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ceding section, shall be himself liable to pay to the execution § 63-64 creditor the amount due on said execution, with costs.

P. L. 1846, pp. 71-72; P. L. 1849, p. 308; Act of 1875, 67-68.

VII. Insolvency.

63. Directors must call meeting of stockholders when corporation becomes insolvent.-Whenever any corporation shall become insolvent, the directors, within ten days thereafter, shall call a meeting of the stockholders, and lay before them for inspection and examination all the books of accounts, by-laws and minutes of the corporation, and exhibit a full and true statement of all its estate, funds and property, and of all the debts due and owing to it, and by whom, and of all the debts owing by it, and to whom, as far as the directors can at that time make out the same; so as to exhibit to the stockholders a full, fair and true account of the situation of the affairs of the corporation.

P. L. 1829, p. 58; P. L. 1869, p. 1448; Act of 1875, § 69.

This and the following sections are in substance a re-enactment of the "Act to Prevent Frauds by Incorporated Companies." (P. L. 1829, p. 58.) Under that act it was held that the only criterion of insolvency furnished by the act was the suspension of business, and that the act of insolvency contemplated by the statute is committed at the time the company suspends its ordinary business operations. (Bedford v. Newark Machine Co., 16 N. J. Eq., 117)

64. Conveyance or assignment of property, etc., after insolvency, or contemplation of insolvency, void as against creditors.Whenever any corporation shall become insolvent or shall suspend its ordinary business for want of funds to carry on the same, neither the directors nor any officer or agent of the corporation shall sell, convey, assign or transfer any of its estate, effects, choses in action, goods, chattels, rights or credits, lands or tenements; nor shall they or either of them make any such sale, conveyance, assignment or transfer in contemplation of insolvency, and every such sale, conveyance, assignment or transfer shall be utterly null and void as against creditors; provided, that a bona fide purchase for a valuable consideration, before the corporation shall have actually suspended its ordinary business, by any person without notice of such insolvency or of the sale being made in contemplation of insolvency, shall not be invalidated or impeached.

P. L. 1829, p. 58; P. L. 1895, p. 166.

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80

INSOLVENCY.

APPOINTMENT OF RECEIVERS.

The object of this provision was "to prevent companies, actually insol"vent, or whose embarrassments were such as must inevitably lead to "insolvency, from doing what it is lawful for an individual debtor to do "—make a preference in favor of any one or more of its creditors." (Holcomb's Exr's v. New Hope Del. Br. Co., 9 N. J. Eq., 457; and see Van Wagnen v. Savings Bank, 10 N. J. Eq., 13; State Bank v. Receiver, 3 N. J. Eq., 266; Receivers v. Paterson Gas Co., 23 N. J. Law at 291; Kinsela v. Cataract Bank, 18 N. J. Eq., 158; Wells v. Rahway White Rubber Co., 19 N. J. Eq., 402; Wilkinson v. Bauerle, 41 N. J. Eq., 35, 641; Frost v Barnert, 56 N. J. Eq., 290, 292.)

This section was enacted in 1829, was re-enacted in the Revision of 1846, continued in force to 1875, but it was not included in the Revision of that year, and the 'Act to Prevent Frauds by Incorporated Companies" was repealed.

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Important as this change in the law was, its effect does not seem to have been discovered, so far as the reported cases show, until eleven years afterwards, when Wilkinson v. Bauerle, 41 N. J. Eq., 635, was decided in the Court of Errors and Appeals in 1886.

The court then held that a corporation might sell and transfer its property and prefer one or more of its creditors to others, although it was insolvent. The only limitation upon its powers to prefer creditors being that it could not give them a preference by confessing judgment, which was prohibited by Section 80 of the Revision of 1875 (Section 86 of present act).

At the same term the Court of Errors and Appeals (Vail v. Jameson, 41 N. J. Eq., 648) held that the preference of one creditor of a corporation over other creditors, by means of a mortgage on corporate property, was not prohibited by law or objectionable in itself. Several other cases to the same point followed these decisions

Montgomery v. Phillips, 53 N. J. Eq., 203, held that the board of directors of an insolvent corporation could not by a mortgage upon the corporate property prefer one of its own members, distinguishing the case from Wilkinson v. Bauerle. (See also Mallory v. Kirkpatrick, 54 N. J. Eq., 50; Savage v. Miller, 56 N. J. Eq., 432.) In Vail v. Jameson, 41 N J. Eq, 648, the creditor was not an officer.

A corporation may make a general assignment for the benefit of creditors (P. L. 1899, p. 146).

65. Remedy in chancery by injunction and appointment of a receiver in case of insolvency.-Whenever any corporation shall become insolvent or shall suspend its ordinary business for want of funds to carry on the same, any creditor or stockholder may by petition or bill of complaint setting forth the facts and circumstances of the case, apply to the court of chancery for a writ of injunction and the appointment of a receiver or receivers or trustees, and the court being satisfied by affidavit or otherwise of the sufficiency of said application, and of the truth of the allegations contained in the petition

or bill, and upon such notice, if any, as the court by order may § 65 direct, may proceed in a summary way to hear the affidavits, proots and allegations which may be offered on behalf of the parties, and if upon such inquiry it shall appear to the court that the corporation has become insolvent and is not about to resume its business in a short time thereafter with safety to the public and advantage to the stockholders, it may issue an injunction to restrain the corporation and its officers and agents from exercising any of its privileges or franchises and from collecting or receiving any debts, or paying out, selling, assigning or transferring any of its estate, moneys, funds, lands, tenements or effects, except to a receiver appointed by the court, until the court shall otherwise order.

P. L. 1829, p. 59–60; P. L. 1852, p. 397; Act of 1875, §§ 70, 71, 83; P. L. 1877, p. 74.

The power to dissolve and wind up an insolvent corporation is statutory. It formed no part of the original jurisdiction of the court. It was conferred by a statute passed in 1829, and the language by which it was conferred has remained unchanged from that time to the present. "This "statute empowers the Chancellor, on the application of a creditor or "stockholder, alleging that the corporation in which he is interested has "become insolvent, to proceed in a summary way to inquire into the truth "of such allegation, and if, upon such inquiry, it shall be made to appear "that the corporation has become insolvent, and shall not be about to "resume its business in a short time, with safety to the public and advan"tage to the stockholders, he may enjoin it from the further exercise of "its franchise, and also from the further transactions of business; and he "may also, at the same time, or at any subsequent time during the con"tinuance of the injunction, if, in his judgment, the circumstances of the "case and the ends of justice require, appoint a receiver to dispose of its "assets and distribute the proceeds. The exercise of this power to its "full extent extinguishes a mere manufacturing or mercantile corporation "completely and forever. The power is a strong one. Chancellor Wil"liamson, in Rawnsly v. Trenton Life Ins. Co., 9 N. J. Eq., 95, called it "an extraordinary power -- one that should be exercised with great caution, and only when the circumstances of the case and the ends of justice "required its exercise. The statute makes insolvency the jurisdictional "fact. The court can do nothing-neither issue an injunction nor appoint "a receiver-until insolvency is first established. That, in the language "of Governor Pennington, is the foundation of the power, and unless it "is satisfactorily made out the court has no jurisdiction * * * the "proof in support of a jurisdictional fact must always be clear and con"vincing, for the court derives its power from the fact, and hence, until "the fact is shown to exist, it has no power. To doubt in such a case is "to deny. If it be a balancing question, and the conduct of those who

§ 65 "have the management of the affairs of the corporation appears to have

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"been upright and just, the court must resolve its doubt against the "application and refuse to interfere-nor is it the duty of the court to use its power in all cases where insolvency is shown. Something more is "required. The prerequisites prescribed by the statute are, that it shall "be made to appear that the corporation has become insolvent, and, also, that it will not be able to resume its business in a short time with safety "to the public and advantage to the stockholders. The power is only to "be exercised when the ends of justice require its exercise. The court "should strive in such cases to foster and preserve rather than to strangle "or destroy.

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"It is thus seen that the establishment of the fact of insolvency does "not make it the duty of the court to appoint a receiver in all cases and "under all circumstances, but simply places it in a position where it must "exercise its best discretion, and either to appoint or refuse to appoint as "the ends of justice, having due regard to the safety of the public and the best interests of creditors and stockholders, shall seem to require." (Vice-Chancellor Van Fleet in Atlantic Trust Co. v. Consolidated Electric Storage Co., 49 N. J. Eq., 402, 404, 406; see also Oakley v. Paterson Bk., 2 N J. Eq., 173, 176; Parsons v. Monroe Mfg. Co., 4 N. J. Eq., 187, 206; Brundred v. Paterson Mach. Co., 4 N. J. Eq., 294, 305; Goodheart v. Raritan Mfg. Co., 8 N. J. Eq., 73, 77; Laurel Springs Land Co. v. Fougeray, 50 N. J. Eq., 756; Rawnsley v. Trenton Mut. L. Ins. Co., 9 N. J. Eq., 347; Streit v. Citizens' Fire Ins Co, 29 N. J. Eq., 21; Cook v. East Trenton Pottery Co., 53 N. J. Eq., 29; Nichols v. Perry Patent Arm Co., 11 N. J. Eq., 126.)

Sections 88 et seq. of the Chancery Act relating to bills of discovery against judgment debtors and appointment of receivers therefor do not apply to corporations. (Mallory v. Kirkpatrick, 50 N. J. Eq., 50.)

It is not sufficient to merely allege in the bill that the company is insolvent and has suspended its business for want of funds to carry on the same. The facts and circumstances must be set out in the bill from which the insolvency of the company shall appear. (Newfoundland R R. Construction Co. v. Schack, 40 N. J. Eq., 222, 226.)

In judging of the solvency or insolvency of a company its property should be estimated at its fair value, and not at the depreciated price which it might command at a forced sale. The most unfavorable inference as to the condition of a corporation may justly be drawn from the circumstances of the company's withholding its books upon an investigation touching its insolvency. (Parsons v. Monroe Mfg. Co., 4 N. J. Eq., 187.)

In Edison v. Edison United Phonograph Co., 52 N. J. Eq., 620, an attempt was made to have a receiver appointed, not " because the cor"poration is now actually insolvent, but because of a fear, resting entirely "on conjecture, that it will become so at some time in the future." Dissensions had arisen among the members of the Board of Directors as to the business policy of the company. The Court of Chancery said:

"It is too plain to require demonstration that this court has no power § 65 **to appoint a receiver to wind up a corporation because it is feared or "even expected that it will become insolvent at some time in the future. "Nothing short of present actual insolvency will warrant the appoint"ment of a receiver for such a purpose."

The proceeding against an insolvent corporation, whether domestic or foreign, authorized by Sections 65 and 66 (Sections 70 and 72 of the Act of 1875), is a proceeding in rem. It may be commenced by bill or petition, and a receiver may be appointed with or without notice to the corporation, as the Chancellor shall decide the exigencies of the case require. And if he orders notice to be given, he may direct that it shall be given either by service or by publication. The proceeding is summary in its character and strictly in rem. Its main object is to put the property of the corporation in the custody of the law, so that its proceeds may be applied in due course of administration to the payment of the debts of the corporation. (Albert v. Clarendon Land, &c., Co., 53 N. J. Eq., 623.)

A corporation which has been declared insolvent has power to take steps looking toward a reorganization and a resumption of its property and business pending an injunction and receivership, and may employ agents to aid in the carrying out of such purposes, for whose compensation it will be liable if the injunction is dissolved and the receiver removed. (Linn v. Joseph Dixon Crucible Co. [Sup. Ct.], 59 N. J. Law, 28.)

"Putting the corporation in charge of a receiver does not work its "dissolution. The corporation continues to exist until its dissolution is "'effected either by surrender or judicial decision. Meanwhile the cor"poration exists with all its franchises, exercisable by the receiver in "the management and control of its affairs, subject to all the duties, "obligations and liabilities that rested upon the corporation itself, among "which is liability to taxation, the same as the corporation itself would "have been subject to in case the management and control of its affairs "had not been committed to a receiver." (Kirkpatrick v. Assessors, 59 N. J. Law, 53; N. J. Southern R. R. Co. v. R. R. Commissioners, 41 N. J. Law, 235.)

Receivers of foreign corporations.-To authorize the Court of Chancery to appoint a receiver of an insolvent foreign corporation, it is not necessary that the corporation should be engaged in carrying on its business in this State on the very day when the bill or petition is filed, but the court may take jurisdiction in every case where it is made to appear that the corporation has done business here, and still has property here, although at the time when the bill or petition was filed its business here is entirely suspended. (Albert v. Clarendon Land, &c., Co., 53 N. J. Eq., 626.)

Powers of receiver.-In National Trust Co. v. Miller (33 N. J. Eq., 155, 158) it was said, in substance, that the receiver of an insolvent corporation was an officer created by law for the protection of the rights of the creditors of the corporation, and to accomplish the purposes of his creation it was indispensably necessary that he should be clothed with

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