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§ 65 absolute nullity and acquires no validity from the subsequent dismissal

of the suit with the consent of such creditors. Such mortgage, executed pending a suit to wind up the corporation as an insolvent debtor, is void, as being an unlawful attempt to prefer certain creditors. (Bissell v. Besson, 47 N. J. Eq., 580.)

A mortgage executed by the president without the knowledge of the directors and ratified by resolution of such directors after the corporation had become insolvent and suspended business and the mortgagee had notice of such insolvency and suspension, is invalid as against the receiver. (Howell v. Keen, 43 Atl. Rep., 1070.)

Directors of a corporation are liable to creditors for negligence occurring while the company is insolvent. (Bird v. Magowan, 43 Atl. Rep., 278).

A corporation in a failing condition cannot place part of its assets in the hands of a trustee to protect any of its directors as sureties on its bonds. (Gray v. Taylor, 38 Atl. Rep., 951.)

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 direct, may proceed in a summary way to hear the affidavits, proofs 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.

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The power to dissolve and wind up an insolvent corporation is statu- § 65 tory. 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 advantage to the stockholders, he may enjoin it from the "further exercise of its franchise, and also from the further transaction "of business; and he may also, at the same time, or at any subsequent "time during the continuance of the injunction, if, in his judgment, the "circumstances of the case and the ends of justice require, appoint a re"ceiver to dispose of its assets and distribute the proceeds. "The statute makes insolvency the jurisdictional fact. The court can do "nothing-neither issue an injunction nor appoint a receiver-until in"solvency is first established. The proof in support of a juris"dictional fact must always be clear and convincing, for the court derives "its power from the fact, and hence, until the fact is shown to exist, it

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has no power. To doubt in such a case is to deny. If it be a balancing ' question, and the conduct of those who have the management of the "affairs of the corporation appears to have been upright and just, the "court must resolve its doubt against the application and refuse to inter"fere-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 advan"tage to the stockholders. The power is only to be exercised when the

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ends of justice require its exercise. The court should strive in such cases to foster and preserve rather than to strangle or destroy." (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.)

A receiver should not be appointed in case of insolvency where the directors are closing the affairs of the corporation and it appears that they are in all respects trustworthy. (City Pottery Co. v. Yates, 7 N. J. L. J., 42.)

The fact that one creditor of an insolvent corporation not about to resume its business with safety to the public or advantage to its stockholders, institutes proceedings to have the corporation adjudged insolvent and a receiver appointed, with ulterior purposes of self-advantage, will not defeat the proceedings. (Ft. Wayne Electric Corporation v. Franklin Electric Light Co., 41 Atl. Rep., 666.)

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The requirement of the statute that before a receiver can be appointed, proof shall be made that an insolvent corporation will not be able to resume 66 its business with safety to the public and advantage to its stockholders within a short time, does not predicate a complete suspension but an inability to take up again and perform such functions or duties as shall have been suspended because of the insolvency, such as the payment of its current obligations. (Ft. Wayne Electric Corporation v. Franklin Electric Light Co., 57 N. J. Eq., 7.)

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 corporation 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 "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."

Nature of proceeding. The proceeding against an insolvent corporaration, whether domestic or foreign, authorized by Sections 65 and 66, 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, 625.)

Effect of appointment of receiver.-" 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 corporation exists with all its franchises, "exercisable by the receiver in the management and control of its affairs,

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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, 57 N. J. Law, 53; N. J. Southern R. R. Co. v. R. R. Commissioners, 41 N. J. Law, 235.)

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., 59 N. J. Law, 28.)

A corporation in the hands of a receiver can legally hold an election for directors, and the court may order such election. (Lehigh Coal & Navigation Co. v. Central R. R. of N. J., 5 N. J. L. J., 214.)

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 their attributes and equities. The receiver is the representative of the creditors, and as such may, by suit or defense, avoid any instrument which is void as against them. As such representative he may sue stockholders at law for unpaid subscriptions. (Receiver v. Spielmann, 50 N. J. Eq., 120, 796; Hopper v. Lovejoy, 47 N. J. Eq., 573; Natl. Trust Co. v. Miller, 33 N. J. Eq., 155, 158; Hood v. McNaughton, 54 N. J. Law, 425; Barkalow v. Totten, 53 N. J. Eq., 573; Falk v. Whitman Cigar Co., 36 Atl. Rep., 1094.)

Receiver of solvent corporation: When appointed. It was held by the Court of Errors and Appeals, in Sternberg v. Wolff, 56 N. J. Eq., 389, that when, by reason of dissensions among the directors of a trading corporation, there is a deadlock in the management of its business by them, a receiver pendente lite may be appointed. (See also Archer v. American Water Works, 50 N. J. Eq., 33; Fougeray v. Cord, 50 N. J. Eq., 185, 756; Edison v. Edison United Phonograph Co., 52 N. J. Eq., 620, 625, 626.)

When the case of Sternberg v. Wolff came back to the Court of Chancery, and a motion was made to appoint a receiver, Vice-Chancellor Pitney, acting upon the state of facts existing at the time and immediately before the motion was made, refused to appoint a receiver, notwithstanding the opinion of the Court of Appeals, holding that the Court of Chancery ought not to interfere with the business of a solvent corporation by the appointment of a receiver unless there is a present danger to the interests of the stockholders, consisting of a serious suspension or interference with the conduct of the business, and a threatened depreciation of the value of assets consequent thereon, which may be met and

§ 66 remedied by a receiver. In other words, it must appear that the appointment of a receiver would serve some beneficial purpose to the stockholders. (Sternberg v. Wolff, 56 N. J. Eq., 555.)

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., 623, 626.)

The Court of Chancery will not appoint a receiver for a foreign corporation on a mere suspicion that it is about to remove its property to another State, or intends to commit a fraud, when it is not shown to have been declared insolvent by the courts of the State of its creation. (Smyth v. Empire Rubber Co., 2 N. J. L. J., 154.)

Whether, after a foreign corporation doing business in this State has passed into the hands of a receiver in the State of its domicile, a receiver will be appointed in this State, and, if so, whether the domiciliary receiver will be appointed here, will depend upon the volume and kind of business done in this State, and whether any special interest of the creditors or citizens in this State is likely to be involved in the settlement of the insolvent affairs. The receiver in this State is amenable alone to the direction of this court, and not to the direction of the domiciliary receiver. (Irwin v. Granite State Provident Assn., 56 N. J. Eq., 244.)

66. Court may appoint receivers; powers of receivers.-The court of chancery, at the time of ordering said injunction, or at any time afterwards may appoint a receiver or receivers or trustees for the creditors and stockholders of the corporation, with full power and authority to demand, sue for, collect, receive and take into their possession all the goods and chattels, rights. and credits, moneys and effects, lands and tenements, books, papers, choses in action, bills, notes and property of every description of the corporation, and to institute suits at law or in equity for the recovery of any estate, property, damages or demands existing in favor of the corporation, and in his or their discretion to compound and settle with any debtor or creditor of the corporation, or with persons having possession of its property or in any way responsible at law or in equity to the corporation at the time of its insolvency or suspension of business, or afterwards, upon such terms and in such manner as he or they shall deem just and beneficial to the corporation, and in

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