TMI Blog1966 (5) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of Mr. Hirshfield a member of the firm of the company's accountants, a meeting of the company's creditors was called on February 9, 1959, at which a statement of the company's affairs was produced and a committee representing the principal creditors was appointed. The statement of affairs showed that the debt owing by the defendant was-valueless, that the company had tax losses of some 25,000, and that the defendant was prepared to sell or procure the sale of shares to a purchaser for a nominal consideration, provided that he was released from any liability for his debt. From the minutes of meetings of the committee of creditors held on February 13 and 20 and the oral evidence of Mr. Hirshfield, of Mr. Pegley, an employee of the company at that date, and of Mr. Shaw, a member of the committee of inspection, it appeared that some of the creditors raised the question of the value of the defendant's debt but Mr. Hirshfield explained to them that if they sought to recover the debt by liquidating the company, the revenue authorities would make the defendant bankrupt and would take all, or the bulk, of his assets as preferential creditors for tax. Being satisfied that the debt sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his wife from all debts due from the defendant and his wife to the company. On March 25, 1959, Myer's and Joseph's solicitors returned the draft deed of release duly approved and asked for the engrossment in due course so that it could be executed. The engrossment was sent on March 31. On April 1, Myer's and Joseph's solicitors replied that they had "forwarded the deed to our clients for this purpose and will return it to you duly executed in due course." Then, on April 14, the solicitors for the defendant and his wife asked whether they could have the deed of release duly executed returned to them and on April 15 Myer's and Joseph's solicitors replied: "We . . . understand from our clients that after a discussion with [the defendant] it has been arranged that the formal deed of release shall not be executed for the time being. . . . . " The reason for not executing the deed of release did not become apparent from the evidence of the defendant and Myer. Joseph did not give evidence. However, the company treated the debt as extinguished. It had appeared as an asset in the accounts for 1958 but it was written off in the accounts for the year ending December 31, 1959. Those accoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re V. G. M. Holdings Ltd. [1942] Ch. 235 ; 58 TLR. 131; [1942] 1 All ER. 224, CA; In re Lee, Behrens Co. Ltd. [1932] 2 Ch. 46 ; 48 TLR. 248 Cur. adv. vult. May 27. Cross J. read the following judgment, which, after stating the facts substantially as stated above, continued : There was a good deal of discussion before me as to what points were open to the parties on the amended pleadings, but I do not propose to refer to them in detail. I shall simply state what was and was not contended before me. In the first place, it was accepted that though no formal release had been executed, the company, even though now in liquidation, could not contend that this debt was still in being as a liability which the company could enforce against the defendant in the ordinary way. I do not suggest that this concession was not rightly made; but it is desirable to record that it was made. What the company did contend was that the defendant, who was still a director when he entered into the agreement of March 20, 1959, committed a misfeasance in bargaining with Myer and Joseph his successors as directors that, in consideration of his selling to them his shares, they would use their direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, and I must take it that it did. It was further pointed out that the decision of Roxburgh J. in Victor Battery Co. Ltd, v. Curry's Ltd. [1946] Ch. 242 ; [1946] 1 All ER. 519 shows that although the section makes the company guilty of a criminal offence, it does not invalidate the disposition in this case the release which the company had 'made. On the other hand, Steen v. Law [1964] AC. 287 ; [1963] 3 WLR. 802 ; [1963] 3 All ER. 770, PC shows that directors who have caused a company to enter into a transaction which infringes section 54 are guilty of misfeasances and are liable to recoup to the company the loss which it has suffered, even though they were themselves ignorant of the law. It is true that the defendant was no longer a director when the company released or must be assumed to have released the debt for no consideration and infringed section 54. But I see no reason why the well-known principles of trustee law, referred to in Head v. Gould [1892] 2 Ch. 250 ; 14 TLR. 444, should not apply to misfeasance by directors. If a director, who is about to retire and sell his shares, makes a bargain with his intended successors and the purchasers of his shares tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an acceptable way of carrying out this transaction. In fact, such a release was not executed, and for all that I know the reason why it was not executed was that it had occurred to someone that its execution might infringe some principle of company law. But, in any case, I am satisfied that the defendant himself knew nothing of company law at all. He/merely stipulated that, as a term of the transfer of his shares, he should get an effective release of his debt from the company. _He was entitled to stipulate that. There was no reason whatever why Myer and Joseph should not have paid the company what was needed in the circumstances it would not have been much to justify the company in releasing the debt/ Why should I hold the defendant guilty of misfeasance because in fact the release was made or, rather, I must assume it to have been made without any consideration moving from Myer and Joseph to the company ? No doubt misfeasances, like breaches of trust, may be innocent; but one ought not to hold anyone who is completely free from any moral blame to be guilty of a misfeasance or of a breach of trust unless there is no other possible construction to be put on what he did. Here the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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