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Scottish Court of Session Decisions |
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You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> Molleson (Liquidator of the Edinburgh and Glasgow Heritable Co., Ltd) v. Leck and Others [1884] ScotLR 21_293 (15 January 1884) URL: http://www.bailii.org/scot/cases/ScotCS/1884/21SLR0293.html Cite as: [1884] SLR 21_293, [1884] ScotLR 21_293 |
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Page: 293↓
Held that in the winding-up of a public company under the Companies Acts, the creditors fell to be ranked according to the rules of the common law, and not the rules of the Bankruptcy Acts, and therefore that secured creditors
Page: 294↓
were entitled to rank pari passu with those unsecured without being obliged to value and deduct their securities.
Section 138 of the Companies Act 1862 provides—“Where a company is being wound up voluntarily, the liquidators or any contributory of the company may apply to the Court in England, Ireland, or Scotland, or to the Lord Ordinary on the Bills in Scotland in time of vacation, to determine any question arising in the matter of such winding-up, or to exercise as respects the enforcing of calls, or in respect of any other matter, all or any of the powers which the Court might exercise if the company were being wound up by the Court, and the Court or Lord Ordinary, in the case aforesaid, if satisfied that the determination of such question, or the required exercise of power, will be just and beneficial, may accede, wholly or partially, to such application, on such terms and subject to such conditions as the Court thinks fit, or it may make such other order, interlocutor, or decree, on such application, as the Court thinks just.”
The Edinburgh and Glasgow Heritable Company (Limited) was formed under memorandum and articles of association, dated 2d November 1874, and was incorporated under the Companies Acts of 1862 and 1867. The objects of the company were, inter alia, to purchase or acquire heritable subjects within the United Kingdom, and manage and dispose of the same, and do all incidental thereto, including borrowing money on security of the Company's property, on debenture or otherwise.
The capital of the company was £250,000, divided into 50,000 shares of £5 each. 10,000 shares were taken up, of which £3 a share was called up in various instalments by the directors. The company having become financially embarrassed, an extraordinary general meeting of the shareholders was held in Edinburgh upon 3d May 1880, at which it was resolved that the company should be wound up voluntarily, and that James Alexander Molleson, chartered accountant, Edinburgh, should be appointed liquidator, with all the powers conferred by the Companies Act of 1862, and Acts amending and extending the same.
On 21st July 1880 the liquidator made a call of £2 per share upon the contributories, and from this and other sources funds to the extent of £13,220 were realised, available for division among the creditors of the company.
The debts of the company as estimated by the liquidators amounted to £135,195, 3s. 7d., of which £84,100, 1s. were secured heritably. The liquidator was in the course of distributing the sum in his hands pari passu among the creditors of the company, secured and unsecured, in respect of their debts as at the commencement of the liquidation, without deducting the value of the respective securities of the heritable creditors. This course was objected to by the unsecured creditors, some of whom also maintained that the period for making payment of a dividend did not arise until the secured creditors had realised their securities, and they objected to the liquidator dividing the funds in hands on the principles which he proposed. A question also arose regarding the position of Henry Leck, one of the heritable creditors, who held a postponed bond for £45,750 over St Mary's Buildings, Glasgow, a property which had belonged to the company. The total debt secured on this property was £77,750, and the property was sold by the prior bondholder after the commencement of the liquidation for £70,000, thus causing a loss to Leek of £7750. He claimed to be ranked and draw a dividend for the full sum in his bond, £45,750, while, on the other hand, it was maintained that he was only entitled to be ranked for the deficiency of £7750.
In these circumstances the liquidator presented this petition to the First Division of the Court under sec. 138 of the Companies Act of 1862 (quoted supra), praying the Court to determine the questions just stated.
Answers were lodged for Leck, in which he averred, in addition to what has been stated above, that at the date when the company agreed to wind up voluntarily he was their creditor in a sum (1) of £17,000 contained in and due by bond and disposition in security over certain heritable subjects at Merryflats, Glasgow; (2) the £45,750 already referred to. A claim for the two debts amounting to £62,750 had been intimated to the liquidator in December 1880. The heritable subjects at Merryflats had not been realised, and as regarded the subjects called St Mary's Buildings, and which were sold by the prior bondholder on 26th October 1881, he had been prevented by the company in 1879 from then proceeding to sell and realise his security.
The respondent further claimed to be ranked on the funds in the hands of the liquidator for both his debts, amounting to £62,750, but to the effect of his not drawing more than full payment of his debts. He moved the Court also that a division of the funds should at once be made.
Argued for petitioner—Under sec. 138 of the Companies Act 1867 an application such as this might competently be made in a voluntary liquidation— Monkland Iron Co. v. Henderson, January 25, 1883, 10 R. 494. The heritable creditors here were not bound to value and deduct their securities before claiming, as would be done in the case of a bankruptcy — see sec. 133 of the Act of 1862, sub-sec. 1, also 2 Bell's Com., 5th edition, 526, where the common law principles of division were laid down, and Kirkcaldy v. Mid dleton, December 8, 1841, 4 D. 202, and Melrose v. Black, February 29, 1840, 2 D. 706.
Two of the unsecured creditors compeared by minute.
Argued for them—The proper principle to apply to a case such as this was to value and deduct any security held by the creditor, and admit him to a dividend on the balance. _ As the Companies Acts applied to England and Scotland alike, the English Judicature Act 1875(38 and 39 Vict. c. 77), sec. 10, by the generality of the language used in it, might also be made applicable to Scotland, as it was desirable to have uniformity of decisions in both countries on these Acts. The result of doing so would be that the creditors would be bound to value and deduct their securities, which was the English rule in liquidations like the present.
Argued for Leck—Payment of any sum of money after sequestration could not affect the question of the amount due as at the date of the sequestration—2 Bell's Com. 531. Here there was no
Page: 295↓
sequestration, only insolvency and a claim, and therefore there could be no transference of any portion of the debt to each creditor. At advising—
If we apply that rule to the present case, it decides the only question which arises, unless there is any force in the argument founded upon the construction of the English Judicature Act of 1875. It is unnecessary to enter into detail in regard to that argument, because nothing can be clearer than that that Act and the preceding one of 1873 are entirely confined to the administration of justice in the High Court of Justice as defined by the earlier statute, the Act of 1873.
The Court pronounced the following interlocutor:—
“Find (First) that the petitioner is bound to rank pari passu on the assets of the company the creditors secured and unsecured in respect of their debts, with interest thereon as at the commencement of the liquidation; (Second) that the creditors holding securities over the company's estate are not bound in the said ranking to deduct the value of such securities held by them respectively, and that in particular the said Henry Leek is not bound in the ranking to deduct the value of the security held by him for the sum of £17,000 contained in the bond over the subjects at Merryflats, referred to in the petition; (Third) that the said Henry Leek is entitled to be ranked for the sum of £45,750 contained in the bond referred to in the petition, with interest thereon as aforesaid, without deducting the proceeds recovered by him on the sale of the security subjects; and (Fourth) that the petitioner is bound now to proceed to divide the funds in his hands in accordance with the principles above set forth, reserving to the petitioners right to call the creditors holding securities to account if it should appear that such creditors or any of them, from the dividends in the ranking, and from the proceeds of the securities,‘draw more than full payment of their debt: Find the whole parties entitled to expenses out of the funds in the hands of the liquidator, and decern,” &c.
Counsel for Petitioner— Lorimer. Agents— Morton, Neilson, & Smart, W. S.
Counsel for Leek— R. V. Campbell. Agents— Murray, Beith, & Murray, W.S.
Counsel for Unsecured Creditors— Murray. Agents— Davidson & Syme, W. S.
