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Scottish Court of Session Decisions


You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Wotherspoons, Petitioners [1896] ScotLR 34_158 (5 December 1896)
URL: http://www.bailii.org/scot/cases/ScotCS/1896/34SLR0158.html
Cite as: [1896] SLR 34_158, [1896] ScotLR 34_158

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SCOTTISH_SLR_Court_of_Session

Page: 158

Court of Session Inner House First Division.

Saturday, December 5. 1896.

34 SLR 158

Wotherspoons, Petitioners.

Subject_1Company
Subject_2Judicial Winding-up
Subject_3Company in Process of Voluntary Liquidation
Subject_4Companies Act 1862 (25 and 26 Vict. c. 89), secs. 79 and 80.
Facts:

A petition was presented by debenture holders in a company, as creditors, for the winding-up of the company, on the ground that interest due on their debentures, amounting to £32, was unpaid, and that, as they believed and averred, the company was unable to pay its debts. The capital of their bonds was not due. It appeared that a special resolution had been passed to wind-up the company voluntarily with a view to reconstruction, and after the date of the present petition the liquidator presented a petition for authority to summon a meeting of debenture-holders for the purpose of considering the scheme. A motion for intimation and service in the winding-up petition was opposed by the company and liquidator.

The Court ordered intimation, on the ground that a debt due by the company had not been paid, and that the respondents had failed to show that it would be detrimental to the interests of the company to allow public intimation.

Page: 159

Macdonell's Trustees v. Oregonian Railway Company, June 12, 1884, 11 R. 912, distinguished.

Subject_Company — Scheme of Reconstruction.
Facts:

Circumstances in which scheme of reconstruction sanctioned by the Court.

Headnote:

The Brescia Mining and Metallurgical Company, Limited, was registered in June 1892, the objects being to acquire and work certain mines in Italy. By special resolutions passed on 2nd and confirmed on 17th November 1896 it was resolved “(1) That it is desirable to reconstruct the company, and that with a view thereto the company be wound up voluntarily, and that Thomas Watson Duncan be and is hereby appointed liquidator for the purpose of such winding-up.” It was also resolved that a draft agreement to be entered into between the old company and a new company, to which its assets were to be transferred, should be approved. It was provided by the fourth article of the draft agreement that the new company was to undertake the whole obligations of the old company with regard to certain mortgage debentures which had been issued by the company for £12,000. By the sixth article it was provided that the holders of all preference shares, and of all ordinary shares in the old company, should be entitled to receive an allotment of one share in the new company for each held by them in the old, the snares to be of £10 each, and issued as paid-up to the extent of £8, 15s. The balance of £1, 5s. per share was to be payable, 10s. on allotment, 5s. at an interval of not less than four months, 5s. after not less interval, and the remaining 5s. only with the concurrence of a majority of a general meeting of shareholders. It was further provided that in the event of the debenture-holders failing to assent by a sufficient majority to the terms contained in article 4, before or within seven days from the date of the agreement, or of the Court setting aside the assent, or of an order being made for the winding-up of the company under the supervision of or by the Court, the new company might rescind the agreement.

On November 20th 1896 a petition was presented by John Wotherspoon, holder of 100 £10 ordinary shares fully paid, and of 20 £50 debentures, and his wife, who held 10 £50 debentures, craving for an order for the judicial winding-up of the company.

The petitioners averred that the half-year's interest on his debentures, amounting to £32, 10s., due to Mr Wotherspoon on 1st July 1896, had not been paid, and that though he had “consented to payment being delayed for a short time, he is now anxious to get payment, and is unable to obtain it.”

They averred further that the original capital of the company in June 1892 was £21,000 divided into 550 preference shares of £10 each, and £1550 ordinary shares of £10 each; that as the result of various resolutions it consisted now of 585 preference shares of £10 each, all fully paid, and 4041 ordinary shares £10 each, all issued as fully paid, whereof, however, 528 were “bonus” shares, which had been issued without payment to certain of the original preference shareholders, and that there were 1374 shares unissued.

They submitted—“The petitioners believe and aver that the holders of the said 528 bonus shares in the old company which were allotted to them without any payment being made therefor are liable to make full payment of the nominal value thereof to the company. This asset, however, which is one of the main assets of the company, will be lost if the agreement with the new company is allowed to be carried out. Further, Mr T. Watson Duncan, the liquidator named in the foresaid special resolutions, is a holder of a number of these bonus shares.”

By the 79th section of the Companies Act 1862 (25 and 26 Vict. c. 89) it is, inter alia, provided that “a company under this Act may be wound up by the Court, as hereinafter defined, under the following circumstances, that is to say, … “(4) Whenever the company is unable to pay its debts; (5) Whenever the Court is of opinion that it is just and equitable that the company should be wound up.” By the 80th section of the said Act it is enacted that “a company under this Act shall be deemed to be unable to pay its debts.” … (4) When ever it is proved to the satisfaction of the Court that the company is unable to pay its debts.”

On a motion being made for intimation, service, and advertisement of the petition, the company and the liquidator appeared and objected to the motion, and were allowed to lodge answers. These were lodged on the 27th November.

The respondents averred that the petitioner John Wotherspoon had been a director of the company till November 2nd 1896, and had agreed as such not to present his coupon for payment of debenture interest, but that they were ready and hereby offered to pay it; that none of the debentures fell due till July 1905; that the question as to the “bonus” shares had been fully considered at the meetings where the special resolutions to wind up voluntarily were passed and confirmed, and at which the petitioner John Wotherspoon was present, and had concurred in the scheme, and that the effect of the scheme would be to provide more capital than could possibly be recovered from the holders of the bonus shares.

They averred—“The liquidator of the company has presented an application to the Court on 24th November 1896 for the purpose of having a meeting of the debenture holders summoned, to whom the scheme of reconstruction will be submitted and their opinion taken. The petitioners will have an opportunity at the said meeting of expressing their opinions and influencing the action of the debenture holders. The company is at present working under two mining rights in Italy. One is the Royal Concession, known as Costa Rica and Costa Bella, near Bovegno, province of Brescia, dated in 1894, referred to in the petition. This property is mortgaged to the debenture-holders, and upon it much work has been done by way of development,

Page: 160

and a considerable quantity of zinc and lead ore taken from it. A further deposit of these ores has lately been tapped, and another, and it is believed a more extensive deposit, is being driven for, but it cannot be reached for four or five months. A stoppage just now would seriously depreciate the debenture-holders' security, while on the other band the discovery of an additional body of ore would greatly enhance it. The other mining right is what is termed a ‘right of research’ in the Torgola Valley, in the same province. As such it is not capable of being mortgaged. So long as this right is worked it is unchallengeable, but if operations are stopped the right lapses to the Government. It is desirable to preserve this right with a view to obtain a royal concession if the mine proves valuable. If a winding-up order were pronounced, and a stoppage took place, this right would be lost to the company.”

On the petitioners' motion for intimation the respondents opposed.

Argued for petitioners—There was a debt presently due by the company, and accordingly they fell under the terms of the statute. As a matter of fact they could not pay their debts, though not technically insolvent, and they did not really deny this. The petitioners had therefore a clear prima facie title for presenting the petition, and were entitled in the first place to an order for intimation. The only case where such an order had been refused was where public intimation would be clearly injurious to the interests of the company— Macdonell's Trustees v. Oregonian Railway Company ( infra)—but that could not be said here, since the respondents admitted that there had been a resolution to wind up voluntarily, so no harm could be done by granting this order.

Argued for the respondents—1. The petitioners had no title. They did not set up any existing debt, for the directors were willing and offered to pay the interest due, and the Court would not consider the liability for the capital of the debentures not yet payable, there being no certainty that the existing and probable assets would be insufficient to meet it— In re European Life Assurance Society, 1869, L.R., 9 Eq. 122. 2. Nor could the Court order public intimation in circumstances like these, where it would be injurious to the interest of the company— Macdonell's Trustees v. Oregonian Railway Company, June 12, 1884, 11 R. 912. 3. Moreover, the petitioner John Wotherspoon had assented to the reconstruction scheme, and was accordingly barred from presenting this petition.

Judgment:

Lord President—The motion by the petitioners is for an order for intimation and service. Now, I think the Court would not be entitled to refuse that order, unless someone compearing to oppose the petition could instantly verify an objection to the title of the petitioner, or could show some very special reason of danger to the common interests which would arise from the order being granted. Now, the Oregonian case was one of the latter description, because there the company was carrying on, and proposed continuing to carry on, such business as it had, and happened to be in a very crucial relation to its tenants the railway company in America; and the Court felt that, as the Company would go on but for the intervention of the petitioner, they were entitled, in the interests of all concerned, to withhold an order which might have, in those special circumstances, an immediate and detrimental effect upon all concerned. Now, in this case, by way of contrast, the company themselves avow that they must be wound up. They propose that the winding-up should be voluntary, and with a view to reconstruction. The petitioner, taking a different view of the general interests, says he agrees that the company should be wound up, but asks that it should be wound up judicially. That is a totally different species facti from that which the Court had to consider in the Oregonian case. The question, therefore, which we have now to consider is, whether any special reason has been shown why the proposal of the petitioner should not be considered, and in the first place publicly intimated. I think the case is one in which the petitioner is entitled to have his proposal proceeded with, at all events to its initial stage, and I am therefore in favour of granting his motion for intimation and service.

Lord M'Laren—I am of the same opinion. The petitioners, or at least one of them, have a title capable of instant verification, because the interest due upon a debt has not been paid, and though it is some days since this petition was presented, no steps have been taken for payment of the petitioning creditor's debt. This might not be conclusive, as the amount of the debt is not large, if it could be shown that the interests of the company would be injuriously affected by an order for advertisement and service. It is, however, idle to maintain that the credit of the company is at stake because there is standing a resolution to wind up the company voluntarily. Whether that will result in a reconstruction is a question with which we are not at present concerned, the question before us being between voluntary and judicial winding-up, and I do not see why the case should not follow the ordinary course.

Lord Adam and Lord Kinnear concurred.

The Court ordered intimation.

Counsel:

Counsel for the Petitioners — Aitken. Agents— Smith & Watt, W.S.

Counsel for the Respondent— Lorimer. Agent— John Rhind, S.S.C.

1896


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