Notice to agent equals notice to company, defeating lien for post-notice debts; post-liquidation transfers ineffective.
Notice of a share pledge given to a managing director acting with delegated board authority and within ostensible agency constitutes notice to the company, defeating the company's lien as to debts incurred after that notice and entitling pledgees to distributable surplus attributable to post-notice periods subject to prior debts; transfers or pledges executed after commencement of liquidation without court permission are ineffective, applications based on such post-liquidation transfers are dismissed, and the liquidator must implement any agreed compromise arrangements.
Issues: (i) Whether notice to the managing director/agent of the company of a pledge of the member's shares operates as notice to the company thereby defeating the company's lien in respect of debts incurred after such notice; (ii) Whether a transfer/pledge of shares executed after the company went into liquidation without the court's permission is effective.
Issue (i): Whether notice to the managing director/agent of the company of a pledge of a member's shares operates as notice to the company thereby defeating the company's lien in respect of debts incurred after such notice.
Analysis: The managing director held extensive and delegated powers under the articles, performing functions equivalent to the whole board and acting as the company's agent for management and borrowing. The agent had actual knowledge of the pledging of the shares prior to liquidation. Under the relevant principles of agency and authority, notice to an agent acting within his authority is notice to the principal, except where the agent acts in fraud of the principal; no fraud is shown.
Conclusion: Notice of the pledge to the managing director/agent is treated as notice to the company; the company's lien on the pledged shares does not extend to debts incurred after the company had such notice, and the distributable surplus attributable to the shares must be paid to the pledgees for amounts accruing after notice (subject to prior debts remaining payable).
Issue (ii): Whether a transfer/pledge of shares executed after the company went into liquidation without the court's permission is effective.
Analysis: The transfer/pledge occurred after commencement of liquidation; statutory permission is required for transfers in such circumstances under the cited provision.
Conclusion: A pledge/transfer of shares executed after the commencement of liquidation without the court's permission is ineffective and the application based on such transfer must be dismissed.
Final Conclusion: The applicants holding pledged shares are entitled to receive pro rata distribution of surplus in respect of amounts attributable to periods after the company had notice of the pledges, subject to any debts of the member existing prior to such notice; however, an application founded on a pledge executed after commencement of liquidation without court permission is dismissed, and compromised arrangements as agreed between parties are to be implemented by the liquidator.
Ratio Decidendi: Notice of a share pledge given to a company's managing director who acts with delegated board authority and within his ostensible agency constitutes notice to the company and defeats the company's lien in respect of debts arising after such notice; transfers of shares after commencement of liquidation require court permission under Section 227 of the Companies Act, 1956.
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