Part VI. Preferential claims. Proofs of debt. Collection and Realisation of Assets. (b) All wages of any labourer or workman in respect of services rendered to the company during two months before the commencement of the winding-up. "Clerk or servant" does not include managing director: Newspaper Proprietary Syndicate, 1900, 2 Ch. 349. These provisions do not affect secured creditors: Richards v. Kidderminster, 1896, 2 Ch. 212. A person, to whom liquidators empowered to carry on the business of a company pending the sale of it as a going concern incurred liabilities, having been empowered under Sec. 150 of the Act of 1882 (Sec. 244 of 1903) to bring an action for the recovery of his debt, took out a summons calling upon the liquidators to show cause why they should not satisfy the judgment out of assets in their hands. It was held that the liquidators should pay the amount, notwithstanding there were not sufficient assets in their hands to satisfy all the debts incurred since the commencement of the winding-up, the other creditors not having taken steps to enforce their claims: Wanganui Meat Preserving Co., 12 N.Z. 148. As to mode of proof, see Secs. 204 and 248 of 1903, and Rules 23 to 31, and Forms 16 to 23 in 3rd Schedule to rules. An affidavit is not required unless the liquidator asks for it (Rule 24). The claim, if properly made, is equivalent to proof in bankruptcy; there cannot be a more convenient form of claim than a letter: Forwood's case, 5 Ch. 18. As to valuation of contingent and uncertain claims, see Hardy v. Fothergill, 13 A.C. 351, decided on the bankruptcy law, the principles of which as to debts and liabilities provable and as to the valuation of annuities and future and contingent liabilities apply in winding-up by virtue of Sec. 246 of 1903: Macfarlane's claim, 17 C.D. 337. As to proof by a bank in respect of bills endorsed to it and held by it for collection against the company originally giving the same, see City Sawmilling Co., 17 N.Z. 14. Proofs of Debt. By Sec. 248 of 1903 All debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to proof against the company, a just estimate being made, so far as is possible, of the value of all such debts or claims as may be subject to any contingency or sound only in damages, or for some other reason do not bear an ascertained value. Collection and Realisation of Assets. Costs of Liquidation. Part VI. The liquidator is entitled to his costs of the liquidation out of the free assets of the company-that is, the assets which are Costs of liquidation. not secured to any creditor for his debt. Where debentureholders are petitioners, the assets over which they hold security cannot be applied by the liquidator in payment of the general costs of liquidation. In such a case, if there are no free assets, the liquidator, if he incurs expense beyond what is necessary for the realisation of the security, must bear it himself: The J. G. Ward Farmers' &c. Co., 16 N.Z. 322. Profits Arising During Winding-up from Property Charged by Debentures. The liquidator of a company takes all profits arising during Profits from winding-up from property charged by debentures, subject to property charged by charges existing at the time of the liquidation, and sales made debentures. by him must be taken to be made with the sanction of the persons entitled to the benefit of the charges, and he is bound to account to them for the proceeds. Where, by leave of the Court, book debts included in the charge were paid in grain instead of cash, any profit or loss on re-sale of the grain accrues to or falls upon the debenture-holders. The profits arising from the working of leasehold premises charged to the debentures of which possession has not been taken are free assets: The J. G. Ward Farmers' &c. Co., 18 N.Z. 158. Distribution of Assets Remaining after Payment of the Com pany's Liabilities and the Costs of Winding-up. assets. It must first be borne in mind that a member's share in Distribution the capital of the company is his proportion in the subscribed of surplus capital of the company, and not the amount paid up on his shares: Oakbank Oil Co. v. Crum, 8 A.C. 65, cited by Lord Fitzgerald in Birch v. Cropper, 14 A.C. 525, at p. 542. The liability of shareholders to make contribution "might in many cases be just as valuable and tend just as effectually to the prosperity of the company as if they had actually paid the amount": Birch v. Cropper, ut sup., at p. 534. Where the Articles and Memorandum contain no special provision for distributing assets on a winding-up, the effect of the decisions is, as stated by Wright, J., in Driffield Gas Light Co., 1898, 1 Ch. 451, as follows:-The winding-up sections (205 and 224) of The Companies Act, 1903, "do not of themselves Part VI. Distribution of surplus assets. Distribution of Surplus Assets. supply any mode of adjusting loss of capital or of distributing surplus assets, but only supply the necessary powers for giving effect to the rights and interests of the parties. Those rights must, in the absence of any provision in the Memorandum or Articles of Association, be ascertained, in the view of one of the noble and learned Lords who took part in the decision of Birch v. Cropper, by recourse to general principles of equity; in the view of another of them, by reference to the principles and provisions of the Companies Acts. But in either view the result is the same-namely, that the capital account must first be equalised, and then there remains no ground for appropriating the balance in any other way than according to the nominal amount of the shares in the capital; and a provision in the Memorandum and Articles regulating the distribution of dividends will not of itself govern the distribution of surplus in a winding-up." Where there is no special provision in the constitution of the company, the losses are to be borne by the members of the company in proportion to the capital originally subscribed by them, and not in proportion to the sums which may happen at the time when the winding-up commences, to have been paid up on their respective shares. Therefore if, after paying the debts of the company, there remains a surplus for division among the shareholders insufficient to repay the capital in full, and some of the shareholders have paid up on their shares more than others, those shareholders who have so paid in excess are entitled to have that excess repaid to them in the first instance, so as to place all the shareholders on an equality: Maude's case, 6 Ch. 51. Where there is no special provision in the constitution of a company, and the shares are unequally called up, and there are assets more than sufficient to repay the paid-up capital, such assets are to be applied first in repayment of the paid-up capital, and any surplus is to be divided among all the shareholders, not in proportion to the amounts paid up on their shares, but according to their shares in the subscribed capital: Birch v. Cropper, 14 A.C. 525. To avoid the results arrived at in Maude's case and Birch v. Cropper, ut sup, a regulation has often been adopted by companies, of which the following is an example: If upon the winding-up of the company the surplus assets shall be more than sufficient to repay the whole of the paid-up capital, the excess Distribution of Surplus Assets. shall be distributed among the members in proportion to the capital paid, Part VI. or which ought to have been paid, on the shares held by them respectively at the commencement of the winding-up, other than amounts paid in Distribution advance of calls. If the surplus assets shall be insufficient to repay the of surplus whole of the paid-up capital, such surplus assets shall be distributed so assets that, as nearly as may be, the losses shall be borne by the members in proportion to the capital paid, or which ought to have been paid, on the shares held by them respectively at the commencement of the winding-up, other than amounts paid in advance of calls. But this clause is to be without prejudice to the rights of holders of shares issued upon special conditions. There have been two decisions on the effect of this clause. 1. In the case of The Anglo-Continental Corporation of Western Australia, 1898, 1 Ch. 327, there remained, after paying the company's liabilities and the costs of winding-up, a sum less than sufficient to repay all the paid-up capital. The capital had been unequally paid up. On 100,000 shares of £1 each 5s. per share had been paid, and 25,000 shares of £1 each had been fully paid up. It was held that the liquidator must make a call (either actual or imaginary as the case might require) of 3s. a share on the 100,000 shares, making them 8s. paid up, the amount so obtained being sufficient to repay the holders of the 25,000 shares 12s. per share, leaving them also with 8s. paid; the assets in hand to be then divided equally among the whole 125,000 shares, so that the ultimate loss of each shareholder would be the difference between the 8s. and the dividend so paid. 2. In the case of Mutoscope and Biograph Syndicate, 1899, 1 Ch. 896, there remained, after paying the company's liabilities and the cost of winding-up, a sum more than sufficient to repay the paid-up capital. It was held that the assets should be applied first in repaying the paid-up capital, and then the balance divided among the shareholders in accordance with the regulation— that is to say, in proportion to the capital which had been paid up on each share at the commencement of the winding-up. In Lowenfield's case, 70 L.T. 3, there was a provision in the Articles that If the company should be wound-up, and the surplus assets should be insufficient to repay the whole of the paid-up capital, such surplus assets should be applied in repaying to the preference shareholders pro rata the amount of capital paid on the preference shares held by them Part VI. Distribution of surplus assets. Distribution of Surplus Assets. respectively at the commencement of the winding-up, so far as such surplus assets should extend, and that the balance of such surplus assets (if any) should be distributed amongst the ordinary shareholders. Of the preference shareholders, some held shares fully paid up and some held shares partly paid up. The assets were insufficient to repay the capital. It was held by the Court of Appeal that it was the duty of the liquidator to call up what was unpaid on the preference shares, so as to equalise the capital paid up as between the preference shareholders inter se, and that as between the preference shareholders the rule in Birch v. Cropper was not excluded, though it was as between the preference and ordinary shareholders; that the words paid up on the shares held by them respectively at the commencement of the winding-up, did not mean paid up at the commencement of the winding-up, but paid up as the result of a call, whether for the purposes of paying the company's liabilities or for the purpose of adjusting the rights of contributories inter se-i.e., properly called up and paid either before or in the course of liquidation; and that it is the duty of the liquidator to make a call as much for the purposes of equalising the rights of contributories inter se as for the purpose of paying the company's liabilities; and that the expression "surplus assets" prima facie includes all capital which has been realised by means of either selling the assets or of enforcing the liability of the shareholders during the progress of the liquidation after the debts and liabilities in the course of the winding-up have been discharged, and includes capital called up for the purpose of adjusting the rights of contributories inter se. The expression "surplus assets" in that case was held, to include any call necessary to adjust the rights of contributories inter se. See Art. 159, p. 88 supra, and notes thereto. As to division of accumulated profits on liquidation, see pp. 261 and 263 supra. |