Re Maidstone Buildings Provisions Ltd
| Jurisdiction | England & Wales |
| Date | 1971 |
| Year | 1971 |
| Court | Chancery Division |
Company - Winding up - Fraud - Secretary of company - Liquidator's claim for declaration of liability - “Parties to the carrying on of the business” - Whether applicable to company secretary -
A chartered accountant, who was a partner in the firm which acted as auditors of an incorporated company, was appointed secretary of that company in March 1960. He ceased to be secretary in November 1962 but was reappointed in December 1952. At a meeting of the board of directors in March 1961 the draft figures which he presented showed a considerable loss. The secretary, or his staff, continued until November 1962 to prepare monthly and quarterly written statements of the company's finances, and advised the board of directors as to the position indicated by those figures. Except for one directors' meeting held in September 1962, the secretary was present or in attendance at all meetings held from March 1961 until he resigned in April 1965. The company's finances were discussed at directors' meetings subsequent to that of March 1961 and resolutions were passed to effect certain economies. However the company continued to trade at a heavy loss, incurring debts without any reasonable prospect of being able to pay them. In June 1965 a resolution was passed at an extraordinary general meeting that the company be wound up voluntarily. The liquidator sought an order against the directors and also against the secretary making them personally liable for the liabilities of the company pursuant to section 332 of the Companies Act 1948F1.
On an application by the secretary for the proceedings to be dismissed on the grounds that they disclosed no reasonable cause of action: —
Held, that the expression “party to” in section 332 of the Companies Act 1948 indicated no more than “participates in,” “takes part in” or “concurs in” and involved some positive steps (post, p. 1092F). Mere omission by the secretary to give certain advice to the directors was not being a party to carrying on the business in a fraudulent manner and, accordingly, the proceedings against him would be dismissed.
The following case is referred to in the judgment:
Leitch (William C.) Bros. Ltd., In re [
The following additional cases were cited in argument:
Barnett v. South London Tramways Co. (
Bradford Third Equitable Benefit Building Society v. Borders [
Cross v. Earl Howe (
Cullen v. Thomson (
Joint Stock Discount Co. v. Brown (
Registrar of Restrictive Trading Agreements v. W. H. Smith & Son Ltd. (
SUMMONS
In December 1959 a company was incorporated with the name Merfeels Ltd. for the purpose of carrying on the business of general and manufacturers' agents, producers, manufacturers, importers, exporters and dealers in canned goods of all kinds. It had a share capital of £100. The company's name was later changed to Stock, Dehn and Spear Ltd. and finally to Maidstone Buildings Provisions Ltd. In 1960 the authorised share capital was increased to £10,000, the paid up, or credited paid up, capital being £8,000. The registered holders of the shares were Stuart John Stock, Kurt Otto Dehn and Wilfred John Spear who became directors when trading began in March 1960. Ronald Frederick Penney, a partner in the firm of F. G. Jenkins Wood & Co., the company's auditors, became a director and was appointed secretary. He resigned as director in July 1960 but continued as secretary. A Mr. C. A. Smith was appointed secretary in November but died shortly afterwards and Mr. Penney consented in December to act as interim secretary until his successor was appointed. The expenses of promoting the company had been heavy and the company traded at very narrow margins. In March 1961 the figures Mr. Penney put before the board of directors showed that the company had been trading at a considerable loss. The board resolved to effect certain economies and to reduce the directors' salaries by £500 each per annum. In November 1962, in view of the serious situation of the company's finances, further economies were agreed on. The company continued to trade at a loss until 1965, obtaining goods on credit, incurring debts for wages, salaries, commissions, rent, heating, advertising, travel and entertainment and otherwise. In June 1965 when it was resolved to go into voluntary liquidation, the company's debts stood at approximately £99,000. The liquidator sought an order against the three directors Messrs. Stock, Dehn and Spear and also against Mr. Penney, making them personally responsible for the liabilities of the company pursuant lo section 332 of the Companies Act 1948. It was common ground that the issue raised against Mr. Penney was quite different from that raised against the directors. The contention of the liquidator was that Mr. Penney, in his capacity of secretary and as a chartered accountant, who was a member of the firm acting as the company's auditors, and who acted as a sort of financial adviser, was knowingly a party to the carrying on of the business of the company. He owed a duty to the company to give advice and he should have taken positive steps to ensure that the company ceased fraudulent trading. Whilst section 275 of the
D. M. Burton for the former company secretary.
M. K. I. Kennedy for the liquidator.
PENNYCUICK V.-C. I have before me an application by Mr. Ronald Frederick Penney in a matter entitled In re Maidstone Buildings Provisions Ltd. and In re the Companies Act 1948. That matter is a summons brought pursuant to section 332 of the Companies Act 1948 by the liquidator of the company whereby he seeks an order against certain directors of the company and also against the present applicant, Mr. Penney, making them personally responsible for the liabilities of the company pursuant to the section. Mr. Penney was not at any relevant time a director of the company but was for some time its secretary.
The liquidator has come to terms with one of the director respondents. As regards another, the summons has been stood over with a view to a compromise. I am not sure what the position is as regards the third; it does not matter.
It is not in dispute that the issue raised against Mr. Penney is quite different from that raised against the directors so that there is no reason why the summons should not be dealt with as between the liquidator and Mr. Penney separately from the directors.
The application...
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