Ooregum Gold Mining Co of India v Roper

Facts

• Ooregum Gold Mining Co of India Ltd had issued ordinary shares of 1 pound each which had fallen in market value.
• The company issued new preference shares of 1 pound nominal value at 15 shillings (a 25% discount), crediting them as fully paid.
• The company went into liquidation.
• The liquidator placed the preference shareholders on the list of contributories for the 5 shillings per share not actually paid.
• The preference shareholders argued the shares were validly issued and they owed nothing further.

Issue

1. Whether a company can validly issue shares at a price below their nominal (par) value; whether shareholders who received shares at a discount are liable for the unpaid portion on winding up.

Held

• The House of Lords held that it is a fundamental principle of company law that shares cannot be issued at a discount to their nominal value. The share capital stated in the memorandum represents the fund available for creditors, and to allow shares to be issued at a discount would deplete this fund and defraud creditors. The shareholders were liable to pay the difference.
• Lord Halsbury emphasized that the capital clause of the memorandum is a contract with creditors that the stated capital will be maintained.

Ratio Decidendi

A company cannot issue shares at a discount to their nominal (par) value. The nominal value represents the minimum consideration for which shares can be issued, and this capital must be actually contributed for the protection of creditors. Any purported issue at a discount is void, and the shareholder remains liable for the full nominal value.