Scottish Court of Session Decisions

The company of John Avery & Company, Limited, was formed in the year 1884, and duly registered. The object of the company was to acquire the whole effects of the firm of John Avery & Company, wholesale stationers, &c., Aberdeen, and the goodwill of their whole business, and to carry on the various branches of the said business.

By the 5th article of the memorandum of association the capital of the company was fixed at £15,000, divided into shares of £1 each, with power to the company to increase or reduce the capital as provided by the articles of association.

By section 110 of said articles of association it was provided—“The company may from time to time, by special resolution passed by a majority of not less than three-fourths of the votes of the members entitled to vote, modify the conditions contained in the memorandum of association to the extent authorised by the Companies Acts 1862 to 1883, or alter or amend any of the provisions contained in these presents, or make new provisions in lieu thereof or in addition thereto.”

At an extraordinary general meeting of the shareholders held at Aberdeen on Friday 29th November 1889 the following special resolution was duly passed—“(1) That the existing capital of the company be reduced from £15,000, divided into 15,000 shares of £1 each, to £7500, divided into 15,000 shares of 10s. each, and that such reduction be effected by cancelling capital now unrepresented by available assets to the extent of 10s. per share on each of the 8347 shares of the capital which have been issued, and which have been fully called up, and by making the nominal amount of all the existing shares of the capital, whether issued or unissued, 10s. per share, each of the 8347 shares issued being held as fully paid up. (2) That thereafter the capital of the company be increased by the creation of 7000 new shares of £1 each, which new shares shall be issued subject to the following stipulations and conditions:—1st, That said new shares shall bear interest at the rate of five per cent. per annum, and shall, as regards both capital and interest to the extent aforesaid, rank preferably to the existing shares of the company; 2nd, that said preferable interest shall be paid half-yearly; 3rd, that if in any year the existing reduced capital of the company shall receive a ten per cent. dividend, and any further sum shall, for that year, be applied by the directors to dividend purposes, said further sum shall be divided equally between the existing and the new shares.”

The resolution was duly confirmed at a subsequent meeting of shareholders held on 18th December and was registered on 20th January 1890.

The present petition was presented by John Avery & Company, Limited, craving the Court to make an order confirming the reduction of the ordinary share capital of the company in terms of the special resolution above mentioned.

On 14th May an order was made for intimation on the walls and in the minute-book and for advertisement in certain newspapers, and on 28th May 1890 the Lords remitted to Mr C. B Logan, W.S., to inquire and report as to the regularity of the proceedings and the reasons for the proposed reductions of capital.

Mr Logan reported, inter alia, as follows—“It appears to me that the company has no power under its original regulations to reduce the capital. In that case it is required by the 9th section of the Companies Act 1867 that the regulations should in the first place be altered by special resolution so as to authorise the company to modify the conditions contained in the memorandum of association to the effect of giving them power to reduce capital, and thereafter that a special resolution so reducing the capital should be passed. The petitioners have not in the present case passed a resolution authorising the modification of the conditions, but have without any such preliminary resolution passed a resolution reducing the capital. It appears to me that this is not a sufficient compliance with the provisions of the statute, and that there ought to have been two separate special resolutions. I have therefore to bring under your Lordships' notice the question above referred to, as to whether it was necessary in the present case that there should be two special resolutions in order to carry out the proposed reduction of capital. If your Lordships should be of opinion that such resolutions were necessary, it appears to me that the proceedings which have been taken are of no avail, and that it will be necessary for the petitioners to commence the proceedings de novo.”

By section 9 of the Companies Act 1867 it is provided—“Any company limited by shares may by special resolution so far modify the conditions contained in its memorandum of association, if authorised so to do by its regulations as originally framed or as altered by special resolution, as to reduce its capital, but no such resolution for reducing the capital of any company shall come into operation until an order of the Court is registered by the Registrar of Joint-Stock Companies, as is hereinafter mentioned.”

The petitioners argued that the company was authorised by article 110 of its regulations to reduce its capital, as the reduction of capital was one of the things authorised by the Companies Act 1867.

No party appeared to oppose the applica tion.

No order was pronounced, but the Court

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intimated that they were not prepared as matters stood to grant the order craved.