Mitchell v Hart [1914] HCA 72

19 C.L.R.] OF AUSTRALIA.

(HIGH COURT OF AUSTRALIA.]

MITCHELL Fi é 2 a : Fi APPELLANT ; DEFENDANT, AND HART AND OTHERS . x E E . RESPONDENTS.

DEFENDANTS AND PLAINTIFFS,

ON APPEAL FROM THE SUPREME COURT OF NEW SOUTH WALES.

Company—Increase of capital—Iesue of new shares—Declaration of bonus— Pay- ment for shares by bonus—Option to shareholders—Tenant for life and remaindermen—Capital or income.

Where a company increases its capital by issuing new shares which are offered to shareholders, and at the same time distributes accumulated profits in the form of a dividend or bonus with which payment may be made for the new shares so offered, the amount of a dividend or bonus in respect of shares held by trustees which is applied in payment for new shares offered to and accepted by them is, as between tenant for life and remaindermen, income of the estate and not capital, unless the ordinary instincts of human self-interest of a reasonably prudent man would naturally and instantly lead him to apply the dividend or bonus in payment of the new shares notwithstanding that acceptance of the shares is legally refusable.

A company increased its capital by issuing new shares which were offered to shareholders in proportion to the number of shares held by each and a bonus was at the same time declared out of accumulated profits equal to the full amount payable on the shares, which might be applied by shareholders in payment for the new shares, subject to a provision that the company might sell all shares not applied for by shareholders and distribute the amount of the premium obtained pro ratd among the shareholders who did not apply for new shares. It was common ground that the value of the new shares would exceed the amount of the di

XIX, 3

H.C. or A. 1914, Se

Sypney,

Sept. 1; Nov. 26:

Griffith 0.3, Tsaaes and Gavan Dufty JJ.