Legal aid oyo journal of legal issues vol. 1, Issue 1, 2017
LEGAL AID OYO JOURNAL OF LEGAL ISSUES VOL. 1, ISSUE 1, 2017
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Company Law Notbeook
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- Decisions High Court At first instance, Vaughan Williams J
| LEGAL AID OYO JOURNAL OF LEGAL ISSUES VOL. 1, ISSUE 1, 2017. 104 Salomon a leather merchant and shoe manufacturer had traded on his own for over thirty years. While his business was solvent he formed a company called "Aron Salomon and Company Limited" and sold his business to this company. The Companies Act 1862 (UK) required seven subscribers and Salomon, his wife and five children each subscribed one share to satisfy the statute. Salomon valued his business at 39,000 pounds which appeared to bean inflated figure. However instead of taking cash for the sale of the business, Salomon took 20,000 fully paid one pound shares in addition to debentures to the value of 10,000 pounds. These debentures were secured by a floating charge. The balance of the purchase price remained as an unsecured debt. Soon after the company came into financial difficulties and needed an injection of funds. In response, Salomon borrowed 5000 pounds from Broderip which he advanced to the company. To obtain this loan, Salomon had his debentures cancelled and reissued to Broderip, but on terms that he should obtain a residual benefit after the debt was discharged. Payments to Broderip fell into arrears and Broderip enforced his security. The company's liquidation followed. After Broderip was paid, there remained a balance of indebtedness secured by the debentures. Salomon claimed his reversionary entitlement. However if this claim was satisfied there would be no funds left to payout the other unsecured creditors. The liquidator attempted to resist the claim by arguing that the debentures were invalid on the ground of fraud. Decisions High Court At first instance, Vaughan Williams J, the trial judge agreed with the reasoning of the liquidator that Salomon‟s debentures were invalid on the ground of fraud. He further held that all the subscribers of the memorandum (except Salomon) held their shares as mere nominees because Salomon‟s motive informing the Company was to use it as an agent to manage his business for him. The company he opined was just Mr Salomon in another form therefore Salomon as principal had to indemnify the company's creditors personally. 443 Download 384.7 Kb. Share with your friends:
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