Autoterms Limited v Candy

Autoterms Limited appealed to the High Court of Australia from a decision of the Federal Court of Bankruptcy. The dispute concerned the validity of a general lien granted by a shareholder, Hugh Gavan Crawford, to the company over his shares. The company claimed this lien as security for a debt of £11,000, which arose from unpaid amounts on 11,000 shares allotted to Crawford. The trustee in bankruptcy sought to have this lien declared void.

The central legal issue before the High Court was whether the general lien created by the shareholder constituted a valid charge on his shares under section 44 of the *Companies Act 1938* (Vict.). This section prohibited companies from having a charge on a shareholder's shares, except for a charge securing "a call or calls due" on those shares. The court had to determine if the debt secured by the lien qualified as such a "call or calls due" within the meaning of the Act.

The High Court, in dismissing the appeal, reasoned that the lien granted by the shareholder was not a charge for a "call or calls due" as contemplated by section 44. The debt of £11,000 was acknowledged and covenanted to be paid "as and when required," and the lien was created to secure this existing debt, irrespective of whether a formal call was made on the shares. While a call was subsequently made on some of the unpaid shares, the lien itself was not conditioned upon or limited to moneys arising from such calls. The court found that the charge was for a general debt, not specifically for moneys due on a call, and therefore fell outside the exception provided by section 44, rendering it invalid. The court noted that the company had not adopted Table A of the Second Schedule to the Act, which might have provided a different outcome, and that the lien was created by a separate indenture rather than the company's articles of association.

The appeal was dismissed with costs.