) 2 Ch. 891.

Let all parties concerned (Form 10), on the part of A. B., the Form 623.
off recr, and as such the liqr of the above-named coy, that the I ;

r •! -1 oummons by

applicant may be at liberty, &c. \_e.y., as m the following order], and official

that the applicant may be indemnified in such manner as the Ct may receiver for

direct against any costs to be incurred by him in such proceedings out proceed for

of the assets of the above-named coy. misfeasance.

Before the official receiver takes proceedings under sect. 10, he makes a report to Report to
the Board of Trade as to the proposed proceedings, which is accompanied with Board of
copies of his draft report to the Court of the summons proposed to be issued, and ■'■^^'i^-
of the application for authority to employ a solicitor. A minute by the Board of
Ti'ade is then annexed, which is noted and returned to the Inspector- General in
Companies Liquidation. See Re Netv Zealand, <^-c. Co., W. N. (1894) 200, as to the
official receiver's duty to apply to Board before taking proceedings.

Upon the applicon of C. J. S., the off recr and liqr of the above- Form 624.
named coy, by summons dated 24th June, 1892, and upon hearing Z~7' '

counsel for the applicant, and upon reading the order to wind up above sum-
dated the 2nd of May, 1891, and the afft of S., filed 24th of June, °^°^»-
1892, and the exhibits therein referred to. It is ordered that the
appKcant be at liberty to institute and prosecute proceedings under
sect. 10 of the Cos (Winding-up) Act, 1890, against H. B., of &c., the
promoter and one of the directors of the above-named coy, and C. D.
and E., directors of the above-named coy, or any of them as he maybe
advised, but such proceedings are not to be heard until after the trial

of certain criminal proceedings now pending against the sd ,

and (with others), arising out of the winding-up proceedings

" In the matter of the Co., Limtd." And it is ordered that

the applicant be indemnified against any costs to be incurred by
him in such proceedings out of the assets of the above-named coy.
Anglo-Austrian Printing, S^c. Union (1891), A. 0120. 28th June, 1892.
Registrar.

Formal parts : see p. 22. Form 625.

that it may be declared that A. is liable to contribute to the assets of 7

•' ^ , Summons

the coy the sum of 1., as compensation for his misfeasance in under

accepting, whilst a director of the coy, certain bonus shares from ^^^^- ^^ ^^
A. B., the vendor to the coy. And that the sd A. may be ordered,
within four days after the service on him of the order to be made

hereon, to pay the sd sum of 1, to the applicant as such off liqr, and

that the sd A, may also be ordered to pay the costs of this applicon.

The summons must state very clearly the nature of the claim.

Prima facie the summons ought to give to the respondents fair notice of the



544



WINDTNG-UP BY THE COURT. [ChAP. XLV.



transactions impeached, and the grounds of impeachment, and, at any rate, the
affidavits should formulate the applicant's case and state whether he claims in
respect of broach of trust, misfeasance, fraud, negligence, or how otherwise.
New Mashonaland Co., (1892) 3 Ch. D. 577 (in which case the above form was
approved by Vaughan Williams, J.). As to the inconvenience of inserting alterna-
tive claims, see E. J. Wrarjcj, Limtcl., W. N. (1896) 166.

Although cases against different respondents must not be mixed up in an oppres-
sive way, the respondent must, as a general rule, ascertain what part of tho
liquidators' evidence affects him. Ifntual Socicti/, 22 Ch. D. 714. The liquidators
will not, in the absence of special circumstances, be required to make an affidavit of
documents, but must produce those which the respondent requires to see. Ibid.



Form 626. I^^t, &c., on tlie hearing of an applicon on the part of the abovo-
~ ;: — named pits in the second above-mentd action, as holders of debentures

Summons lor

liberty to of the above-named coy, that they may be at liberty to attend the

attend pro- proceedings instituted by C. J. S., the off recr and liqr of the above-

under sect. 10 named coy, under sect. 10 of the Cos Winding-up Act.

of 1890. j^i^^ that the sd off recr and liqr may be directed to give notice

from time to time to Messrs. A. and B., of &c., the applicants' solors,

of all proceedings to be had and taken under the sd applicon, and

otherwise in and about the sd liquidation until further order.

And that the costs of and consequent upon this applicon may be
costs in the above-mentd action of B. v. A. Co., and be added to the
applicants' securities, and the ppal and interest due on their securities.

As to entering the name, &c. of the person having liberty to attend, see R. 173
of 1890, supra, Chap. XIV.



Form 627. Upon the applicon of



the off liqr, &c., Declare that the sd



Order for

repayment of

Tiiouey

improperly

paid for

proliiiiinary

expenses.



C, H., P., S., and W., directors named in the prospectus of the sd
coy, are jointly and severally liable to pay the sum of 3,000/., being
the balance, after giving credit for the sum of 500/. already received
by the sd off liqr, of the sum of 3,500/., the amount paid to S. in
respect of preliminary expenses, and retained or applied by the sd S.
for purposes other than preliminary expenses properly payable, together
■with interest at tho rate of 5 p.c. p. a. on the sd 3,500/. from the respve
dates of tho payment of the cheqties to the sd S., as shown by the sd
afft of, (fcc, as follows : namely, 1,200/. on, &:g. [^and so forfh']. And
order that tho sd C, &c. do, within fourteen days from the date of this
order, or within four days after service of this order, jointly and
severally pay the amount of the sd sum of 3,000/., and such interest
as afsd, to tho sd S., tho off liqr of the sd coy. And order tliat the sd
C, &c. do pay to the sdoff liqr tlio costs of and incident to this applicon
and consequent thereon, such costs to be taxed, &c. Enfjlefield Colliery
Co., Malins, V.-C, 28th July, 1877 ; 8 Ch. Div. 388. A. 1720.



MISFEASANCE AND BREACH OF TRUST. 5iO

Uj)on tliG applicon of tlio off liqr, It is ordered tliat A., B., C, aud Form 628.

D. do, Avitliin seven days after service of this order, pay to the sd A. C, 'Z~, '. 7

•^ ' i. J 7 Oi.£jpj. agam8t

as such off liqr, 500/. received by the sd A., B., C, and 1)., or some or directors to
one of them, for unpaid calls on shares after the date of the presenta- repay moneys.
tion of the peton to wind up the sd coy. Globe New Patent, M. E.,
11th April, 1876. A. 807.

This order was probably made under sects. 153, 165 of 1862, ag'aiust directors.
Tlicy had applied the money in paying their own fees. See also Neath Ilarbour, S;c.
Co., 56 L. T. 726 ; and compare with Civil Service Co., 58 L. T. 220 ; and IFasJwigton
Diamond Co., W. N. (1893) 17.



Upon the applicon of the liqr, The Ct doth order and declare that Form 629.
the sd N. appropriated to his own account of the moneys of the coy the Order against
following sums, viz., &c. ; and that he has become liable and account- manager,
able to the sd coy for such sums, together with interest thereon resply
at the rate of 5 p.c. x>.a. from the afsd dates until payment. And
order for paj'ment on or before 25th March, 1885, or subsequently
within four days after service and costs. Nicholson^ s Discount Co.,
Chitty, J., 1 1th March, 1885. B. 302. And see the order of Vaughan
Williams, J., in Kingston Cotton Mill Co. (0098 of 1894).

Upon the applicon by summons dated, &c., of S., the off recr and Form 630.



liqr of the above-named coy, for an order {i?iter alia) that it might be Qrder for
declared, &c., and upon hearing, &c., declare that the sd respondents, repayment of
J. L. and P., were guilty of misfeasances and breaches of trust in ™viclend^s and
relation to the above-named coy, aud have become jointly and severally extra remu-
liable by reason thof to contribute the several sums hnftr mentd to the j^'t^^"^ °
assets of the above-named coy, aud order that the sd respondents,
J. L. and P., do on or before 7th March, 1894, or subsequentl}", within
four days after service of this order upon them resply, jointly and
severally pay to the sd S., as such off recr and liqr as afsd, the follow-
ing sums (that is to say) : — (1) 10,000/. wrongfully pd to and received
by the sd B. on or about 13th Aug., 1890, as afsd, and (2) the sum
of 2,150/. 12s. Id. pd on or about 25th Sept., 1890, to the shareholders
of the above-named coy as dividends as afsd, together with interest on
the sd sums resply at the rate of 5/. p.c.p.a. from the afsd dates; and
order that the sd respondents, J. L. and P., do on or before 7th March,
1894, or subsequently, within four days after service of this order
upon them resply, jointly and severally pay to the sd S., as such off
recr and liqr as afsd, the sum of 466/. 13s. 4d. pd on or about 24th
Oct., 1890, to the directors of the above-named coy as additional
directors' fees as afsd, together with interest thereon at the rate of
5 p.c.p.a. from the sd 24th Oct., 1890 ; and order that the sd respon-
dents, J. L. aud P., do jointly and, severally pay to the sd S. his costs
p. N N



546



WINDING-UP BY THE COURT. [ClIAP. XLV.



Form 631.

Order on
directors to
repay moneys
improperly
retained to
pay qualifica-
tions.



of this applicon (such, costs to be taxed), except so far as the same
have been increased by adding the sd B. as a respondent to this
applicon, and excepting that the sd S. is to give credit for what he
shall have received from G. in respect of the costs directed to be taxed
and pd by him under the sd order dated 3rd Aug., 1893. Re Anglo-
Austricm, Sfc. Co., Vaughan AVilliams, J., 10th Feb. 1894.

Uj)on the applicon of B., the liqr of the above-named coy, &c., and
the Ct being of opinion that the persons named in the schedule hereto
are jointly and severally liable to refund the sum of 900^. in respect
of moneys of the sd coy improj)erly retained by them while directors,
for the j)urpose of paying up the twenty shares held by each of them
therein, and interest thereon as hinftr mentd, Order that the sd several
persons named in the schedule hereto pay to the sd B., the liqr of the

sd coy, at his office. No. — , Street, &c., within four days after the

service of this order on each of them resply, the sum of 1,053/. 13*. Id.,
being the sd sum of 900/. so retained by them as directors, with the
sum of 153/, 13s. Id. for interest, less income tax, due to the date of
this order, at the rate of 5 p.c. p. a., from the date when the sd moneys
making up the sd sum of 900/. were resply retained, after deducting
income tax. And order that the sd several persons named in the sd
schedule do also pay to the sd B. interest at the rate afsd on the sd
900/. from the date of this order until payment. Patent Cocoa Fibre
Co., Bacon, V.-C, 1878. B. 645.



Form 632.

Order on
directors to
pay half
premiums
"which ought
to have been
invested.



Upon the aj)plicon of the off liqr, and of, &c., Declare that each of
the sd directors of the coy is jointly and severally liable to the extent
of half the premiums received by them resply during the respve
periods when they were such directors, after deducting the amount of
death claims pd under policies and any sums pd for surrender value
of policies. And order that the persons named in the first column of
the schedule hereto (being the sd directors) on or before 17th Dec.
1877, or subsequently within four days after service of this order, pay
into Ct to the credit of this matter, "In the matter, &c.," to an account
to be intituled " Policy Guarantee Account," the sums in the second
column of the sd schedule set opposite the names of such persons resply,
amounting in the whole to G28/. 18s. 5d. And order that C, &c., pay
to the applicants their costs of the applicon in Chambers and of and
incidoTit to this order, to bo taxed, &c. Natioiial Funds Co., M. E.,
17th Nov. 1877. B. 3075. This order is referred to in Re British
Guardian Co., 14 Ch. D. 335.



Form 633. Upon the applicon of IT., the off liqr, &c., Declare that all persons
Order declur- being directors of the coy, who in any manner authorized, sanctioned,



MISFEASANCE AND BKEACII OF TRUST. 547

or participated in the payment to shareholders of interest on their ing liability
respve shares out of tlio capital of the sd coy are jointly and severally "^^ refurfd"
liable to repay to the off liqr of sd coy the amount so pd, without pre- dividends
judice to the rights of the directors so liable, after they shall have pd c^pitar* °th
to the off liqr the amounts due from them resply, to recover the same inquiries,
from the shareholders who received such payments. And order that
the following inquiries be made : — 1 . An inquiry what were the amounts
of the various payments so made resply, and when and to whom the
same were resply made. 2. An inquiry what persons were directors
of the sd coy at the respive times when such payments were made, and
which of them in any way authorized, sanctioned, or participated in
the making of such payments. And costs of off liqr of apj)licon to be
taxed and allowed out of assets of coy. British Imperial Insurance
Corporation, Hall, V.-C, 4th Aug. 1879. A. 2173.

See FHtcroft''s case, 21 Ch. Div. 519 ; Alexandra Palace, 21 Ch. D. 150 ; Lenham ^
Co., 25 Ch. D. 752 ; Oxford Building Society, 35 Ch. D. 502.



Upon the applicon of E., the off liqr of the above-named coy, that Form 634.
it might be declared that the sale to H., on the 10th Nov. 1883, of Order a^-ai st
certain goods of the sd coy lying on premises of the L. & N. W. E. Coy, directors for
and of the interest of the coy in a certain railway arch, Limehouse, ^yQ^^^^^^^
with the fittings, tank, and tables therein, was a fraudulent preference fraiululent
and invalid ; and that it might be declared that the sd H., K., and M. P^'eference.
resply directors of the coy, were resply guilty of a misfeasance or
breach of trust in relation to the sd coy by reason of such sale and
fraudulent preference, and for other relief, as in the sd summons
mentd, and upon hearing counsel for the applicant, &c., and the
judge being of opinion that the sale afsd was a fraudulent preference
and invalid as afsd, and that the sd H., K., and M. were guilty of a
misfeasance or breach of trust in relation to the coy, and have become
jointly and severally liable by reason thereof, Order that the sd H., K.,



Online LibraryFrancis Beaufort PalmerCompany precedents for use in relation to companies subject to the Companies acts, 1862 to 1890 ... (Volume 2) → online text (page 72 of 134)