Scottish Court of Session Decisions

This petition for confirmation of a proposed reduction of capital was on 2d February 1882, as previously reported, sisted to await the determination of the action of reduction, at the instance of Hoggan and others, of the resolutions passed

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on 9th and 21st November, and registered 1st December 1881, for the purpose of reducing the company's capital with the intention of thereafter increasing it according to the scheme fully described in the report of that action ( ante, vol. xix. p. 875). Their Lordships of the First Division, on 20th July 1882, after adhering to the interlocutor of the Lord Ordinary ( Adam), by which his Lordship assoilzied the company from the conclusions of that action, recalled the sist of 2d February, and remitted to Mr Charles B. Logan, W.S., “to report on the proceedings, and how far the creditors whose names are entered on the list of creditors have either consented to the proposed reduction or have had their debts or claims discharged or determined.

Section 11 of the Companies Act 1867 (30 and 31 Vict. c. 131) provides as follows—“A company which has passed a special resolution for reducing its capital may apply to the Court by petition for an order confirming the reduction, and on the hearing of the petition the Court, if satisfied that with respect to every creditor of the company who under the provisions of this Act is entitled to object to the reduction, either his consent to the reduction has been obtained, or his debt or claim has been discharged or has been determined, or has been secured as hereinafter provided, may make an order confirming the reduction, on such terms and subject to such conditions as it deems fit.”

By section 13 of the same Act it is provided that the creditors who are entitled to object to a reduction of capital are all creditors who at the date fixed by the Court as the date at which objection should be lodged, “are entitled to any debt or claim which, if that date were the commencement of the winding-up of the company, would be admissible in proof against the company.”

Mr Logan reported that at 31st December 1881, the date fixed by the Court for a list of such creditors to be lodged, the petitioners had lodged a list of all the creditors entitled to be entered on the list of creditors in terms of section 13, and that, no person had thereafter, in terms of an interlocutor of the Court appointing any creditors not entered on the list to claim to be so entered or to be excluded from being entitled to object to the reduction of capital, claimed to be entered on the list. He reported therefore that the list of creditors of 31st December might be held to be complete, and be dealt with as a full and correct list. The creditors of the company as appearing in that list were of four classes:—

1. Creditors holding debenture bonds by the company	£355,600	0	0
2. Creditors for sums deposited with the company on loan	31,950	0	0
3. Creditors holding bills of exchange	40,300	0	0
4. Creditors on open account	34,051	10	3
	£461,901	10	3

With regard to the second of these classes—those for sums deposited with the company on loan—Mr Logan reported that they had all consented to the proposed reduction (two consents being given by persons “acting for behoof of creditors”). With regard to the third class—creditors on bills of exchange—Mr Logan reported that all such bills had been retired. With regard to the fourth class—creditors on open account—he reported that they had been paid. With regard to the first class—that of creditors holding debenture bonds—he reported that there were in all 246 such creditors, and that the total amount of debt due them was £355,600. Of these 246 creditors fourteen had not given their consent. The debenture bonds they held amounted in all to £9300.

The Companies Act 1867, by section 14, provides for the case of creditors who do not consent to the proposed reduction of capital, as follows:—“Where a creditor whose name is entered on the list of creditors, and whose debt or claim is not discharged or determined, does not consent to the proposed reduction, the Court may (if it think fit) dispense with such consent on the company securing the payment of the debt or claim of such creditor by setting apart or appropriating in such manner as the Court may direct a sum of such amount as is hereinafter mentioned—that is to say, (1) If the full amount of the debt or claim of the creditor is admitted by the company, or though not admitted is such as the company are willing to set apart and appropriate, then the full amount of the debt or claim shall be set apart and appropriated.” …

Mr Logan accordingly reported that a

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sum of £9300, with a sum sufficient to meet the interest thereon until the expiry of the bonds (of which one was to endure till 1st June 1884, while the others were to expire at 1st February 1884), ought to be set apart and appropriated for behoof of the debenture-holders, and to be applied as the debentures fell due. Of the remaining debenture-holders Mr Logan reported that certain of them holding bonds amounting to £3200 had been paid off, and that there remained 218 who held bonds to the amount of £343,100, and whose consents had been produced to him. With regard to these 218 consents, however, he made the following explanation:—“Of these, consents representing a debt of £149,800 are signed by the creditors themselves; consents representing a debt of £36,600 are signed by one of a body of trustees for himself and his co-trustees; and the remainder, representing a debt of £156,700, are signed by persons described as' duly authorised agents of debenture-holders.’ No evidence of the authority of such agents has been produced, and it has been explained that in most of these cases the creditors are bodies of trustees whose signatures there might be some trouble in obtaining, and the agents who sign are solicitors and others known to act for them, and through whom the loans were originally transacted. Looking to the terms of the statute, which requires that the consent of the creditor is to be obtained, I think it right to bring this point specially under your Lordships' notice, that it may be determined whether the consents of agents are to be held sufficient. In connection with this I have been asked to explain that all the holders of debentures had been offered, either verbally or by circular, payment of their bonds on 1st February last, if that was preferred to giving consents, but holders of bonds to the extent of £3200 only took payment at that time. The discharged bonds for that amount have been exhibited to me.” In conclusion, and on the assumption that these consents were valid, Mr Logan reported that on consignation in bank, in such manner as the Court might direct, of the sum of £9300, together with interest, required to be appropriated to the bonds held by those creditors who had not consented to the reduction as already explained, the order confirming the proposed reduction might be granted, and that the petitioners would fall thereafter to lodge a minute in terms of section 15 of the Companies Act 1867, which provides, inter alia, that the “Registrar of Joint Stock Companies, on production to him of an order confirming the reduction of the capital of a company, and the delivery to him of a copy of an order and of a minute (approved by the Court) showing, with respect to the capital of the company as altered by the order, the amount of such capital, the number of shares into which it is divided, and the amount of each share, shall register the order and minute, and on the registration the special resolution confirmed by the order so registered shall take effect.”

Counsel for the petitioners were heard in the Summar Roll on Mr Logan's report. No appearance was made for Hoggan and others, the pursuers of the action of reduction, who had appeared by minute on 27th January 1882 and obtained a sist of the petition as previously reported. On the question whether consent to a proposed reduction of capital could be validly given by an agent professing to act for a creditor, so as to satisfy the requirements of section 11 of the statute, it was contended that it is sufficient that the consent be given by one known to act for the creditor in similar matters, and professing to act for him. In this case the consents were given by persons who had acted for the creditors in negotiations for these very loans to the company, which made the case a strong one. The rule in England at first was that after notice a creditor must come forward and object to the reduction, or otherwise his consent was assumed to have been given, and though a more strict rule was now followed, it was still held sufficient that consent should be given by some-one known to be acting for the creditor. The practice there seemed to be for counsel to appear in Court and give consent for the creditor, and the signature of the agents in this case was to a similar effect, and should be held sufficient—Buckley on The Companies Acts, p. 439; Credit Foncier of England, L.R., 11 Eq. 356; Patent Ventilating Granary Company, L.R., 12 Chan. Div. 254.