The Gazette 1977

GAZETTE

MAY-JUNE

Correspondence

tried for lending him the slightest support. Finally it is said that accountants would like to see the word narrowed but the Jenkins committee will not, quite rightly, have it. I can only conclude that what Counsel was trying to do was to restrict the effect of the section and what the judge was doing was trying to apply the natural meaning of the words in the section. Perhaps I may be allowed to paraphrase from the article Counsels arguments on behalf of Company C. (presumably) thus: 'S.56 (1948 English Act) says that a company must treat as part of its capital any premium it receives on the issue of its shares for cash or otherwise. How can you tell when a premium has been received by a company? Where the cash received exceeds the nominal value of the share the exercise is easy. But where no cash excess is discernible you must look at the assets involved. But which assets? In my view one looks at the total assets of the company excluding the assets acquired in exchange for the shares. I may call these the company's existing assets. Only those may be considered because one has to consider the premium in relation to the state of the company before it acquired the assets to see if the assets acquired do in fact result in an enhanced value or premium. What existing assets had Company C. when it issued shares to A. and B? None. It was a new company. Thus, because you have no yardstick by which you can measure the excess value or premium, no premium has been received. The section does not therefore apply.' If I may take , the further liberty of paraphrasing again from the article the judgment of Harman J. it would run thus: 'S.56 commences as follows: 'Where a company issues shares at a premium, whether for cash or otherwise . . . ' The words quoted mean, in my view, that a premium may be calculated by examining the cash received for the shares in relation to the nominal value of the shares or, where this yields no fruit, the direct relation between the nominal value of the shares issued and the value of the asset acquired in exchange. In the latter case one compares the nominal value of the shares against their real value. One compares like with like. Counsel has stated that there is no relation at all between the two but there is and, indeed, must be. The company's existing assets are not in issue and cannot be put in the scale at all. Absurd results would follow if they were. The section bears this out. It applies to 'a company' without any qualification whatever. This inevitably means that a new test has been introduced. With the test 'nominal value v. cash received' a further test 'nominal value v. value of asset' has been introduced in the section. The former can be automatically operated, the latter not. The latter may not always prove that a premium has been received. It will depend on the circumstances of each case. Here by using the second test an actual premium has been found to exist and the premium must be considered as share capital.' If I have unwittingly put words in the mouth of either judge or counsel I hope I have not been unjust. I have tried to follow the case from the article. This I think is slightly different from narrowing the meaning of the word "premium" on the one hand and broadening it on the other. I am not sure that the word itself was in issue at all. Both judge and counsel appear to be at one on the word. What they disagree with is the application of the word to the concepts of excess cash and increased underlying asset value. When counsel says that

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THe Editor,

Law Society Gazette,

Dear Sir, I refer to the article concerning S. 62 of the Companies Act 1963 appearing on p. 67 of theApril 1977 issue of the Law Society Gazette. I will try to explain in as few paragraphs as possible why I am in difficulties with the article. The author refers to the case of Henry Head and Company Ltd. v. Ropner Holdings Limited (1951) 2 A.E.R. 994, his treatment of which I do not understand. He sets out to examine the word 'premium' in S. 62 of the Companies Act 1963 and to try to define the word with the help of the illustrated case, other cases, legal texts, and other sources. Firstly he produces very sensible dictionary meanings. Then counsel in the case, he says, wished to introduce a further definition (the word in S. 62 thus bring narrowed) which Harman J. sympathised with but could not, as a matter of law, follow. The dictionary meaning states, the author says, increase in value. Translated to the section this means, I think, a price greater than nominal value. Counsel suggested it also meant enhanced value where the asset which the share represents increased in value. The author takes counsel to task for producing no authority to back this view and criticises the judge for giving no reason why he rejects it. To me, this must make the case unique in the reports. Counsel gives no authority for suggesting 'X' and the judge gives no reason for holding 'Y\ Not only that. TTie judge may have liked to follow counsel but could not. The author then supposes that the reason for this was that the judge thought he was widening the effect of the section beyond the limits Parliament had set. The author then criticises him sharply for trying to alter the meaning of a Statute and castigates him for daring to strain the meaning of the words of the Statute. He furthermore ticks him off, in severe language, for going outside his sphere of authority to accommodate counsel. The author over-emphasises the point concerning the broader and narrower meanings of the word 'premium' in the section. For instance, he says that counsel tries to get the word premium enlarged to include a new meaning, thus leaving the definition of the word as originally placed in the section 'narrower'. The section or the Act does not define the word at all (the author admits this) — see footnote 13, page 68. Then it was said that the other words in the section do not either broaden or narrow the word. Harman J. is said to have given the word a broader meaning (he gives no reason) and counsel is accused of narrowing the broader or dictionary meaning. Gower, Palmer, and Pennington are then quoted to support the dictionary or ordinary meaning with which the author agrees. (Incidentally Palmer and Gower slightly disagree on terminology which may be significant — I do not know.) Property cases are then quoted in which the word has been discussed. The author then concludes that 'shares issued at a premium' means 'shares issued at a price greater than their nominal value'. Counsel is again berated for trying to narrow the definition and the judge is 94