Great Fingall Associated Gold Mining Co v Harness [1906] HCA 69; (1906) 4 CLR 223 (6 November 1906)

HIGH COURT OF AUSTRALIA

Great Fingall Associated Gold Mining Co. and Another Appellants; and Harness and Others Respondents.

H C of A

On appeal from the Supreme Court of Western Australia.

6 November 1906

Griffith C.J., Barton and Higgins JJ.

Pilkington K.C. (with him Marsland), for the appellants.

Northmore, for respondents.

Pilkington K.C., in reply.

Nov. 6

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[1], that the petitioning creditors must show a primâ facie case that they would be prejudiced by a voluntary winding-up. The petitioning 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 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[2], 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 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 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.

Higgins J.

I agree. I have been impressed by the argument of the appellants, as to the extensive powers given to voluntary liquidators, and over voluntary liquidators, by the Western Australian Companies Act 1893. But looking at the issue put before us under sec. 150 of the Companies Act 1893, the question remains whether the rights of the creditors would be prejudiced by the voluntary winding-up. I think they would be for the reasons stated by the Chief Justice. In matters like this each case has to be looked at in the light of its own facts. I know very well that these applications for compulsory winding-up orders are very much abused, and are frequently made use of for wrong purposes. But here I see a real and substantial case of doubt as to the shares, whether they should be treated as fully paid up Sec. 26 of the Act states that every share in a company, excepting a no-liability company, shall be deemed to have been issued and be held subject to the payment of the whole amount thereof in cash unless it shall have been otherwise determined by the memorandum or articles, or by a contract duly made in writing and filed with the Registrar at or before the issue of such shares. This section has not been fully discussed; and it seems to me that, on the allegations in the affidavit the appellants have not been relieved of the burden of showing that the agreement had been registered at or before the issue of the shares. This section puts a further restriction on the validity of transactions whereby shares are treated as paid up for the amount represented. Primâ facie, if a man holds a share, he must show that he has paid cash for it; and if he cannot do so, he must show that the shares were issued as fully paid up in pursuance of a real contract, value for value. But even if value was given, the shares could not be treated as paid up to that value, under the English Companies Act of 1867, unless it be so determined by a contract in writing filed with the Registrar at or before the issue of the shares. Then, in the Western Australian Act there is the additional phrase, "unless it shall have been otherwise determined by the memorandum or articles," so that the exemption from payment in cash may be permitted, either by the constitution of the company (memorandum or articles) or by a contract duly made in writing and filed with the Registrar at or before the issue of such shares. I do not see anything in the memorandum or articles of this company determining that the shares shall be paid for otherwise than in cash; and I do not find any evidence that there was a contract duly filed at or before the issue of such shares. Even if there was such a contract registered, I do not at all wish to be taken at present as accepting the position that that would have been sufficient to enable those who took those shares to treat them as paid up to 6/- if they were not in fact so paid up in cash or in kind—"in meal or in malt." The appeal must be dismissed with costs.

Appeal dismissed with costs.

Solicitor, for the appellants, L. W. Marsland.

Solicitor, for the respondents, H. C. Keall.

[1] 39 Ch. D., 415.

[2] (1892) A.C., 125, at p. 136.