1932 (4) TMI 10 - HC - Companies Law

Summary

Issues Involved:
1. Fraudulent trading under Section 275 of the Companies Act, 1929.
2. Misfeasance by the respondent in accepting excessive remuneration.
3. Misfeasance in paying dividends out of the company's capital.
4. Fraudulent preference by repaying himself and the Midland Bank, Ltd.
5. Orders for compensation and personal liability of the respondent.

Detailed Analysis:

1. Fraudulent Trading Under Section 275 of the Companies Act, 1929:
The court examined whether the respondent carried on the company's business with intent to defraud creditors. The company continued to incur debts when there was no reasonable prospect of paying them, particularly after March 1, 1930. The court concluded that the respondent knew the company's financial position and continued trading to safeguard his own interests, disregarding creditors' interests. The court held that carrying on business with no reasonable prospect of paying debts constitutes intent to defraud under Section 275.

2. Misfeasance by the Respondent in Accepting Excessive Remuneration:
The respondent was appointed managing director at a salary of lb1,000 yearly. The company was debited lb1,000 for the first six months, which was lb500 in excess of the amount due. The court found this to be misfeasance, as the respondent accepted remuneration beyond what he was entitled to.

3. Misfeasance in Paying Dividends Out of the Company's Capital:
The respondent and his brother paid dividends to a preference shareholder and themselves from the company's capital. These payments were made when the company was financially unstable. The court found these actions to be misfeasance, as paying dividends out of capital when the company was insolvent was improper.

4. Fraudulent Preference by Repaying Himself and the Midland Bank, Ltd.:
The respondent repaid himself lb150 on March 10, 1930, and lb150 on April 1, 1930, after the company became unable to pay its debts. Additionally, he paid off an overdraft at the Midland Bank, which he had guaranteed. The court determined these repayments constituted fraudulent preference, as they favored the respondent and the bank over other creditors.

5. Orders for Compensation and Personal Liability of the Respondent:
The liquidator sought various declarations and orders for compensation. The court declared the respondent personally liable for lb6,000 of the company's debts, with his liability being a charge on his debenture. The court also ordered the respondent to pay the liquidator lb260 for goods removed, lb1,300 for collected debts, and the sums of lb500, lb684 6s. 8d., and lb154, with interest.

Conclusion:
The court's judgment addressed the respondent's fraudulent trading, misfeasance, and fraudulent preference, leading to declarations of personal liability and orders for compensation. The respondent's actions were found to have been conducted with intent to defraud creditors, and he was held accountable for the company's debts and improper financial conduct.