59. Restriction on allotment in certain cases Flashcards
- Restriction on allotment in certain cases
General overview
[59.01] Under the Act, a public company has more than 50 members and so, it is necessary for the protection of the public to require that a statement in lieu of prospectus be lodged with the registrar by the public company before it issues shares or debentures for subscription. An issue of shares, accompanied by a statement in lieu of prospectus is an invitation to treat to those interested to subscribe for shares in the company. An offer is made by the subscriber when he accepts the invitation from the company, and his offer is accepted by an allotment to him of the shares which he subscribed for: Re International Contract Co, GH Levita’s case (1870) LR 5 Ch App 489, CA. A transfer of shares from a subscriber to another operates as a new contract between the transferee and the company even though the subscriber did not pay for the shares in full in accordance with the agreement for subscription of shares: Re Towns’ Drainage and Sewage Utilization Co, Morton’s case (1873) LR 16 Eq 104 . In a contract for the sale of shares, the measure of damages upon a breach by the purchaser was the difference between the contract price and the market price at the date of the breach, with an obligation on the part of the seller to mitigate the damages by getting the best price he could upon that date: City Securities Pte Ltd (in liquidation) v Associated Management Services Pte Ltd [1996] 1 SLR(R) 410; [1996] SGCA 10, CA.
Statement in lieu of prospectus
[59.02] A public company having a share capital shall, at least three days before the issue of shares or debentures, lodge a statement in lieu of prospectus which complies with the requirements of the Act: s 59(1). Criminal sanctions are provided in subsection (2).
Company and directors liable
[59.03] Subsection (3) provides that “every director… who knowingly” authorises the breach of subsection (1) shall be (a) guilty of an offence; and (b) in addition thereto be liable to compensate the company and allottee respectively for any loss, damage, or costs which the company or allottee has sustained or incurred thereby. The time limitation for recovery under subsection (3)(b) is two years from the date of allotment. A director of a company is not liable for a fraud (such as the issue of a fraudulent prospectus of the company) committed by his co-directors or by any other agent of the company, unless he has either expressly authorised or tacitly permitted its commission: Cargill v Bower (1878) 10 Ch D 502, Ch D ; following Weir v Barnett (1878) 3 Ex D 32. Directors’ fraudulent misrepresentation was attributed to the company to allow rescission of the contract to purchase shares
Allotment in contravention of s 59
[59.04] An allotment of shares in breach of s 59 is illegal and void: Re James Burton and Son Ltd [1924] AC 958; [1927] 2 Ch 132, Ch D ; applying Re Blair Open Hearth Furnace Co [1914] 1 Ch 390, CA ; and Re Jubilee Cotton Mills Ltd [1922] 1 Ch 100; [1923] 1 Ch 1, CA ; cf an allotment of shares before the issue of the statement in lieu of prospectus is not wholly void. Promoter who made a secret profit on such shares issued was held liable:Official Receiver and Liquidator of Jubilee Cotton Mills Ltd [1924] AC 958, HL. But a member who has been registered as such and received a bonus is estopped from denying he is a member and is liable as a contributory upon the winding up of the company: Re James Burton and Son Ltd (above).
[59.05] A second prospectus was a “subsequent offer” within the Act and the first offer ought to have been stated. However, the remedy for the allottee was an award of damages against the persons responsible for the prospectus and not a rescission
