In the Matter of Air Safaris (Tim Air ) Ltd., Misc. Civ. Cause 4-A-65, 3/10/68, Platt, J.

In the Matter of Air Safaris (Tim Air ) Ltd., Misc. Civ. Cause 4-A-65, 3/10/68, Platt, J.

Petitioner was a principal shareholder of a company which was being wound-up and had asserted a claim for monies she was alleged to have advanced to the company as loans. The liquidator had rejected her claim, on the ground that s. 158(1) (g), Companies Act required that the claim e deferred to unsecured creditors. That section provides that a sum due to any member “in his character of member” is deferred to the claims of other creditors.

            Held: The Court first stated the fundamental proposition that a director or member may loan money to company, so long as the company has power to borrow, which the company, so long as the company has power to borrow, which the company in question did. Furthermore the reference in s. 158(1) (g) didn’t apply since petitioner did not advance monies in her capacity as a member but rather as a creditor; the statute was only designed to defer payments receivable by a member as such, like dividends and profits.

            The liquidator challenged petitioner’s contentions that the advances were made as loans since there was no evidence of the indebtedness and the company did not reflect the advances in a loan account but rather in a capital account.

The Court noted that the company’s account were in disorder, but that the share capital of the company had never been increased. Nor had more shares ever been issued to the petitioner. Even if the advances were intended to be added to “circulating capital” they were not equivalent to capital paid in to the company. The Court pointed out that the petitioner could not claim dividends on the advances, which did not lose their identity as loans. The court rejected the liquidator’s argument that it was unfair to other creditors to allow the petitioner to claim repayment of her advances, particularly since the accounts of the company were not properly drawn up. The Court noted that the creditors could have found out from the Registry that no accounts were filed, and it was not clear what the effect would have been if they knew that petitioner was lending money to the company on an unsecured basis. The court found no basis to charge petitioner with fraudulent trading or misfeasance; nor did it find that petitioner would make any gain at all, let alone an improper gain. Therefore, her claim was admitted to proof.