Madang Slipways Pty Ltd, Re [1967] PGLawRp 9; [1967-68] PNGLR 174 (26 February 1968)

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COMPANIES - Issue of shares for consideration other than cash - Failure to file sufficient contract in writing - Effect of failure - Powers of court to grant relief - Companies Ordinance 1912-1926 (Papua, adopted), ss. 57, 58^*[ccxlviii]1 - Companies Ordinance 1963 - Ordinances Interpretation Ordinance 1949-1966, s. 44^*[ccxlix]2* .

Although there is no provision in the Companies Ordinance 1963 corresponding with s. 58 of the Companies Ordinance 1912-1926 (Papua, adopted) which was repealed by the former Ordinance, the privilege which accrued under s. 58 of the repealed Ordinance at the time of the enactment of its repeal has been preserved by s. 44 of the Ordinances Interpretation Ordinance 1949-1966.

A document made subsequent to the issue of shares ratifying an earlier verbal or implied contract does not constitute a “sufficient contract” within the meaning of s. 58 (1) and, the power given in s. 58 (1) is to rectify the omission to file in time not the omission to duly make a contract in writing.

The applicant, a company registered in New Guinea under the Companies Ordinance 1912-1926 (Papua, adopted), had on various occasions between 1953 and 1955 allotted a number of fully paid one pound shares to its directors and to a creditor. All such shares had been allotted for a consideration other than cash but prior to their issue no contracts determining the mode of payment for each issue had been filed with the Registrar in compliance with s. 57 of the Ordinance. After the coming into force of the Companies Ordinance 1963, which repealed the Companies Ordinance 1912-1926 (Papua, adopted) the applicant sought to comply with s. 57 by seeking orders that deeds ratifying and confirming the issues of shares be filed with the Registrar within a time to be specified by the Court and that each such deed should thereupon, in relation to the shares to which it refers, operate as a sufficient compliance.

That since the requisite contracts were not in existence at the dates of the various share issues the filing of such contracts was “impracticable” within the meaning of s. 58 (4) so that, on appropriate terms a direction may be made that memoranda approved by the Court should on being filed operate as if they were sufficient contracts in writing for the purposes of s. 57 and had been duly filed with the Registrar at or before the issue of the shares.

Madang Slipways Pty. Ltd., a company duly incorporated in law, moved the Court that on each of certain deeds being filed with the Registrar of Companies within such time as may be directed each such deed shall operate as if a sufficient contract in writing in relation to the shares to which it refers had been duly filed before the issue of those shares. Each parcel of shares referred to had been allotted otherwise than for payment of the whole amount therefor in cash, and no contract in writing in relation to the allotments had been made at or before the time of the issues thereof. All the relevant facts appear in the reasons hereunder.

MINOGUE J: Madang Slipways Pty. Ltd. (hereinafter called the company) was incorporated in the Territory of New Guinea on 22nd April, 1953. The company was formed to take over the business of Nathaniel Grieve, Richard McGlynn, Roy Austin Sowerby and Herman George Loebel who had been carrying on the business of slipway proprietors and marine engineers under the name of Madang Slipways. On 3rd October, 1952, these gentlemen agreed with one Claude William Dunmore Rock on behalf of the company then to be formed to sell their undertaking to the company and the consideration for the sale was expressed to be the allotment to each of the vendors of 5,100 fully paid-up one pound shares in the capital of the company. The articles of association of the company provide:

N2>“2. The Company shall forthwith adopt the following agreement namely:—An Agreement dated the third day of October 1952 made between Nathaniel Grieve, Richard McGlynn, Roy Austin Sowerby, Herman George Loebel, all of Madang, in the Territory of New Guinea, carrying on business as slipway proprietors and marine engineers under the name of Madang Slipways of the first part, and Claude William Dunmore Rock on behalf of the Company on the other part.”

The memorandum of association of the company empowered the company to make such an agreement.

The vendors together with one Lesmond were elected directors of the company and at the first meeting of directors held on 20th August, 1953, it was resolved “that approval be given to agreement to purchase the concern known as Madang Slipways and affix common seal”. Unfortunately, the seal was never affixed to the agreement and it received no further formal ratification by the company. No contract was made between the vendors of the undertaking and the company whereby a mode of payment other than a payment in cash for the issue of shares was determined. However the company took over the assets and the undertaking of the partnership and 5,100 fully paid one pound shares were issued to each of the four persons concerned on 9th January, 1954. Some of these shares have been the subject of subsequent transfers duly registered with the company. In addition, at some time prior to August 1953, one Thomas Wood loaned £1,000 to the company and he made application that his loan be satisfied by the issue to him of 1,000 fully paid one pound shares. On 20th August, 1953, the directors resolved to allot this number of shares to him and subsequently the appropriate share certificates were issued. By 30th June, 1955, the company owed money to Sowerby, Grieve and McGlynn and apparently some informal agreement was arrived at between these gentlemen and the company that they would accept fully paid shares in satisfaction of the money owed to them. Accordingly on 30th July, 1955, 1,200 fully paid one pound shares were issued to Sowerby, 1,900 such shares to Grieve and 1,800 such shares to McGlynn. McGlynn later died and subsequently the shares issued to him have been transferred to his successors in title.

Section 57 of the Companies Ordinance 1912-1926 (Papua, adopted) which was in force in New Guinea at all times material to the transactions I have been describing enacted that:

“Every share in any company shall be deemed and taken to have been issued and to be held subject to the payment of the whole amount thereof in cash unless the mode of such payment has been otherwise determined by a contract duly made in writing and filed with the Registrar at or before the issue of such share. . . .”

This provision was first enacted as s. 25 of the Companies Act, 1867 of England and came into force in Papua and New Guinea by way of the Queensland Companies Act Amendment Act of 1889, s. 28. In none of the transactions set out above was there a contract duly made in writing much less one filed with the Registrar at or before the issue of such shares. To comply with the ordinance as Fry L.J. said in In re New Eberhardt Company; Ex parte Menzies[ccl]³ the following conditions are required: “first, there must be at or before the date of the issue of these shares, a contract; secondly, that contract must be duly made in writing; and thirdly, that contract must be filed with the Registrar. Now, all these things must be done or must be in existence at or before the date of the issue”[ccli]⁴. And as the English legislation stood until 1898 the only remedy available if there had been a non-compliance was rectification of the register by cancellation of the shares and the issue of new shares after the filing of a contract. The provision was designed for the protection of creditors so that they could clearly see what the financial position of a company was. In 1898 some measure of relief was given for failure to comply with the section by s. 1 of the English Companies Act of that year. New South Wales followed suit in 1900 and similar relief was given in s. 58 of the Papuan ordinance when it was enacted in 1912. By sub-s. (1) of that section whenever any shares in the capital of any company credited as fully paid up shall have been issued for a consideration other than cash and at or before the issue of such shares no contract or no sufficient contract is filed with the Registrar in compliance with s. 57 the company or any person interested in such shares may apply to the Supreme Court for relief and the Court, if satisfied that the omission to file a contract or sufficient contract was accidental or due to inadvertence or that for any reason it is just and equitable to grant relief, may make an order for the filing with the Registrar of a sufficient contract in writing and directing that on such contract being filed within a specified period it shall in relation to such shares operate as if it had been duly filed with the Registrar before the issue of the shares. By sub-s. (3) the Court is empowered to impose such terms and conditions as it thinks fit on the making of such an order. By sub-s. (4) where the Court is satisfied that the filing of the requisite contract would cause delay or inconvenience or is impracticable, it may in lieu thereof direct the filing of a memorandum in writing in a form approved by the Court specifying the consideration for which the shares were issued and may direct that on such memorandum being filed within a specified period it shall in relation to such shares operate as if it were a sufficient contract in writing within the meaning of s. 57 and had been duly filed with the Registrar before the issue of the shares.

The effect of non-compliance with s. 57 is patently serious for in the absence of a contract duly filed the holder of shares is at risk of having to pay the whole amount thereof in cash in the event of a winding-up. And further, his ability to use or deal with these shares may be seriously restricted. Unfortunately neither the directors nor the officers of the company seem to have been aware of the provisions of s. 57 and the company now seeks to rectify the position. It has submitted to me three deeds by each of which it is sought to ratify and confirm the issue by the company of the shares to which I have referred; the first such deed dealing with the initial issue in January 1954, the second with the issue to Mr. Wood and the third with the issue to the directors for the moneys owing to them. From the financial statements submitted to me which include the balance sheet as at 30th June, 1967, and the profit and loss account for the year ending 30th June, 1967, the company appears to be in an extremely sound financial position.

The Companies Ordinance 1912-1926 was repealed by the Companies Ordinance 1963 and by this latter Ordinance the company law of this Territory was brought into line with modern company legislation. This repeal has troubled me for I can find no counterpart of s. 58 in the 1963 Ordinance. Indeed the whole subject of share issues is treated in a quite different and much more detailed fashion and I can see no provision in the Ordinance which has the effect of preserving the privilege accorded by s. 58. But it seems to me that s. 44 of the Ordinances Interpretation Ordinance 1949-1966 where it enacts that the repeal of an Ordinance shall not affect any right privilege obligation or liability acquired accrued or incurred in the repealed Ordinance can be availed of. Although the report is not clear on this point it appears that Swinfen Eady J. took this view of the equivalent English section in relation to the repeal of s. 25 of the Companies Act of 1867 in Re Wilkinson Sword Co. Ltd.[cclii]⁵. And I think it just and equitable to grant relief if I am able to do so.

But I do not think that I can grant relief of the nature sought. The motion before the Court is for orders that on each of the deeds to which I have referred being filed with the Registrar within such time as to the Court may seem meet it shall operate as if a sufficient contract in writing in relation to the shares to which it refers had been duly filed with the Registrar before the issue of the shares. But s. 58 (1) gives the court only the power to make an order for the filing with the Registrar of a sufficient contract in writing. The Court in my view is not empowered to order that a document shall operate as if a sufficient contract in writing had been duly filed. The subsection contemplates the existence of a sufficient contract in writing the omission to file which was accidental or due to inadvertence. I do not think that a document made subsequent to the issue of shares and ratifying some verbal or implied contract can itself be regarded as a sufficient contract in writing. The power given is to rectify the omission to file in time not the omission to duly make a contract in writing. However, whilst I do not feel able to grant the relief sought I am of the view that I can grant relief under s. 58 (4).

The filing of the requisite contract seems to me impracticable because in fact there was no such contract in existence at the date of the issue of the shares nor for that matter is there now. In my view, subject to the condition which I will mention in a moment, it is proper to direct the filing of a memorandum in writing specifying the consideration for which the shares were issued. This was done in In re Brutton & Burney Ltd.; In re Burney’s New Cross Brewery Co. Ltd.[ccliii]⁶ and in Re Wilkinson Sword Co. Ltd.[ccliv]⁷. In the latter case shares issued to seven signatories of the memorandum of association had not been covered by a contract and the Court gave leave to file a memorandum specifying the consideration for the issue. In the former case also no contract existed for a somewhat complicated share issue which was certainly not one for cash and the Court gave leave for a memorandum to be filed.

Although as I have said the company seems to be in a strong financial position I have no detailed accurate or up-to-date information of the position of the creditors and I am of the view that any order I make should fully safeguard such rights as they at present may have. Accordingly I am prepared to approve memoranda reciting the circumstances in which and specifying the consideration for which these groups of shares were issued. When I have approved the form of the memoranda I am prepared to direct that on their being filed they shall in relation to the shares with which they deal operate as if they were sufficient contracts in writing within the meaning of s. 57 and had been duly filed with the Registrar before the issue of such shares. But I propose to further direct that my order will not affect or derogate from any right or remedy against the company or the shareholders thereof which any person who is a creditor of the company immediately before the filing of such order may have in respect of any debt owed by or any liability of the company to that person at the time of filing.

[ccxlix]** Section 44 of the Ordinances Interpretation Ordinance 1949-1966 provides, inter alia, as follows:

“Where an Ordinance repeals in the whole or in part a former Ordinance then, unless the contrary intention appears, the repeal shall not . . . .

N2>(c) affect any right, privilege, obligation or liability acquired, accrued or incurred under the Ordinance so repealed, . . . .”

[ccl](1889) 43 Ch.D. 118.

[ccli](1889) 43 Ch.D., at p. 129.

[cclii](1913) 29 T.L.R. 242.

[ccliii][1901] 1 Ch. 637.

[ccliv] (1913) 29 T.L.R. 242.

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Papua New Guinea Law Reports

Madang Slipways Pty Ltd, Re [1967] PGLawRp 9; [1967-68] PNGLR 174 (26 February 1968)

Papua New Guinea Law Reports - 1967-68