Re McClement, a Bankrupt

• Jurisdiction: Ireland
• Judgment Date: 01 January 1962
• Date: 01 January 1962
• Court: High Court

In re McClement, a Bankrupt.

In the Matter of DONAL McCLEMENT, a Bankrupt

Bankruptcy - Order and disposition - Consent and permission of true owner - Reputed ownership - Deposit of share certificates by way of pledge - Transfer of shares executed in blank by pledgor - Articles of association permitting registration of transfer of shares without necessity for production of share certificate - Act of bankruptcy - Irish Bankrupt and Insolvent Act,1857 (20 and 21 Vict., c. 60), s. 313.

Where share certificates are deposited by way of mortgage or pledge, the mortgagee or pledgee is the "true owner" of the shares referred to in the certificates, within the meaning of the Irish Bankrupt and Insolvent Act, 1857, s. 313.

Where share certificates relating to shares in a company which are transferable without production of the share certificates, and which certificates do not bear a note requiring their production on a transfer of the shares to which they relate, are pledged by the registered owner, who later becomes a bankrupt, and the pledgee allows the pledgor to remain as the named owner of the shares on the register of shareholders of the company, the shares may be regarded as being in the order and disposition of the bankrupt as reputed owner with the consent of the pledgee, unless evidence be adduced rebutting such inference.

So held by Budd J.

Held further that where, however, share certificates, pledged in similar circumstances, bear upon them a note indicating that an intended transfer of the shares referred to in the certificates will not be registered unless the transfer is accompanied by the certificates relating to the shares intended to be transferred, the shares will not be regarded as being in the order and disposition of the bankrupt as reputed owner thereof with the consent of the pledgee or true owner.

Held further by Budd J. that where the owner of shares in a company transfers them to another upon trust for the transferor for the purpose of enabling the transferee to vote at meetings of the company and permits the legal ownership in the shares to be vested in the transferee, who subsequently is adjudicated a bankrupt, the shares are within the order and disposition of the transferee as reputed owner thereof with the consent of the true owner; but bonus shares issued to the transferee and received by him subject to the said trust, without the knowledge of the transferor, can not be said to be within the order and disposition of the bankrupt as reputed owner with the consent of the true owner.

Motion on Notice.

Donal McClement, committed an act of bankruptcy on the 29th April, 1958, when he departed from Ireland with the intention of delaying or defeating his creditors. He was adjudicated a bankrupt on the 16th May, 1958. Between the 2nd March, 1943, and the 11th August, 1952, he had lodged share certificates representing 930 shares in the Cork Greyhound Race Company, Limited, with the Munster and Leinster Bank Limited by way of equitable mortgage to secure his overdraft account. He had also executed deeds of transfer of the shares, in which the transferee's name was not filled in, which had been delivered to the Bank. The transfers were completed by the Bank on the 7th May, 1958, when the name of the Bank as transferee was filled in, and the certificates were sealed by the Bank.

On the 10th May, 1958, new share certificates were issued in the name of the Bank in respect of the nine hundred and thirty shares. By indenture dated the 17th November, 1941, and made between Donal McClement (thereinafter called "the bankrupt")of the one part and Robert McClement and Patrick J. Murphy (thereinafter referred to as "the subscribers"), of the other part, the bankrupt declared that of one hundred and eighty-five shares in the Cork Greyhound Race Company Limited of which he was then the registered owner one hundred shares were his own absolute property and the remaining eighty-five shares were held by him as to fifty thereof on behalf of and as trustee for the said Robert McClement and as to thirty-five thereof on behalf of and as trustee for the said Patrick J. Murphy. The indenture contained covenants on the part of the bankrupt (a) to sell or transfer the said shares so held on trust when required by any of the subscribers and in accordance with their directions subject to the articles of association of the Company and to pay the proceeds to the subscribers; (b) to pay the dividends declared in respect of the shares held upon trust to the subscribers; (c) to vote at meetings of the Company in accordance with the wishes of the subscribers; (d) in the event of the death of any of the subscribers to hold the shares belonging to such subscriber in trust for his personal representatives or as such subscriber should by deed or will direct. In the year 1949, a free bonus issue of shares was made of two shares for every one then held by shareholders in the Company. The subscriber, Patrick J. Murphy, received the dividends in respect of his shares in the Company from the bankrupt by way of credits in annual accounts prepared between them up to the year 1950 or thereabouts. Thereafter accounts were not furnished regularly. Patrick J. Murphy was not aware of the free bonus issue made in the year 1949 until after the bankrupt had been adjudicated as such. The share certificates issued by the Company stated that the bankrupt was the registered owner of the shares "subject to the memorandum of association and the rules and regulations thereof," which embodied article 20 of Table A under the Companies Consolidation Act, 1908, by virtue of which the directors of the Company might decline to recognise any instrument of transfer unless such instrument of transfer was accompanied by the certificate of the shares to which it related and such other evidence as the directors might reasonably require to show the right of the transferor to make the transfer. The share certificates did not bear an endorsement to the effect that a transfer would not be registered without the production of the share certificates. In the course of the bankruptcy proceedings, a claim was made on behalf of Patrick J. Murphy and the personal representatives of Robert McClement, the deceased, that the respective holdings of thirty-five shares and fifty shares, the subject-matter of the declaration of trust, together with the free bonus shares issued in respect of those holdings were held by the bankrupt as trustee for the claimants and that the proceeds of the sale of those shares, all of which had been sold in the matter, were properly payable to the respective claimants. By notice of motion, dated the 4th February, 1959, and served upon the solicitors appearing for Patrick J. Murphy and the Munster and Leinster Bank Limited, the official assignee applied to the High Court (Budd J.) inter alia for a declaration, pursuant to s. 313 of the Irish Bankrupt and Insolvent Act, 1857, that the bankrupt at the time he became a bankrupt had by consent and permission of the true owners thereof, in his possession, order or disposition nine hundred and thirty shares in the Company whereof he was the reputed owner or whereof he had taken upon himself the sole alteration or disposition as owner.

Cur. adv. vult.

Budd J. :—

The Official Assignee in this case seeks a declaration pursuant to s. 313 of the Irish Bankrupt and Insolvent Act, 1857, that the bankrupt, at the time he became bankrupt had, by the consent and permission of the true owners

thereof, in his possession order or disposition 930 shares in the Cork Greyhound Race Co. Ltd., of which he was the reputed owner. He further seeks an order that the Munster and Leinster Bank Ltd. should be ordered to deliver up to him the certificates relating to the shares or the proceeds of sale thereof.

The bankrupt was adjudicated on the 16th May, 1958. Prior to the year 1950 he had become the registered owner of the shares in question in the books of the Cork Greyhound Race Co. Ltd. He had long prior to his bankruptcy deposited the share certificates with the Munster and Leinster Bank Ltd., at their Cork office, to secure his overdraft account. He had handed over with the certificates transfers thereof in blank duly executed by him. The Bank later, on the 7th May, 1958, sealed the blank transfers with their seal, and, on the 10th May, 1958, new share certificates in respect of these shares were issued in the name of the Bank. The shares have since been sold and the proceeds are held, pending the outcome of the present proceedings, on a joint account in the name of the Official Assignee's solicitor and the Bank's solicitor. It is relevant to note that the share certificates held by the bankrupt did not bear any endorsement to the effect that a transfer of the shares would not be registered without the production of the certificates themselves, but did state that the bankrupt was the registered owner subject to the memorandum of association and the rules and regulations thereof. The articles of association of the Company embodied article 20 of Table A under the Companies Consolidation Act, 1908, which, in so far as relevant, is as follows:— "The directors may decline to recognise any instrument of transfer unless . . . (b) The instrument of transfer is accompanied by the certificate of t,he shares to which it relates, and such other evidence as the directors may reasonably require to show the right of the transferor to make the transfer."

With regard to certain of the shares above mentioned, the bankrupt, on the 17th November, 1941, entered into what has been described as a declaration of trust in the form of an indenture made by the bankrupt, his father, R. McClement, and Patrick J. Murphy. The indenture recites that the bankrupt, therein described as "the trustee," is the registered owner of 185 shares in the Cork Greyhound Race Co. Ltd., of which he owns 100 shares absolutely and that the...