Division: IN THE MATTER OF A PETITION FOR THE WINDING UP BY THE COURT OF J. CONTE LTD. IN THE SUPREME COURT
Date: 11 MAY 1964
Before: SARKODEE-ADOO CJ, OLLENNU AND ACOLATSE JJSC
JUDGMENT OF OLLENNU JSC
Ollennu JSC delivered the judgment of the court. These proceedings commenced with a petition under sections 91, 89 (4) and (5) and 90 (2) and (3) of the Companies Ordinance,1 brought for and on behalf of Messrs. African Timber and Plywood (Ghana) Ltd., judgment creditors of J. Conte Ltd., for the winding-up by the High Court of the said J. Conte Ltd., and a prayer under section 99 (1), (3) and (6) of the said Ordinance, for the appointment by the court of Mr. Harry Verney Alfred Franklin, as official liquidator.
At a stage in the winding-up proceedings, the official liquidator, the second respondent (hereinafter called the second defendant) called upon the High Court to settle the list of contributories as provided by section 103 of the Ordinance.
All the relevant books and other documents of the company from which the High Court would normally settle the list of contributories, namely, the register of members and annual returns, were either lost, or had been cancelled in previous proceedings. The only documents available are the minutes book and the annual return showing a list of members as at 1 January 1960; but the said list of members is not supported by any allotment in the minutes book, and therefore had to be ruled out of court.
The only undisputed evidence of shares held by members of the company is contained in the minutes of a meeting of directors of the company dated 12 February 1959, in which shares were allotted as follows:
“J. Conte 5,018 shares
Mrs. Conte 1 share
N. Y. Asare 1 share
Dr. A. Y. Kpeglo 1 share
R. J. Amanoo 1 share
W. E. Arthur 1 share
R. Ashie 1 share
5,024 shares.”
But Dr. A. Y. Kpeglo (hereinafter called the first defendant) claimed that some time after the successful conclusion, in favour of the company, of an action against Frisicaro Angelo, a meeting of the directors of the company was held. At this meeting, the majority of the shareholders and directors (including Joseph Conte) voted Kpeglo 10,000 shares, i.e. twenty per cent. of the company’s total shares of 50,000, at £G1 each, free of charge for services he had rendered to the company. The first defendant gave oral evidence of the said allotment, and
in confirmation, produced a letter dated 20 May 1961, written to him by the said Joseph Conte
(hereinafter called the plaintiff).
Notice of the first defendant’s claim was given to Mr. T. Annan-Forson, as alternate director appointed by the plaintiff; although he attended court on the first day that the matter came before the court, and was represented by counsel on the last date when the court made its ruling, there was no appearance by or for him on the material date when evidence was taken.
The only evidence before the High Court was the oral evidence of the first defendant and the letter he produced signed by the plaintiff. The learned judge of the High Court accepted that evidence in the following terms: “I believe Dr. Kpeglo’s evidence that 10,000 shares were allotted to him free for services rendered to the company as this evidence is supported by the letter dated 20 May 1961, from J. Conte, exhibit D.”
In consequence of his findings the learned judge settled the list of contributories as follows:
“J. Conte 5,025 shares
Mrs. Conte 1 share
N. Y. Asare 1 share
Dr. A. Y. Kpeglo 10,001 shares
R. J. Quarcoo 1 share
W. E. Arthur 1 share
Raphael Ashie 1 share
5,031 shares.”
The plaintiff appealed against the settlement on the following grounds: (1) that there was not sufficient evidence that Dr. A. Y. Kpeglo was the owner of more than one share; (2) that the learned trial judge erred in law in holding that Dr. Kpeglo was the owner of 10,001 shares; and (3) that the learned trial judge misdirected himself in holding that exhibit D supports the fact that the shares were allotted free for services rendered.
Arguing grounds (1) and (3) together, counsel for the plaintiff submitted: (i) that the letter, exhibit D, does not support the oral evidence of the first defendant that 10,000 shares were allotted to him free of charge for his services to the company; (ii) that even if the letter, exhibit D, operates as making an allotment, there is no evidence that the first defendant accepted it and had shares issued to him according to law; and (iii) that if exhibit D is interpreted as operating as an issue of shares, so as to make the first defendant a contributory under the law, then in the absence of lawful exemption in his favour, the High Court, settling the list as it did, should have called upon the first defendant by virtue of section 107 of the Companies Ordinance, to make payment for them to the extent of his liability, i.e. to pay cash for the same. On the second and third points counsel referred the court to Palmer’s Company Precedents (17th ed.), Part 1, pp. 142-144 where the author deals with the law relating to an application for allotment, and the issue of shares, and also to section 107 of the Companies Ordinance, which authorises the court to make an order upon contributories to make payment for shares
they hold.
Counsel for the first defendant, in reply, contended that the letter, exhibit D was, written by a layman, not conversant with the law, and therefore the word “allotted” used by him therein should be interpreted in its ordinary meaning as signifying a completed and performed contract of allotment; that so interpreted, the letter, exhibit D, would be found to corroborate the oral evidence of the first defendant in all its material aspects, and would be a complete answer to all of the points raised against the ruling of the High Court.
We do not share the views of counsel for the first defendant. The letter, exhibit D, purports to have been written in compliance with the requirements of company law with respect to allotment of shares in the company; therefore technical words used in it must be given their ordinary technical meaning; and it is with that construction that we have to consider the evidential value of the letter, exhibit D.
It is evident from the ruling that the ground upon which the learned judge of the High Court accepted the evidence of the first defendant is, according to him, that that evidence is supported by the letter exhibit D, that he is “allotted” twenty per cent. of the whole shares of J. Conte Ltd.
What then is meant by the use of the term “allotment” when used in company law with respect to shares? We find guidance on this in Gower’s Modern Company Law (2nd ed.) at p. 348. There the learned author, discussing the subject of how a person becomes a shareholder in a company, points out that the process involves two distinct legal operations: (a) an agreement and (b) entry of the name on the register. He says that “both must be present before the person concerned becomes a member and shareholder.”
The agreement involves one of the following: (i) an original allotment of shares, i.e. appropriation of shares accompanied by a form of application, which is filled in and submitted to the company by an applicant for shares, (ii) allotment at any other time upon application for shares, or (iii) allotment made by the company upon its own resolution, and not in response to any preceding application: See Palmer’s Company Precedents, (17th ed.), Part 1, pp. 142-143.
As to original allotment, Gower (supra) points out at p. 348 that the publication of a prospectus “is not an offer” by the company, “but a mere invitation to submit offers by completing and returning the application form . . .” He states further at p. 349:
“The board of directors then consider the various applications and decide whether or not to accept them or some of them, and whether for the full amount or only part—in the case of a public issue the prospectus will normally have stated the policy to be adopted in the event of over-subscription. Their decision to accept is known as allotment, but it has no legal effect until notified to the applicant. This notification will be by dispatch of allotment letters which will often be renounceable for a limited time. Once the allotment letter has been dispatched the agreement is complete.But the allottee is still not a shareholder. He has not yet been entered on the register—indeed particular shares identified by number have probably not been appropriated to him. This will not occur until he is duly placed on the register, and if the allotment letter is renounceable he himself may never become a shareholder.”
Of the second class of allotment, i.e. allotment made upon application, again the application is an offer by the applicant, the acceptance by the company in such a case is, as Palmer says (supra) at p. 143, ordinarily evidenced by what is termed “allotment.” He then cites the definition of allotment given by Chitty J., in Nicol’s Case2:
“What is termed ‘allotment’ is generally neither more nor less than the acceptance by the company of the offer to take shares. To take the common case, the offer is to take a certain number of shares, or such a less number of shares as may be allotted. That offer is accepted by the allotment either of the total number mentioned in the offer or a less number, to be taken by the person who made the offer. This constitutes a binding contract to take that number according to the offer and acceptance. To my mind there is no magic whatever in the term ‘allotment’ as used in these circumstances . . . It is an appropriation, not of specific shares, but of a certain number of shares. It does not, however, make the person who has thus agreed to take the shares a member from that moment; all that it does is simply this—it constitutes a binding contract under which the company is bound to make a complete allotment of the specified number of shares, and under which the person who has made the offer and is now bound by the acceptance is bound to take that particular number of shares. In most cases the act of placing the person who has agreed to become a member on the register is a mere matter of form, and may be described as a mere ministerial act; but it appears to me that in point of law all that is done by the process I have just indicated, and all that was done in this case, was to make a complete and binding contract.”
Again in Spitzel v. Chinese Corporation Ltd.,3 Stirling J., also defined and distinguished two things: “allotment” and “issue” of shares. He said:
“In the first place, I have to consider what meaning is to be attached to these two words [allotment and issue]. First of all, What is an allotment of shares? Broadly speaking, it is an appropriation by the directors or the managing body of the company of shares to a particular person. The legal effect of the appropriation depends on circumstances. Thus it may be an offer of shares to the allottee, or it may be an acceptance of an application for shares by the allottee;
but of itself an allotment does not necessarily create the status of membership. The allotment may be, and probably generally is [where it is an offer], such as to give a title to the shares the moment the allottee communicates his acceptance of it to the company whose directors make the allotment; but it seems to me that the allotment may be subject to a condition—as, for example, that the allottee should not only indicate acceptance, but perform some other act, such as payment of a sum of money. In other words, I think that a company may offer specified shares to A. B. on the terms that the title of A. B. should not arise until he had paid a sum of money to the company, and this being so, a contract may provide, as I think, that allotment
shall be subject to conditions.”
Applying the principles laid down in these two authoritative definitions, we would say that at its very best, the interpretation of the letter, exhibit D, most favourable to the first defendant is, that it is either an offer by the company of shares to the first defendant, or an acceptance by them of an application for shares by the first defendant made in his letter referred to in the exhibit. In either case, it has to be accepted by the first defendant to create a binding contract between him and the company to issue shares to him, but until he pays for them, or fulfils any other conditions attached to it, no particular shares identified by number can be appropriated to him, consequently he would not be entitled to be recognised as owning more than the one share he is proved by the minutes of the company as holding, and his name cannot be entered on the register.
Thus the natural inference to be drawn from the statement in exhibit D that, “you are allotted 20 % of the whole shares,” is that the company were prepared to issue such shares to him if he had accepted and paid for them. There is nothing in exhibit D from which it can be inferred that the offer to the first defendant in this case could not have attached to it the conditions usually attached to such offer, e.g. payment of cash for the same.
The learned judge of the High Court therefore erred in holding that exhibit D supported the oral evidence of the first defendant and concluding that 10,000 shares at £G1 each had been allotted to the first defendant on the condition that they should be free of charge for services rendered to the company.
Now there is no evidence that this offer, if made in the normal course of business, as it should be, was accepted by the first defendant to create a binding contract. That being the case the question of an order by the court under section 107 of the Companies Ordinance, requiring the first defendant to pay cash for those shares does not arise. For that reason also, it is unnecessary to deal with the other points raised by counsel for the plaintiff.
It follows that the appeal of the plaintiff must succeed. The appeal is accordingly allowed, the ruling of the High Court that in addition to his one share, the first defendant is entitled to 10,000 shares, is set aside. It is ordered that the list of contributories should be as contained in the minutes book reporting the minutes of a meeting of the directors dated 12 February 1959:
“J. Conte 5,018 shares
Mrs. Conte 1 share
N. Y. Asare 1 share
Dr. A. Y. Kpeglo 1 share
R. J. Amanoo 1 share
W. E. Arthur 1 share
R. Ashie 1 share
5,024 shares.”
DECISION
Appeal allowed.
T.G.K.
