N.H. Chan J:

The plaintiff is a private company. The defendant, which is now under receivership, is a co-operative society registered under the Co-operative Societies Act 1948 . The name is misleading; it is not a bank at all.

On 7 April 1986, a member of the defendant co-operative society, who was also a director of the plaintiff company, took a loan of 20 million from the defendant co-operative society. The loan was secured by a charge on the plaintiff company's lands in favour of the defendant co-operative society as chargee.

The plaintiff's application before me is based purely on law. It asks for a declaration that the third party charge which was created by the plaintiff company in favour of the defendant co-operative society is void and unenforceable for contravening the prohibitions in s.133 of the Companies Act 1965. S.133 , inter alia, prohibits a company from entering into a guarantee or providing any security in connection with a loan made to its director by any other person.

Before I proceed to consider the effect of s.133 of the Companies Act , I find that it is necessary to make an examination of the position of the equivalent or similar provisions in the Companies Acts of the United Kingdom and Australia. I shall also endeavour to examine some of the authorities from those jurisdictions. I refer to them because they would usefully illustrate the principle which has been held to underlie the application by the courts of the United Kingdom and Australia on the effect of the applicability of this type of provisions in their jurisdictions. These authorities represent a sound and rational development of the law and the principle which underlies them that has found acceptance in these two Commonwealth jurisdictions which, in my opinion, should be endorsed by the courts of this country.

I now begin with the position in England.

The English position.

PROHIBITION ON A COMPANY FINANCING THE ACQUISITION OF ITS OWN SHARES

I shall deal first with s.54 of the Companies Act 1948. By this section it was unlawful for a company to give a person financial assistance for the purchase of, or subscription for its own, or its holding company's shares.

54(1) Subject as provided in this section, it shall not be lawful for a company to give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company, or, where the company is a subsidiary company, in its holding company:

[here follows the three exceptions where the prohibition is not to apply but they are not relevant to the discussion in the present case]

(2) If a company acts in contravention of this section, the company and every officer of the company who is in default shall be liable to a fine not exceeding one hundred pounds.

I have extracted the next two paragraphs from the 23rd and 24th editions of Palmer and have combined them together.

S.54 of the 1948 Act was repealed by s.42(13) of the 1981 Companies Act and replaced by ss. 42 to 44 of the 1981 Act which in turn were replaced by what are now ss.151 to 158 of the 1985 Companies Act. S.42 of the 1981 Act and ss.151 to 154 of the 1985 Act re-enact the basic prohibition of s.54 of the 1948 Act in a much modified form and apply to all companies: Palmers' Company Law, 23rd ed (1982), para 38-02 and Palmer's Company Law, 24th ed (1987), para 39-02.

The actual wording of s.42 of the 1981 Act and of s.151 of the 1985 Act, as in s. 54 of the 1948 Act, merely renders the giving of financial assistance "unlawful" and creates a criminal offence. It says nothing as to the consequence of a breach on the transaction as a whole or even as to whether any security given by the company which assists the purchase of its shares is void. It seems clear, however, that the courts have provided an answer on the identical wording of the f