R v Tait

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.