There is an amendment to paragraph (u), that the same be deleted and the following substituted therefor:
(u) to distribute among the shareholders of the company in kind, specie or otherwise, any property or assets of the company including any proceeds of the sale or disposal of any property of the company and in particular any shares, debentures, or other securities of or in any other company belonging to the company, or of which it may have power to dispose; provided either that such distribution is made for the purpose of enabling the company to surrender its charter under the provisions of this act, or that such distribution, apart from the provisions of this paragraph, would have been lawful if made in cash.
This is practically the same as the present law, whereby a company in surrendering its charter and making a distribution of its assets may make that distribution of assets as such or in cash.
I spent some time to-day examining this provision and have had the advantage of consulting with counsel. I have decided that subsection 1 of this section should be amended in accordance with the suggestion made yesterday by the hon. member for Shelburne-Yarmouth (Mr. Ralston). I am sending a copy of this amendment to the hon. gentleman and perhaps he will move it.
I move that section 18 be amended by striking out subsection 1 and inserting the following in substitution therefor:
(1) Every contract, agreement, engagement or bargain made, and every bill of exchange drawn, accepted or endorsed, and every promissory note and cheque made, drawn or endorsed on behalf of the company, by any
agent, officer or servant of the company, within the apparent scope of his authority as such agent, officer or servant, shall be binding upon the company.
I notice this amendment contains the words "within the apparent scope of his authority," and for my own information I should like to know if that is the proper word to use. I understand the general custom is to use the words "general scope."
I would direct the attention of the committee to paragraph (d) which reads as follows:
(d) change all or any of its previously authorized shares with par value, issued or unissued, into the same or a different number of shares of any class or classes without par value and' not having priority as to capital or being subject to redemption;
This paragraph should be read with the first part of subsection 1, which reads:
(1) Subject to confirmation by supplementary letters patent, a company may from time to time by by-law ...
(d) change all or any of its previously authorized shares with par value, issued or unissued, into the same or a different number of shares of any class or classes without par value and not having priority as to capital or being subject to redemption;
It should also be read in conjunction with subsection 2:
No such by-law shall take effect until it is sanctioned by at least two-thirds of the votes of the holders of each class of shares thereby dealt with, cast at a special general meeting of shareholders called for the purpose and confirmed by supplementary letters patent.
This I notice is an innovation; the same provision apparently is not found in the sections which this section replaces, that is to say, sections 58, 59 and 60 of the present act. I am afraid it is fraught with danger. There are features that I personally do not like and I am going to move later on that subsection (d) be struck out. My reason for asking that it be deleted may be found in the case I referred to when speaking early in February, or perhaps later, on the subject
Dominion Companies Act
of company promotions in general. I will not refer by name to the company in regard to which I am about to speak; I will simply say that a certain company in western Canada during the past few months has made a change in its capital organization. This is the story. In the early history of the company certain shareholders bought 4,500 preferred shares at $100 par value. At the same time 3,000 shares of common stock were sold at $100 a share. The preferred stock became entitled to voting power after one year's default in the payment of dividends. In 1933, dividends were not paid and very naturally the holders of the preferred shares concluded that they had a right to step in, use their voting power and take possession of the company. What really happened was this. In the meantime the holders of the 3,000 common shares had passed a by-law to the effect that these 3,000 common shares of $100 par should be changed to 15,000 no par shares. When the petition was presented to the appropriate authority-
previous speech on the subject, but I see the same danger in this subsection. When these holders of the preferred shares, because their dividends were in default, assumed that by reason of their voting power they could take control of the company, they with 4,500 shares, were met by 15,000 shares of no par value. This apparently had been done perfectly legally. The petition presented to the proper authority had stated frankly that the dividends were not in arrears, and in fact they were not when the petition was presented; apparently everything was in order. But this is what really happened. Those men who had paid out their good money, no less a sum than $450,000, found that that money had no voting power and they were left without the relief which they had every right to expect when they purchased those shares.
I am afraid that under this subsection the same thing could happen again, and in the case of a company in a similar situation, the preferred shareholders having no vote until their dividends were in default, the holders of common stock having voting power might meet and pass a by-law and appeal to the Secretary of State for supplementary letters patent, and apparently there would be no reason why they should not be granted; because, so far as I can understand, it is not necessary to consult the preferred shareholders in such a case. The only shareholders
whom it is necessary to consult are those who have votes with respect to the class of shares " thereby dealt with."
referred to a company which I understand was not under the jurisdiction of the Companies Act of Canada, and I can only assure him that if such a proposition had come before the Secretary of State during the past four years it would not have received approval. This clause is designed to prevent just such action as that to which he has referred, by providing, first, that in the case of these several transactions which are now being carried out frequently in the present days of depression and reorganization, they shall not be carried out except by the sanction of at least two-thirds of the votes of each class of shares thereby dealt with. Now whether or not the preferred shareholders have votes under the by-laws of the company, under this express enactment two-thirds of the shares affected must vote in favour of the reconstruction or reorganization proposed, and the votes must be cast at a special general meeting of shareholders held for that purpose, of which they have due notice. Moreover, as a further protection, even if the by-law is passed, even if each class of shareholders affected approve and confirm the proposed reorganization by a two-thirds vote of each class, then the whole matter comes before the Secretary of State, and the proposed reconstruction cannot be carried into effect except by the grant of supplementary letters patent. I cannot conceive of any other protective measures which I could throw about such proposed reconstruction,