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Issues: Misfeasance by director leading to fraudulent conduct and applicability of section 45 of the Companies Act, 1929.
In this case, the liquidator of a company sought a payment of lb15,980 from a director, alleging misfeasance due to fraudulent conduct. The director was found to have orchestrated fictitious transactions, resulting in the company being defrauded of its rights. However, the judge did not grant relief based on the fraud finding but instead relied on section 45 of the Companies Act, 1929. This section prohibits companies from providing financial assistance for the purchase of their own shares. The director appealed the judgment, challenging both the fraud finding and the application of section 45. The main focus of the appeal was the interpretation of the word "purchase" in section 45 of the Companies Act, 1929. The court deliberated on whether the provision of money by the company to assist in a subscription for its own shares constituted financial assistance for the purpose of the section. The court analyzed the language of the Act, emphasizing that terms like "issue," "subscription," and "allotment" were used regarding shares, but not "purchase." The court highlighted the distinction between acquiring shares through subscription and purchasing shares from existing shareholders, emphasizing that a share is a chose in action and not a tangible property before issuance. The court concluded that the word "purchase" in the section did not encompass acquiring shares through subscription, disagreeing with the lower court's interpretation. The presiding judge, Lord Greene, M.R., emphasized the historical context of the provision, referencing past practices where companies provided funds for share acquisitions, leading to abuses and scandals. However, the court held that the word "purchase" in the section should not be broadly construed to include share subscriptions. Justices Luxmoore, L.J., and Goddard, L.J., concurred with Lord Greene's analysis and decision, upholding that the company's provision of funds for share subscriptions did not constitute financial assistance for the purpose of section 45. The appeal was allowed, setting aside the lower court's judgment based on the misinterpretation of the statutory provision.
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