Re v.G.M. Holdings Ltd
| Jurisdiction | England & Wales |
| Date | 1942 |
| Year | 1942 |
| Court | Court of Appeal |
Company - Share - Allotment - Financial assistance for payment given by company - “Purchase” -
By s. 45, sub-s. 1, of the Companies Act, 1929, “it shall not be lawful for a company to give .… any financial assistance …. in connection with a purchase made .… by any person of any shares in the company. …”
The acquisition of shares in a company by application and allotment is not a “purchase” within the sub-section, which, accordingly, does not cover a transaction by which a company provides money to assist a subscription for its own shares.
Order made on a summons against the director of a company for misfeasance and breach of trust in relation to a payment made by the company to acquire valueless shares in another company.
APPEAL from Bennett J.
V. G. M. Holdings, Ld. (hereinafter called “V. G. M.”) was a private company incorporated on April 22, 1938, with a nominal capital of 20,000 l. divided into 20,000 shares of 1 l. each, all of which, at a board meeting held on May 4, 1938, were allotted for cash to the sole directors of the company as follows: to Charles Vivian Vanbergen, 10,100, to Malcolm Glass, 4950, and to John Miller, 4950. It was resolved at the meeting that a call of 16s. a share be made on all the shares and it was further resolved that the secretary be authorized to make arrangements for V. G. M. to acquire the share capital of Century Refrigeration Co., Ld. (hereinafter called “Century”), the directors of which were the same as those of V. G. M. All the shares in Century were owned beneficially by Vanbergen. On May 20, 1938, V. G. M. paid to Century a sum of 15,980 l. by cheque, and on the same day Century drew a cheque in favour of Vanbergen for 8080 l. and cheques in favour of Glass and Miller for 3960 l. each. They all immediately endorsed and transferred the respective cheques to V. G. M. and the sums were credited to them in its books as payments of 16s. a share on their holdings. On October 20, 1938, Century went into voluntary liquidation, and on November 20, 1939, an order was made for the compulsory winding up of V. G. M. On December 30, 1940, the liquidator of V. G. M. took out a summons, to which Vanbergen was the sole respondent, alleging that the payment of 15,980 l. to Century was made fraudulently and in breach of trust and also in breach of the provisions of s. 45 of the Companies Act, 1929, and asking for (a) a declaration that Vanbergen was liable to contribute that sum to the assets of the company as compensation for his misfeasance and breach of trust in making the payment or procuring or permitting it to be made and (b) an order that he should pay it. Bennett J. held that a case of fraud had been made out; that the cheques in question were not drawn bona fide in pursuance of any business transaction; that the acquisition of a share from a limited company by application and allotment was a purchase of the share; and that, accordingly, Vanbergen had been a party to an act in breach of the provisions of s. 45, sub-s. 1, of the Act and was liable to repay 15,980 l. Vanbergen appealed.
Wallington K.C. and Heckscher for Vanbergen. When a person subscribes for shares he does not purchase anything. He only contributes to the capital of the company, becoming a member who is merely entitled in a winding-up to be repaid the nominal value of his shares out of the surplus assets remaining after the creditors have been paid in full. When, therefore, a company lends money which is applied in subscribing for its shares there is no breach of s. 45, sub-s. 1, of the Companies Act, 1929. A contributor's rights under the Act are very different from those of a purchaser of...
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