An allotment of shares is voidable if it is made in breach of-
a) Section 49 (1): by having been made before the minimum subscription was raised or subscribed, or before the sum payable on application for the shares applied for was paid to than received through the company. The "minimum subscription" is defined in paragraph 4 of the Third Schedule as the minimum amount which, in the opinion of the directors, be required to be raised by the issue in order to provide for the following matters -
1. The price of any property to be paid for out of the proceeds of the issue.
2. The preliminary expenses and underwriting commission;
3. Repayment of money borrowed by the company for (1) and/or (2); and
4. Working capital.
If a company has not raised the minumum subscription it should not allot any shares but should wait and see if further applications would be made. S.49 (4) provides that if the minimum subscription has not been raised on the expiration of sixty days after the issue of the prospectus, all money received from applicants for shares shall be forthwith repaid to them without interest. The repayment should be made during the next 15 days. If however any application money is not repaid within seventy-five days after the issue of the prospectus, the directors of the company become personally liable for it and may be sued jointly or severally for the money, with interest thereon at the rate of 5% per annum from the expiration of the seventy-fifth day.
A director would not be liable if he proves that the default in the repayment of the money was not due to any misconduct or negligence on his part.