TaxTMI 
TaxTMI 
1941 (3) TMI 16
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....hin the exception in section 266 of the Companies Act, 1929. It is clear that, in form at least, if not in substance, cash was paid to the company. I am satisfied by the evidence that on April 12 GBP900 was paid into the company's banking account, and I am equally satisfied that on that date GBP900 at least was paid out of that banking account-as to GBP350 to Braunstein, as to GBP350 to Mrs. Stone, and as to GBP 200 to Davis. The question is whether, in those circumstances, I am to treat the payment as a payment of cash to the company not only in form, but also in substance. The first question which has to be considered is this. The debenture was issued to one Zimmerman. It is not denied that the money which Zimmerman paid to the bank ha....
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.... and, to use the words of an authority to which I shall refer, that the company was a mere conduit pipe through which a sum was paid, part of which was paid out afterwards to him. What are the facts? I have the minutes of the board meeting of April 1,1940, the date on which the debenture was issued, although in fact the money was not paid into the bank until April 12. It was reported to the meeting that Zimmerman had offered to lend the company GBP900 on the security of a debenture to carry interest at 5 per cent. per annum, and it was resolved that that offer be accepted. The company's solicitor was instructed to prepare the debenture and the debenture was produced and sealed in the presence of two directors and the secretary. It is to ....
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....by itself, a fact fatal to the validity of the debenture; but I cannot help thinking that, in considering all the circumstances, it is a fact to which consideration has to be given. I am assisted by the observations of Romer, L.J., in Matthew Ellis, Ltd., In re, where he says (102 L.J. Ch., at p. 70; [1933] Ch., at p. 477): "There are, of course, certain considerations for the issue of a debenture which plainly do not amount to payments in cash. Where, for instance, an existing creditor of a company takes a debenture from the company to secure the amount of his debt on the terms that he shall not immediately press for payment of his debt, or where he takes a debenture for the amount of his debt on the terms that the debt itself is to be ext....
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....ow, the company being unable to pay, the obvious thing to do would have been for the guarantors, the directors, to pay the GBP1,500 and have done with it, in which case they would have been unsecured creditors of the company for that amount. Instead of that, they went through the form of handing a cheque or cheques for GBP1,500 to the company, on the terms that the company should hand those cheques over to the bank, and they then said they had paid cash to the company. Parker, J., was not misled by such a transparent subterfuge as that, but held that there had not in fact been any cash paid. The directors had not parted with any cash to the company, and never intended to part with any cash. The company never received any cash from the direc....