At the time of writing this
article the media are going through all the convulsions of moaning
about some fat cat who took early retirement and is being paid
£650,000 per year pension. Some might say it's worth it
if he never touches banking again. While this director may be
getting rather more money out of his former company than the
ones mentioned here, the principal of being blamed for all the
current woes of your company is the same.
The Wye Valley Railway never
made a profit during 88 years of serving Monmouth. Consequently
it might be thought that the people who invested money in the
company never actually got anything back. Actually, they did,
when the original Board of Directors decided to pay a few dividends
to their shareholders when things weren't quite as bad as they
were the rest of the time. Not very long after the railway opened
it found itself in dire financial straits and the original Board
of Directors, chaired by William Hawes, was sacked. The new board
decided that they wanted the money back and sued the original
Board on the basis that the payments had been improper and the
Board should be held personally liable for this.
The original Board naturally
had an opinion on being ordered to repay all dividends to the
Railway which had just sacked them and said that it wasn't their
job to pay up. Instead, they argued that they were indemnified
against such claims by the shareholders to whom the dividends
were paid - and so the Railway should send out demands to all
450 shareholders insisting that they refund the dividends. The
main basis for this argument was that the shareholders knew on
what basis the dividends had been paid. The fact that the shareholders
could be liable was agreed. So the directors asked to be allowed
to issue a notice ordering the past and present shareholders
to cough up.
There was some issue over whether
the shareholders would dispute that the company in which they
held shares should be allowed to have its money back. While the
counsel for the former Board said that the shareholders wouldn't,
it was argued by the counsel for the Railway that if they did
then it would cause substantial irritation and so the Railway
should be allowed to object as much as possible. The irritation
would be caused by 450 shareholders turning up to sue everyone
in sight and resist the move as much as possible, each with their
own counsel and set of witnesses - which would naturally delay
proceedings considerably (by several years) and prevent the Railway
from getting its money. Counsel for the Board said that this
could easily be solved by consolidating the shareholders' action
and having one shareholder, one counsel and one set of witnesses
bringing a case for all of them.
The Court said that however
it was worked out it would stop the Railway from getting the
money it was owed and told the former Board to sort the matter
The Board appealled. The next
court up duly looked at the case and made a few cheery points.
It was pointed out that the right to demand that the shareholders
pay up was not an automatic right. Then there was the issue of
the cost and inconvenience to the shareholders. They could only
protest about the claim by coming to court and fighting the Railway.
Appeal judgements have a habit of being repetitive things and
this one again drew up the question of the court being stuffed
with counsel for up to 450 shareholders - even 45 would be a
substantial delay (not to mention a Health and Safety risk).
The general view was that getting the shareholders in would be
impractical at best and a delaying tactic at worst. So the idea
was thrown out.
The original Board was duly
left facing paying the Railway the money. What happened next
is not recorded. History suggests that, whatever the result,
it didn't manage to keep the Railway afloat. History does record
that this case is now of merely academic interest, as all the
rules referred to and debated in the process were torn up and
replaced with new ones a few years later.
References - First
instance [1879 W. 319.]; Appeal (1880-81) L.R. 16 Ch. D. 489.
Written using information from online legal database "Westlaw".