1906. GREAT ASSOCIATED GOLD MINING Co. 2. HARNESS. H. C. OF A. able to control the raising of the money for the company, to pay M. the cash purchase money due under the agreement. There can be no suggestion that this was a sham device to issue shares FINGALL at a discount; it was a vital part of the consideration in the agreement. M. or his nominee could not at any time have been called upon to pay up the 6s., and his transferees therefore cannot now be made contributories. The agreement was registered before the allotment of the shares. The mere statement therein that the shares belonged to M. is admittedly not conclusive; the test is that the real nature of the agreement must be looked into, but it will bear that scrutiny completely. It need not be shown that M. was getting the 25,000 shares in lieu of other consideration. The shares were an integral part of the consideration to M. as vendor. [HIGGINS J.-Was that agreement binding on the company? It was made before the company was formed, and it does not even appear to have been filed before the issue of the shares: Companies Act (W.A.), soc. 26; Buckley on Companies, 7th ed., pp. 569, 605; Smith v. Brown (1).] The agreement was made with a trustee for the company; the agreement and the incorporation took place the same day; the articles expressly provide that the company shall adopt the agreement; this is also in the memorandum; and a subsequent deed under the company's seal recites that the agreement had been adopted. Sec. 26 requires only such registration as shall give information to persons searching the register. Further, the company has bound itself by a course of conduct to observe the agreement. A majority of the creditors are in favour of voluntary liquidation. [GRIFFITH C.J.-But most of these are shareholders. You have only £500 worth out of £4,000 who are disinterested.] Regard should be had to the value of the debts of the creditors; the wish of the majority should be most carefully considered : Re Crigglestone Coal Co. (2); In re West Hartlepool Iron Works Co. (3); In re Langley Mill Steel and Ironworks Co. (4). Northmore, for respondents. (1) (1896) A.C., 614. There is a great difference (3) L. R. 10 Ch., 618. 1906. FINGALL Co. v. HARNESS. between voluntary and compulsory liquidation. The Court has H. C. OF A. much greater control over a compulsory liquidation than over voluntary sec. 159. If voluntary liquidation is the same as GREAT compulsory liquidation in effect, sec. 150 was really unnecessary, ASSOCIATED and also futile, because then the creditors could not show that GOLD MINING voluntary winding-up prejudiced their rights. But it is of the essence of voluntary liquidation that it shall be left in the hands of the shareholders. In any event, it is too much to impose upon the creditors the necessity of coming to Court to make complaints against the voluntary liquidator at the risk of losing costs. The liquidator should be the nominee of the creditors appointed by the Court, to relieve them of otherwise endless meddling. The creditors should not be required to act as a vigilance committee. The power to apply under sec. 147 to remove an improper voluntary liquidator is valueless unless the Court has a very liberal discretion to order compulsory liquidation. Under sec. 148 the voluntary liquidator reports only to the shareholders at the end of the winding-up proceedings; whereas the compulsory liquidator has to report to the creditors. Compulsory liquidation being so much more beneficial to creditors than voluntary, and having been granted by the Judge, should not be set aside except for very strong reasons. Even if there is no difference between the two modes of liquidation, yet it makes a substantial difference in the liquidation proceedings according as they are carried out by an interested shareholder or a vigilant creditor. The facts show a substantial case for compulsory liquidation. In re Innes & Co. (1) is clearly distinguishable. The 25,000 shares issued to M. were never given as part of the consideration; M. was used as a mere conduit-pipe through whom the shares were to be passed on to the public at a discount. The 25,000 shares may have been expressed in the deed of agreement as part of the consideration, but that is only colourable, and the Court is entitled to look behind it. The case is not only arguable as regards the 25,000 shares, but probably also as regards the 125,000 shares, which themselves appear to have been issued at a valuation which was not genuine: Buckley on Companies, 7th ed., p. 607. This winding-up order should not be reversed unless (1) (1903) 2 Ch., 254. 1906. GREAT FINGALL ASSOCIATED H. C. OF A. the appellants can show that there can be no prejudice to the creditors in having a voluntary liquidator, who would not be a bona fide plaintiff. The alleged majority of creditors is only nominal, as most of them are shareholders, and two of them were GOLD MINING guarantors of an overdraft of the company. Even a majority of creditors may be overbalanced by the danger of inefficient liquidation: Re Littlehampton, Havre and Honfleur Steamship Co.; Ex parte Ellis (1). Co. v. HARNESS. Nov. 6. Pilkington K.C., in reply. Voluntary liquidation cannot in itself prejudice the creditors; their only real objection is to B. personally as an interested shareholder. The appellants do not object to the creditors having their own nominee appointed to be voluntary liquidator under sec. 147. The accounting to shareholders either is, or is not, prejudicial to creditors. If it is, without special reason, then it is so always, which is absurd, as that would cut away the foundation from every voluntary winding-up. The agreement would be open to objection, if the shares were stated as at a discount in the bargain; but not if the sale is stated as for a certain number of shares. The sole test of the genuineness of the sale is whether the condition in the agreement is one which the vendor could reasonably be expected to insist upon as part of his bargain. GRIFFITH C.J. This is an appeal from a decision of the Full Court of Western Australia dismissing an appeal against an order of McMillan J. for the compulsory winding-up of the appellant company, which, when application was made for the order, was already in voluntary liquidation. Sec. 150 of the Companies Act 1893 provides:-"The voluntary winding-up of a company shall not be a bar to the right of any creditor of such company to have the same wound up under order of the Court if the Court is of opinion that the rights of such creditor will be prejudiced by a voluntary winding-up." It is contended, and the contention is borne out by the case In re New York Exchange Limited (2), that the petitioning creditors must show a prima facie case that (1) 34 L.J. Ch., 237. (2) 39 Ch. D., 415. 1906. GREAT FINGALL ASSOCIATED Co. V. HARNESS. Griffith C.J. they would be prejudiced by a voluntary winding-up. The peti- H. C. of A. tioning creditors in the present case say that under the peculiar circumstances attending the formation of this company there is reason to contend that a great number of the shares in the company are not fully paid up. Nominally the shares are all fully GOLD MINING paid up, but the petitioning creditors contend that there is a further liability in respect of some, at least, of the shares, and they say they are entitled to have the question investigated at the suit of a proper plaintiff or actor. The present liquidator, who is the late secretary of the company, is himself the holder of 5,000 or 6,000 shares, as to which it is plausibly maintained that they are not fully paid up. He obviously could not be regarded as an independent actor in a suit or proceeding to enforce payment of calls on those shares. It is not desirable to refer in detail to all the points which were taken to show that the shares were not in fact fully paid up. It is sufficient to say that the shares were all issued to the vendor to the company under an agreement containing some provisions of a very remarkable character. In the case of Ooregum Gold Mining Co. of India v. Roper (1), Lord Watson said: "It has been decided that, under the Act of 1862, shares may be lawfully issued as fully paid up, for considerations which the company has agreed to accept as representing in money's worth the nominal value of the shares. I do not think any other decision could have been given in the case of a genuine transaction of that nature where the consideration was the substantial equivalent of full payment of the shares in cash. The possible objection to such an arrangement is that the company may overestimate the value of the consideration, and, therefore, receive less than nominal value for its shares. The Court would doubtless refuse effect to a colourable transaction, entered into for the purpose or with the obvious result of enabling the company to issue its shares at a discount; but it has been ruled that, so long as the company honestly regards the consideration given as fairly representing the nominal value of the shares in cash, its estimate ought not to be critically examined." Under the peculiar terms of the agreement under which the shares in this company were (1) (1892) A.C., 125, at p. 136. 1906. GREAT FINGALL ASSOCIATED Co. υ. HARNESS. Griffith C.J. H. C. OF A. issued it is contended, with regard to some of them at any rate, that it appears on the face of the agreement that the company did not regard the consideration given as fairly representing the nominal value of the shares. Can then the matter GOLD MINING be properly investigated in the voluntary winding-up? Mr. Pilkington contends that under the law of Western Australia the liquidator in a voluntary winding-up has practically the same powers as an official liquidator. So he has in one sense, but not the same incentive to exercise them. He is appointed in the first instance by the shareholders. It is true that under the Western Australian Act he can be removed, and the Court may appoint another in his place. Mr. Pilkington admits that if this compulsory winding-up order does not stand there would be a good case for the removal of this liquidator and the appointment of another. On what principle the Court would act in appointing another liquidator in a voluntary winding-up I do not know. The object of the appellants is that this matter may be thoroughly investigated. It is not disputed that it is the practice of the Courts in England, where matters cannot be impartially and fully investigated under a voluntary winding-up, to make a compulsory order or supervision order. Notwithstanding the additional powers a voluntary liquidator has in Western Australia, it is impossible to say that the two modes afford equal facilities for investigation. It is objected that the Court must have regard to the wishes of the creditors. It is provided by the Act that the Court must have regard to the wishes of creditors, but not that it is to be bound by them. It is said that in this case there is a large preponderance of creditors who desire the company to be wound up voluntarily. That is true, but the great majority in value are directors who knew the circumstances under which the shares were issued, while another was the guarantor of the company. If these are left out of consideration there is a considerable majority in value who desire that there should be an order for the compulsory winding-up of the company. I think that the order made by the Supreme Court was properly made and should not be disturbed. BARTON J. I am of the same opinion. |