Adelaide v West

Adelaide v West - [1942] HCA 25 - HCA 1942 case summary — Zoe

[26]

Parliament and of these articles and subject also to such regula- H. C. or A. tions (if any) as are from time to time prescribed by the company eee in meeting ; but no regulation made by the company in meeting 40. inp shall invalidate any prior act of the Board which would have Movors Lvp. been valid if such regulation had not been made. PEOERAE 119. Without prejudice to the general powers conferred by - Comaus- the last preceding article and to the other powers conferred by ee these articles it is hereby expressly declared that the directors shall have the following powers, that is to say, power - (21) Before recommending any dividend to set aside out of the profits of the company such sum or sums as they think proper as a reserve fund to meet contingencies or for equalizing dividends or for repairing improving and maintaining any of the property of the company or for depreciation and/or for such other purposes as the directors shall in their absolute discretion think conducive to the interests of the company and to invest the several sums so set aside upon such investments including the purchase of shares in any no-liability company but not including shares in this company as they may think fit and from time to time deal with and vary such invest- ments and dispose of all or any part thereof for the benefit of the company and divide the reserve fund into such funds as they may think fit with full power to employ the assets constituting the reserve fund in the business of the company and that without being bound to keep the same separate from the other assets. 142. Subject to the provisions of the agreement mentioned in art. 4 hereof and to the rights of members entitled to shares issued upon special conditions the profits of the company shall be divisible among the members in proportion to the amount of capital paid up or deemed to be paid up on the shares held by them respectively. 143. The directors may from time to time declare and pay such dividends as they may think fit but no dividend shall be payable except out of the profits arising from the business of the company. : 144. The declaration of the directors as to the amount of the net profits of the company shall be conclusive. 147. The directors may from time to time pay to the members such interim dividends as in their judgment the position of the company justifies.

[35]

held by such shareholders. es, 8. The company was listed on the Stock Exchange of Adelaide 4,.. pena in the year 1925 and since that time its shares both ordinary and Motors Lvp. preference have been regularly quoted in the official list of the jp cpar said Exchange and were so quoted during the year ended 30th June Commis. 1940. ELONmE or TaxaTIONn. 9. On 5th September 1941 the Deputy Commissioner of Taxation | - issued a notice of assessment against the company under Div. 7 of Part III. of the Income Taw Assessment Act 1936-1940 requiring the company to pay £303 7s. Td. additional tax on the ground that the company was a private company and was assessable to additional income tax under sec. 104 of the Income Tax Assessment Act. It is agreed that if the company is a " private company " it did not make in respect of the period referred to in the notice of assessment a suffi- cient distribution of its income and the figures appearing in the notice are agreed as correct. 10. On 12th September 1941 the appellant gave a notice to the Deputy Commissioner of Taxation of objection against the said assess- ment on the grounds : - (1) That the company is not a private com- pany within the meaning of Div. 7 of Part III. of the Income Tax Assessment Act 1936-1940. (2) That the company is in fact a public company. (3) That the company is a company in which the public are substantially interested in that shares of the company (not being shares entitled to a fixed rate of dividend whether with or without a further right to participate in profits) carrying not less than twenty- five per cent of the voting power have been allotted unconditionally to and/or acquired unconditionally by and were at the end of the year of income beneficially held by the public and that such shares have in the course of the year of income been quoted in the official list of the Stock Exchange at Adelaide. 11. On 19th January 1942 the Deputy Commissioner of Taxation gave notice to the appellant disallowing the objection and on 23rd January 1942 the appellant in writing requested the Commissioner to treat the objection as an appeal and to forward it to the High Court of Australia and the appeal was forwarded to the High Court of Australia accordingly on 8th August 1942. 12. The parties have appeared before me and agreed that all the facts material to the hearing of the appeal are contained in the preceding paragraphs and upon these facts I state the following questions for the opinion and consideration of the Full Court of the

[69]

The relevant facts in the case stated are that on 30th June 1940 the capital of the subject company was divided into 41,700 fully paid one pound shares and 20,000 one pound preference shares. Ordinary shareholders numbered thirty and preference shareholders sixty-eight. The company had three directors, who with four of their relatives and a company (eight persons) under the control of one of the directors held 25,400 of the ordinary shares or sixty-one per cent; the other shareholders of the company held 16,300 ordinary shares or thirty-nine per cent of the voting power. The whole of the ordinary shares of the company were either allotted unconditionally to or have been acquired unconditionally by the ordinary shareholders and were on 30th June 1940 beneficially held by such shareholders. The company was listed on the Stock Exchange of Adelaide in 1925 and since then all its shares have been regularly quoted in the official list of the Exchange and were so quoted during the year ending 30th June 1940. The articles do not contain any restriction on the transfer of the shares. Each member is entitled to one vote for every share held by him, but preference shareholders have no right of voting except where the proposition to be submitted to the meeting directly affects the rights and privileges attached to such shares, which, moreover, do not qualify any person to be a director of the company. Do these facts bring the company within the definition contained in the Act? The definition is made up of three elements, of which two only are relevant. They are that it is a company which is under the control of not more than seven persons and is not a company in which the public are substantially interested. The first condition was probably aimed at one-man companies, where a sufficient number of persons signed the memorandum of association for one share each so as to qualify the company to be registered but the rest of the shares forming the bulk of the capital remained in the hands of one or more persons. However this may be, the facts in this case do not make the condition of control apply to this company. In my opinion the company is not under the control of any persons within the meaning of sec. 103 (2) (c) because the major portion of the voting power or the majority of the shares is neither held by those persons nor by those persons or nominees of those persons nor is the control by any other means whatever in the hands of those persons. The object of this definition is to

At a glance

Court

Decision date

Before

Source

Judgment (81 paragraphs)

Parties

Cited By (1)