tained, are entirely questions of internal management which the directors, subject to the control of the shareholders, must decide for themselves, and the court has no jurisdiction to control or review their decision. (Burland v. Earle, [1902] A.C. at pp. 95-97; and see notes to next section.) Sec. 57. dividend. In the absence of any express or implied term in the bargain Purchaser's to the contrary, the purchaser of shares will be entitled to all right to benefits incidental to the ownership of the shares as from the time of sale. In Black v. Homersham, 1878, 4 Ex. D. 24, shares of a company had been sold by auction on the 1st of August, and a deposit had been paid. By the conditions of sale, the purchase was to be completed on the 29th of August, which accordingly was done, and the transfers were signed. On the 24th, a dividend was declared in respect of a period antecedent to the sale by auction. The conditions of sale containing no provision as to dividends, it was held that the dividend belonged to the purchaser. After a transfer of shares the seller becomes a trustee for the buyer, and is not entitled, except by arrangement with the buyer, to receive any advantage in respect of them by reason of his being the registered holder. (Hart on Banking, p. 966; Rooney v. Stanton, 1900, 17 T.L.R. 28.) If under this section the transfer books are closed for a period after the declaration but before the payment of the dividend, the person in whose name a share stands at the time of the closing of the books is entitled to the dividend. The usage of the stock exchange is in accordance with this rule. If a sale is made after the closing of the books but before the payment of the dividend the vendor is nevertheless entitled to the dividend. 58. No dividend or bonus shall ever be declared so as to Dividend not to impair impair the paid-up capital of the bank. capital. such 2. The directors who knowingly and wilfully concur in the Directors declaration or making payable of any dividend or bonus, where- liable for by the paid-up capital of the bank is impaired, shall be jointly dividend and severally liable for the amount of such dividend or bonus, as a debt due by them to the bank. 53 V., c. 31, s. 48. Sec. 58. What is able for dividend. The original of this section was passed in 1871. By it no dividend or bonus is to be declared so as to impair the paid up capital. If the capital is impaired then all the net profits are to be applied to make up the loss, and in addition to this calls are to be made upon unpaid subscribed stock to an amount equivalent to the loss (sec. 39). The directors knowingly and wilfully concurring in a declaration of dividends or bonus contrary to this section are jointly liable for the amount thereof as a debt due by them to the bank. It was the frequent practice formerly for a bank, the capital of which had been impaired, to apply to Parliament for a reduction of its capital so as to enable it to continue payment of dividends. Now the shareholders may by sec. 35, reduce the capital under certain conditions and subject to the approval of the Treasury Board. Where a banking company with a paid up capital of £500,profit avail- 000, sold part of its undertaking for £875,000, and after deducting the paid up capital and other incidental expenses, there remained a net balance of £205,000, and the directors proposed to treat this balance as profit, it was held that the £205,000 was profit on capital, and not part of the capital itself, and that the directors would be justified in carrying this sum to the profit and loss account, and after appropriating to the reserve fund so much as they thought proper, might distribute the remainder as dividends. (Lubbock v. British Bank, [1892] 2 Ch. 198.) When it is said that dividends are not to be paid out of capital, the word "capital" means the money subscribed, or what is represented by that money. Accretions to that capital may be realized and turned into money, which may be divided amongst the shareholders. (Verner v. General, etc., Trust, [1894] 2 Ch. 239, 265; cf. Bond v. Barrow, [1902] 1 Ch. 353.) The question of what is profit available for dividend depends upon the result of the whole accounts fairly taken for the year as well as profit and loss, and a realized accretion to the estimated value of one item of the capital assets cannot be deemed to be profit divisible amongst the shareholders without reference to the result of the whole accounts fairly taken. (Foster v. New Trinidad, [1901] 1 Ch. 208; the dictum in this case that dividends may be paid out of earned profits in proper cases, notwithstanding that there has been a depreciation of capital, is inapplicable to the case of a bank under the Act.) limited 59. No division of profits, either by way of dividends or Sec. 59. bonus, or both combined, or in any other way, exceeding the Dividend rate of eight per centum per annum, shall be made by the bank, unless there unless, after making the same, the bank has a rest or reserve is a certain fund, equal to at least thirty per centum of its paid-up capital after deducting all bad and doubtful debts. 53 V., c. 31, s. 49. The original of this section was passed in 1871 and required a rest or reserve fund equal to 20 per cent. of the paid up capitai. The object was to prevent a repetition of such extravagant distribution of assets under the guise of profits as had hastened the failure of some of the earlier banks, notably the Bank of Upper Canada. The percentage was increased to 30 per cent. in 1890. Before any division of profits exceeding 8 per cent. is made, there must be a rest or reserve fund equal to 30 per cent. of the paid up capital after deducting all bad and doubtful debts. Directors are not liable for including in their accounts as good, debts which are in fact bad, when they are not fixed with knowledge of the fact or with negligence in regard thereto. (Dovey v. Cory, [1901] A.C. 477.) reserve. Forty per centum in Dominion notes. Supply of Dominion notes. Redemption. Discretion CHAPTER XIII. CASH RESERVES. 60. The bank shall hold not less than forty per centum of its cash reserves in Dominion notes. 2. The Minister shall make such arrangements as are necessary for ensuring the delivery of Dominion notes to any bank, in exchange for an equivalent amount of specie, at the several offices at which Dominion notes are redeemable, in the cities of Toronto, Montreal, Halifax, St. John, Winnipeg, Victoria and Charlottetown, respectively. 3. Such notes shall be redeemable at the office for redemption of Dominion notes in the place where the specie is given in exchange. 53 V., c. 31, s. 50. The Act of 1871 required the bank always to hold, as nearly as might be practicable, one-half of its cash reserves in Dominion notes, the proportion held in such notes never to be less than one-third. In 1880 one-third was changed to 40 per cent. The present provision dates from 1890. The corresponding section of the Act of 1890 contained, as part of sub-sec. 1, a clause imposing upon the bank a penalty for contravention of the sub-section. This penalty clause is now sec. 134. As to Dominion notes and specie, see Chapter XXIX. infra. The question of requiring a bank to keep a fixed minimum cash reserve was fully discussed not only in 1871, but also in 1890, the proposal to that end being successfully opposed by the bankers. Under the Act a bank is not obliged to keep any cash reserve, but if it does do so, it must hold 40 per cent. thereof in Dominion notes. This section is entirely in the interests of the Government, and seems to have no logical justification. The court has no jurisdiction to say what is a fair or rearetain profits sonable sum to retain undivided out of profits, or what reserve ary power to undivided. fund may properly be required, and it makes no difference whether the undivided balance is retained to the credit of profit and loss account, or carried to the credit of a rest or reserve fund, or appropriated to any other use of the business. The power to form a reserve fund or retain a balance of undivided profits, involves the power to invest the moneys so retained. The investments may be on such securities as the directors may select (having regard to the business and powers of a bank under the Act), subject to the control of a general meeting, although different considerations might arise if it appeared that, under the guise of investing undivided profits or the reserve fund, the directors were in fact embarking the moneys of the company in speculative transactions, or otherwise abusing the powers vested in them for the management of its business. (Burland v. Earle, [1902] A.C. at pp. 95-97.) No division of profits, either by way of dividends or bonus, or both combined, or in any other way, exceeding the rate of 8 per cent. per annum, may be made by a bank, unless, after making the same, the bank has a rest or reserve fund, equal to at least 30 per cent. of its paid-up capital after deducting all bad and doubtful debts (sec. 59). Sec. 60. 8-BANK ACT. |