QUEENSLAND. Company-Winding up-Distribution of assets-Articles of association--Assets to
be distributed in proportion to shares held-Validity of article-Agreement to distribute in proportion to amount paid up on shares-Inconsistency-Shares distributed in accordance with agreement-Adjustment-Priority of payments of uncalled capital on shares-Priority of debentures-Companies Act 1863 (Q.) June 18, 19, (27 Vict. No. 4), secs. 27, 28, 37.
Although shareholders cannot by an article of association or by any other contract with a company be relieved of their liability, in a winding up, to calls for the amounts unpaid on their shares for the purposes of paying the Starke, Dixon, debts and liabilities of the company, of defraying the costs of the winding up, and of adjusting the mutual rights of contributories or members, there is complete freedom to prescribe, by articles of association, in what manner those mutual rights are to be adjusted and hence to provide for an adjustment whereby the necessity of resorting to uncalled capital to work them out is
Certain shares in a banking company which was being wound up voluntarily subject to the supervision of the Supreme Court of Queensland were fully paid up: in respect of the remainder, only a small amount had ever been required to be paid, although some of the holders had made payments in anticipation of calls. Debentures, expressed to be subject to a prior right on the part of all shareholders to the repayment of paid-up capital, had also been issued. During the winding up an agreement sanctioned by the court was made with another company, whereby that company acquired certain assets of the banking company and allotted certain fully paid shares to the share- holders of the banking company in proportion to the amount paid up by them
in the capital of that company. These shares were allotted and dealt with by the allottees, many of them being transferred to bona fide purchasers for value. The mode of distributing the shares was determined without advertence to an article of association of the banking company whereby, in a winding up, the assets (exclusive of uncalled capital) remaining after payment of debts, liabilities, costs and expenses were to be distributed among the shareholders in proportion to the number of shares held irrespective of the amount paid up on them. On the sale of the remaining assets of the banking company, the jurisdiction of the court was invoked to determine the rights of the various classes of persons whose interests were affected.
(1) That the article of association was valid and that the distribution of assets of the liquidation should be carried out in accordance therewith.
(2) That the distribution of the shares allotted in the purchasing company could not now be disturbed but that the assets undistributed should be divided
SO as to adjust the rights of the shareholders.
(3) That the debenture holders should be paid after an amount representing the share capital…
Grounds of appeal
[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.
[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.
[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.
Consideration
[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.
[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.
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AGLC
R v Tait [1936] HCA 62
Case
[1936] HCA 62
Decision Date
CaseChat Overview and Summary
The case of *R v Tait* involved a dispute over the distribution of assets during the voluntary winding up of the Federal Deposit Bank Ltd., subject to the supervision of the Supreme Court of Queensland. The core of the dispute concerned the application of Article 118 of the company's articles of association, which stipulated how assets should be distributed among shareholders in a winding up, and an agreement sanctioned by the court to distribute shares in another company (Brisbane Permanent Building and Banking Co. Ltd.) in proportion to the amount paid up on shares in the Federal Deposit Bank.
The legal issues before the High Court were whether Article 118 of the company's articles of association was valid and enforceable, and if so, how it should be applied in light of the prior distribution of shares in the Brisbane Permanent Building and Banking Co. Ltd. The court was required to determine the priority of payments to debenture holders and shareholders, the treatment of money paid in advance of calls, and the overall order of distribution of the remaining assets.
The High Court, by a majority, held that Article 118 was valid and enforceable. It reasoned that while shareholders cannot be relieved of their liability to contribute to the company's debts and winding-up costs, they are free to prescribe by articles of association the manner in which their mutual rights are adjusted upon winding up. Article 118 was found not to exempt members from their primary liability but rather to regulate their rights inter se regarding the distribution of surplus assets. The court determined that the prior distribution of Brisbane Permanent Building and Banking Co. Ltd. shares, which was inconsistent with Article 118, could not be disturbed due to the impossibility of *restitutio in integrum*. However, the remaining assets were to be distributed in a manner that adjusted the rights of the shareholders to conform with Article 118, and debenture holders were to be paid after an amount representing the paid-up share capital had been appropriated to shareholders. The court also held that shareholders who had paid money in advance of calls were not entitled to priority for such advances but ranked equally with other shareholders.
The decision of the Supreme Court of Queensland was reversed. The High Court ordered that the remaining assets of the Federal Deposit Bank Ltd. be distributed in accordance with Article 118, adjusting the rights of the shareholders accordingly, while upholding the prior distribution of shares in the Brisbane Permanent Building and Banking Co. Ltd.