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State v Terep (No. 1) [2022] PGNC 33; N9433 (15 February 2022)

N9433


PAPUA NEW GUINEA
[IN THE NATIONAL COURT OF JUSTICE]


CR (FC) 153 OF 2021


STATE


V


ALFRED TEREP
(No. 1)


Waigani: Wawun-Kuvi, AJ
2022: 26th &27th January, 15th February

CRIMINAL LAW-TRIAL- Forgery, Uttering and Obtaining by False Pretence, Criminal Code, ss 462 (1), 463(2) and 404 (1)- Whether accused forged the signature of the complainant? Whether the accused presented or uttered forged meeting minutes? Whether shares are valuable securities within the meaning of s 1 of the Criminal Code? Whether accused obtained valuable security from the complainant?


The accused was charged with Forgery, Uttering and Obtaining by False Pretence under ss 462(1), 463(2) and 404 (1) of the Criminal Code. The accused and the complainant were directors and shareholders of Kotipap Security Limited.


The accused created a meeting minute dated 27 March 2018. He signed and signed a signature under the complainant’s name. The meeting minute reflected a resolution that the complainant was removed as a director.


The accused then presented the false meeting minutes to the Registrar of Companies attached with Form 16 Notice of Charge of Directors and Particulars of Directors.


The accused then went on to create meeting minutes dated 10 April 2018. The minutes reflected a resolution that the complainant’s shares were to be transferred to the accused.


The accused does not deny that he forged the signature of the complainant and then he submitted the minutes. He says that the complainant was not entitled to the shares because he did not contribute working capital.


Held:


  1. There was no meeting conducted on 27 March 2018. The accused created a meeting minute to give the false impression that a meeting was held.
  2. The accused signed a signature under the name of the complainant on the meeting minutes dated 27 March 2018.
  3. The document titled Meeting of Extraordinary Meeting of Directors exhibited as “S1(b)” dated 27 March 2018 is a false document in its entirety.
  4. The accused created the document with an intent to remove the complainant as a director and shareholder of Kotipapa Security Limited. That with the creation of the document, it would enable him to change company records.
  5. The accused actions not only deceived the Office of the Registrar of Companies but also Kotipap Security Limited.
  6. It was further prejudicial to the rights of the complainant. The complainant as a shareholder had the right to vote for the removal of a director.[1]He was not given that right and he did not exercise that right. His rights to his shares were affected.
  7. I am satisfied that the accused committed the offence of forgery under s 462(1) of the Criminal Code. A verdict of guilty is returned for count 1 on the indictment.
  8. There is further no dispute that the accused submitted document titled Meeting of Extraordinary Meeting of Directors exhibited as “S1(b)” to the Registrar of Companies.
  9. He did so with the knowledge that the document was false and with an intent to effect changes to the records of the company kept in the registry of the Officer of the Register of Companies. This was fraudulent.
  10. I am satisfied that the accused committed the offence of uttering under 463(2) of the Criminal Code. A verdict of guilty is returned for count 2 on the indictment.
  11. Valuable security is defined by section 1 of the Criminal Code to include: “any document that is the property of any person and is evidence of the ownership of any property or of the right to recover or receive any property.”
  12. The share certificate and share register maintained by the company are valuable security with section 1 of the Criminal Code.
  13. The State charged that the accused falsely pretended to the Investment Promotion Authority. This was the incorrect legal entity.
  14. Kotipap Security Limited upon incorporation became a separate legal entity.
  15. Allocation of shares and share records are maintained by Kotipap Security Limited. These records are maintained in a share register.
  16. The charge of obtaining by false pretence requires that either the complainant gave his share certificate to the accused voluntarily through a false representation or that the accused fraudulently altered the share register to obtain the shares from the company.
  17. There was no evidence presented by the State.
  18. A verdict not guilty is returned for the chare of Obtaining by False Pretence under section 404(1) of the Criminal Code.


Cases Cited

Papua New Guinean Cases


Nil


Overseas Cases


R v Cameron [1993] 1 Qd R 185


Reference


Investment Promotion Act 1992
Companies Act 1977
Criminal Code (Ch 262)

Counsel
Mr Pondros Kaluwin and Ms Lois Ilave, for the State
Mr Ralph Diweni, for the Defence


VERDICT


15th February, 2022


  1. WAWUN-KUVI, AJ: Alfred Terep (accused) and Larson Talian (complainant) are cousins.
  2. The accused is 52 years old and is an accountant by profession. He has worked in several organizations such as Deloitte Touche Tohmatsu Limited, KPMG and has even lectured at the University of Papua New Guinea.
  3. The complainant held varying sources of employment. His last employment was as a political aide to Sam Abal when Sam Abal was a member of Parliament.
  4. The cousins decided to start up a security company. In 2017, they registered Kotipap Security Limited. They were both listed as directors and shareholders. Each possessed 50 ordinary shares. This was based on some form of pre incorporation agreement. There appeared to be no problems between the men until 2018. Prior to 2018, the company did not generate any business. In 2018, the company was awarded a contract with the National Capital District Commission.

Allegations


  1. The State alleges that on 27 March 2018, the accused conducted an Extraordinary Meeting of Directors without the presence of the Complainant. It is alleged that there was a resolution that removed the complainant as a director. The accused then forged the signature of the complainant on the meeting minutes to reflect the resolution.
  2. It is further alleged that the accused completed an Investment Authority Form 16 titled Notice of Change of Directors and Particulars of Directors. He attached the meeting minutes dated 27 March 2018. He submitted the documents to the Investment Promotion Authority. He did so to effect the change of Directors.

Count 1 and 2: Forgery and Uttering


  1. The accused does not deny that he signed a signature under the name of the complainant in a document titled Meeting of Extraordinary Meeting of Directors dated 27 March 2018.
  2. He says that the complainant was not resident in Port Moresby and that the complainant gave verbal authorization.
  3. Whilst the State did not take issue as to whether there was a meeting conducted on 27 March 2018; I can reasonably conclude from the evidence of both the complainant and the accused that there was no meeting.
  4. Section 134 of the Companies Act 1997 provides the mandatory process for the removal of a director. The company must send out a notice of the meeting. The notice must state that the meeting is called to remove a director of the company. A meeting will then be conducted, and the shareholders will take a vote to remove the director. A director of a company is removed by a simple majority of shareholders.
  5. The complainant at the relevant time was a director and shareholder. It is not disputed that he was not aware of a meeting to remove him as a director and shareholder.
  6. The document titled Meeting of Extraordinary Meeting of Directors exhibited as “S1(b)” does not reflect that any notice was issued, attendance and absence of shareholders and reasons for absence.
  7. At its simplest this was what the accused should have done. There were only two shareholders. He could have served the notice and proceeded with a meeting in the absence of the complainant; And noted the reasons for the complainant’s absence in the meeting minutes.
  8. Instead, the accused knowingly took steps in which he knew were not the true. He created a document that indicated that a meeting took place when there was no meeting. He put the complainant’s name on the document and signed a signature above it. He titled the document as Extraordinary Meeting of Directors. Directors do not remove directors. It is the shareholders of the company.
  9. I find that the document titled Meeting of Extraordinary Meeting of Directors exhibited as “S1(b)” is a false document in its entirety. That the accused knowingly created it and that he did so with an intent to remove the complainant as director and shareholder. That by creating the document, he knew that he would and did subsequently change company records and effect changes to the records of Office of the Registrar of Companies.
  10. His actions not only deceived the Office of the Registrar of Companies but also Kotipap Security Limited.
  11. It was further prejudicial to the rights of the complainant. The complainant as a shareholder had the right to vote for the removal of a director.[2]He was not given that right and he did not exercise that right. His rights to his shares were affected.
  12. All this is viewed in the backdrop that the accused is an experienced accountant. I can therefore reasonably conclude and do so that the accused knew that what he was doing was not lawful.
  13. I am satisfied that the accused committed the offence of forgery under s 462(1) of the Criminal Code. A verdict of guilty is returned for count 1 on the indictment.
  14. There is further no dispute that the accused submitted document titled Meeting of Extraordinary Meeting of Directors exhibited as “S1(b)” to the Registrar of Companies. As said, he did this knowing that the document was not a true document and that he submitted it, with an intention to effect changes to the records of the company. This was fraudulent.
  15. I am satisfied that the accused committed the offence of uttering under 463(2) of the Criminal Code. A verdict of guilty is returned for count 2 on the indictment.
  16. The only question which remains, is, whether the accused by false pretence obtained shares from the complainant.
  17. However, there is an issue that requires consideration first. That is whether shares are valuable security within the meaning of section 1 of the Criminal Code?

Valuable Security


  1. Section 1 of the Code defines valuable security to include:

“any document that is the property of any person and is evidence of the ownership of any property or of the right to recover or receive any property.”


  1. As was stated in R v Cameron [1993] 1 Qd R 185, when dealing with a similar section, “the critical words are “document” .... which is evidence......of the right to recover or receive any property.......the document involved is one that could in any practical sense be exchanged on presentation for money or money’s worth or used for that purpose...”
  2. In the present case, the State alleges that the accused obtain the shares of the complainant.
  3. Shares are abstract. And do not fall within the definition of a document referred to under s 1 of the Code.
  4. The document which provides evidence of the ownership of share is the share certificate. The share certificate is created by the company and is sent to the shareholder within one month of issuance. [3]
  5. This of course is not sufficient. The document must be able to be exchanged for money or money’s worth or affords rights to recover and received money.
  6. Shares by its nature gives a shareholder the right to dividends and distribution of company assets.[4] Dividends are a category of distributions[5] which includes “the direct or indirect transfer of money or property, other than the company’s own shares, to or for the benefit of the shareholder”[6].
  7. A shareholder is also entitled to redeem shares.[7]
  8. The share certificate is therefore valuable security within the definition of section 1 of the Code.
  9. There is another document which is considered valuable security under the definition. It is the share register kept by the company. Section 69(1) of the Companies Act 1997 provides that it is prima facie evidence of title. That company document is the document that the company refers to determine ownership and rights associated with shares.
  10. Having identified the valuable security, I now must decide whether the accused obtained the share certificate or altered the share register to transfer the shares to himself.

Obtaining by False Pretence, section 404(1) Criminal Code


  1. The State charged:

The accused “......by falsely pretending to the Investment Promotion Authority that it was resolved at an Extraordinary Meeting of Directors of KOTIPAP Security Limited that the fifty (50) ordinary shares belonging to Larson Talian would be transferred to Alfred Terep, obtained from Larson Talian, fifty ordinary shares in KOTIPAP Security Limited belonging to Larson Talian, with intent to defraud.”


The Allegations


  1. On 10 April 2018, the accused conducted another meeting without the presence of the complainant. He then resolved that the complainant’s shares were to be transferred to himself. The meeting minutes were presented to the Investment Promotion Authority to obtain shares from the complainant.

Who is responsible for issuing company shares?


  1. Kotipap Security Limited is a legal entity separate from its shareholders and continues in existence until it is removed from the register.[8] It is responsible for issuing shares following registration of the company.[9]
  2. The time the share is issued is when the name of the holder is entered into the share register.[10]
  3. The share register is the written record of shares of the company. It records activities such as issuance, transfers, and type and nature of rights associated with the shares. It is a mandatory requirement that the company maintains one.[11]
  4. Entry into the share register is prima facie evidence that legal title to the share vests in the person whose name is registered.[12]
  5. The company must issue share certificates after issue or transfer of a share is entered into the share register.[13]

How are shares transferred?


  1. Subject to several considerations under the Companies Act 1997, the present holder of the share and the transferee (person obtaining the shares) sign a form.[14] The share certificate or evidence as to its loss or destruction or an indemnity if required, must be attached to that form.[15]The documents are submitted to the company. Upon receipt, the company will record the transferee as the holder of the shares[16].
  2. The share certificate is cancelled, and a new share certificate is only issued by the company upon request by the new holder.[17]
  3. The company is then required to give notice to the Registrar of Companies in the prescribed form.[18]
  4. Failure to company with this mandatory process makes the company and directors liable to penalties under section 413 of the Companies Act 1997.[19]


What is the role of the Investment Promotion Authority and the Office of The Registrar of Companies?


  1. The Investment Promotion Authority houses the Office of the Registrar of Companies.
  2. The Office of the Registrar of Companies is created by section 394(1) of the Companies Act 1997. The Office maintains a national registry of all companies, associations, business groups and business names. It is responsible for the administration of various laws including the Companies Act.[20]
  3. The Registrar of Companies keeps a register of the decisions of the company. The Act prescribes the procedure and the process that companies must follow.
  4. The Investment Promotion Authority is created by section 5 (1) of the Investment Promotion Act 1992. Pursuant to section 5(2) the authority is a separate legal entity. The staff of the Investment Promotion Authority are appointed by the Managing Director pursuant to section 21 of Investment Promotion Act 1992.
  5. The Registrar of Companies is not a staff of the Investment Promotion Authority. The Registrar and the Deputy Registrars are appointed by Ministerial appointment. The Office of the Register of Companies is a statutory body.
  6. Under the Companies Act 1997, a company is required to submit notifications to the Registrar of Companies to update its records. As stated above, the Registrar maintains a national registry.
  7. The Registrar of Companies does not hold or transfer shares.
  8. The Investment Promotion Authority only houses the Office of the Registrar of Companies. It also does not hold or transfer shares.

Conclusion


  1. A share is not transferred by filing a notice with the Office of the Registrar of Companies. It is transferred by entry into the share register[21] maintained by the company following compliance of the transfer process.[22]
  2. A share certificate is issued by the company to the shareholder on registration. On transfer, the share certificate is cancelled, and a new certificate is only produced on request.
  3. The State incorrectly charged that the accused falsely pretended to the Investment Promotion Authority to obtain the shares. The custodian of the register and responsible for the issuance of the certificate as said is the company Kotipap Security Limited and not the Investment Promotion Authority or the Registrar of Companies.
  4. Furthermore, as the valuable security is the share certificate and the share register, the State need to call evidence in relation to the documents.
  5. There was no evidence led as to the mandatory transfer process.
  6. The State did not produce the share register for Kotipap Security Limited. It did not call any evidence as to whether a register was maintained by the company. There was no evidence that the register was altered. Nor was there any evidence as to whether share certificates were issued in compliance with section 75(1) of the Companies Act 1997.
  7. The charge of obtaining by false pretence requires that either the complainant gave his share certificate to the accused voluntarily through a false representation or that the accused fraudulently altered the share register to obtain the shares from the company.
  8. There was no evidence presented by the State.
  9. The consequence is that the accused is entitled to an acquittal on the charge of Obtaining by False Pretence under section 404(1) of the Criminal Code.

Orders


  1. The Orders of the Court are:
    1. The accused is convicted of Forgery and Uttering under count 1 and 2 of the Indictment.
    2. The accused is acquitted of Obtaining by False Pretence under count 3 of the Indictment.

________________________________________________________________
The Public Prosecutor: Lawyer for the State
Diwenis Lawyers: Lawyer for the Defence

[1] Section 37(1)(a)(i) Companies Act 1997
[2] Section 37(1)(a)(i) Companies Act 1997
[3] Section 75 of the Companies Act 1997
[4] Section 37(b) and (c) of the Companies Act 1997,
[5] Section 51 Companies Act 1997
[6] Section 1 of the Companies Act 1997
[7] Section 59 and 61 of the Companies Act 1997
[8] Section 16 Companies Act 1997
[9] Section 42 (a) Companies Act 1997
[10] Section 49 Companies Act 1997
[11] See section 2(1) and 67 Companies Act 1997
[12] Section 69 (1) Companies Act 1997
[13] Section 75 Companies Act 1997
[14] Section 65 (2) and 65(3) Companies Act 1997
[15] Section 75(2) Companies Act 1997
[16] Section 65(4) Companies Act 1997
[17] Section 75(3) Companies Act 1997
[18] Section 65(6) Companies Act 1997
[19] Section 65(7) Companies Act 1997
[20] Section 394(9) Companies Act 1997
[21] Section 40(2)(a) of the Companies Act 1997
[22] See section 65 of the Companies Act 1997

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