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Scottish Court of Session Decisions
You are here: BAILII >> Databases >> Scottish Court of Session Decisions >> The Standard Property Investment Co. (Ltd) v. Whitson (Trustee of the Dunblane Hydropathic Co. (Ltd) [1884] ScotLR 22_215 (12 December 1884)
URL: http://www.bailii.org/scot/cases/ScotCS/1884/22SLR0215.html
Cite as: [1884] ScotLR 22_215, [1884] SLR 22_215
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SCOTTISH_SLR_Court_of_Session
Page: 215↓
Court of Session Inner House First Division.
v.
Facts:
Held that sequestration of a joint-stock company registered under the Companies Acts 1862 and 1867 is incompetent.
The Dunblane Hydropathic Company (Limited) was formed and registered as a limited company under the Companies Acts 1862 and 1867. The company was registered on 4th December 1874.
On 29th May 1884 the Standard Property Investment Company (Limited), who were creditors in a bond and disposition in security for £15,000 granted by the Hydropathic Company, dated 15th and recorded 17th May 1877, raised an action of poinding the ground against that company. Decree in the action was obtained on 20th June 1884.
On 3d June 1884 a petition for sequestration of the estates of the Hydropathic Company was presented to the Sheriff of Perthshire at the instance of the Dunblane Gas-Light Company. Answers were lodged for the Standard Property Investment Company, in which it was maintained that the sequestration of a company registered under the Companies Acts was incompetent. The Sheriff overruled the objection, and awarded sequestration on 11th July. On 25th July 1884 Thomas Whitson, chartered accountant, Edinburgh, was elected trustee.
On 19th July 1884 the Standard Property Investment Company presented a petition in the Bill Chamber for recal of the sequestration on the ground of incompetency, to which Thomas Whitson as trustee lodged answers, in which it was stated that the moveables sought to be affected by the petitioner's action of poinding the ground were the furniture and other moveables of the establishment, and worth £2000,
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Which constituted nearly the whole moveable property of the company, and if the sequestration were recalled the petitioners would carry them off, to the prejudice of the general creditors. On 12th August 1884 the Lord Ordinary on the Bills ( Fraser) dismissed the petition.
The Standard Property Investment Company reclaimed, and their reclaiming-note, together with a petition presented by them on 19th July 1884 for the judicial winding-up of the Dunblane Hydropathic Company, to which answers were lodged by Thomas Whitson, were heard together before the First Division, as both raised the same question, viz., whether sequestration of a company registered under the Companies Acts was competent.
A petition for the judicial winding-up of the Hydropathic Company had been presented to the Second Division by another creditor (Mr Stirling of Kippendavie) on 9th June 1884, which was duly served and advertised, but had not been further proceeded with at the date of the hearing.
Argued for the Standard Property Investment Company—Sequestration of a company registered under the Companies Acts 1862 and 1867 was incompetent. Those Acts contained a complete code of rules for the winding-up of companies registered under them, which necessarily excluded the provisions of the Bankruptcy Act of 1856. Moreover, the provisions of the Bankruptcy Act were quite inadequate. There was under that Act no provision for making calls. In certain cases, e.g., of companies limited by guarantee, and the case of past members, the liability was conditional on the company being wound up, which must refer to a winding-up under the Act — Cf sections 7, 9, 18, and 38 of the Companies Act 1862. Registration had the effect of preventing any creditor proceeding against a shareholder of the company—sec. 195. No provision was made in the Bankruptcy Act for the adjustment of the rights of partners inter se such as was found in section 38; the trustee in his quasi —judicial character must pay the surplus over to the bankrupt in accordance with the provisions of section 155 of the Bankruptcy Act. The termination of a winding-up was altogether different from the termination of a sequestration— Cf. sections 110, 111. An examination of the first three parts of the Act of 1862 showed that such a company could only be liquidated by means of the provisions contained in the fourth part—Lindley on Partnership, i. 8; Hoggan v. Wilson and Magistrates of Edinburgh, February 19, 1853, 15 D. 417; Phosphate Sewage Company v. Lawson & Son's Trustee, February 20, 1878, 5 R. 1125— aff. July 8, 1879, 6 R. (H. of L.) 113; Wishart & Dalziel v. City of Glasyow Bank, March 14, 1879, 6 R. 823; Galletty's Trustees v. The Lord Advocate, November 12, 1880, 8 R. 74; Gardner v. London, Chatham, and Dover Railway, 2 Oh. 201.
Argued for Whitson, the trustee — If the sequestration was not incompetent, then he was entitled to proceed under it. It was clear from the interpretation clause of the Bankruptcy Act that companies could be sequestrated, and there was no quality inherent in companies registered under the Companies Act which made them different from ordinary bodies corporate, or from companies under the Act of 1844 (7 and 8 Vict. cap. 110), to which the provisions of the old Bankrupt Act (2 and 3 Vict. cap. 41), secs. 3 and 6, would have been applicable. Section 38 was not in the winding-up part of the Act, so that the liability could be ascertained without referring to the winding-part. The words in that section were not “wound up under this Act,” but merely “wound up,” which included sequestration—Bell's Comm. (5th ed.) ii. 637. Section 153 showed that sequestration was not competent after an order for winding-up, but if well begun before an order was pronounced it might be proceeded with — Joel v. Gill, June 10, 1859, 21 D. 929. The trustee in a sequestration would not have done his duty until he had adjusted the rights of the creditors inter se—Lindley on Partnership, ii. 1039. Section 119 showed that liquidation was not to be exclusive of the common method of recovering debts. Sequestration was certainly preferable to winding-up under the Act, because it would cut down all preferences. Further, in a liquidation the creditor was not bound to value and deduct his security before ranking — in a sequestration he was bound.
At advising—
No doubt, apart from the Companies Act, the present company falls within the description of those who may be sequestrated under the Bankruptcy Act of 1856, for that Act applies to every kind of company and corporation, and its clauses have been so largely construed as to apply to the bankruptcy of a municipal corporation. But the question is, whether the provisions of the Companies Acts, particularly of the Acts of 1862 and
Page: 217↓
The Act of 1862, as I read it, is intended to provide a complete code of law applicable to the case of those companies to which it applies, and this is made very clear at the outset by the fifth section, which describes the different divisions or parts of the Act, and which relate to the following subject-matters, viz., the first part, to the constitution and incorporation of companies and associations under the Act; the second part, to the distribution of the capital and liability of members of companies and associations under the Act; the third part, to the management and administration of companies and associations under the Act; the fourth part, to the winding-up of companies and associations under the Act; the fifth part, to the registration office; the sixth part, to the application of the Act to companies registered under the Joint-Stock Companies Acts; the seventh part, to companies authorised to register under the Act; and the eighth part to the application of the Act to unregistered companies. Now, it appears to me that this indicates very clearly the intention of the Legislature not only to make provisions applicable to these companies but to provide a complete set of rules, so that the whole law with regard to the companies embraced by the Act should be found within the Act itself. In the next place, it is to be observed that the liability of the parties is not the same as in a common law partnership, the reason being that all companies to which the statute applies are made incorporations, and the rule of corporation law therefore applies, which is, that individual members are not liable for debts due by the corporation, nor can they sue for debts due to the corporation. Their only liability is to pay what they have undertaken to pay by the terms of the contract.
This rule of corporation law is assumed to apply to every company under the statute, under the exceptions provided by the sections after mentioned. What at present I want to make clear is that the effect of the incorporation of the company by the statute, except for the clauses I am about to mention, is that no action or diligence would lie against the individual members of a company formed and registered under the Act, whereas at common law an action would lie against every individual member of a company for a company debt. The section I refer to is the 18th, which provides—“Upon the registration of the memorandum of association, and of the articles of association, in cases where articles of association are required by this Act or by the desire of the parties to be registered, the registrar shall certify under his hand that the company is incorporated, and in the case of a limited company that the company is limited. The subscribers of the memorandum of association, together with such other persons as may from time to time become members of the company, shall thereupon be a body corporate by the name contained in the memorandum of association, capable forthwith of exercising all the functions of an incorporated company, and having perpetnal succession and a common seal, with power to hold lands.” Now, if the 18th section had stopped there the company would have been a proper corporation without any exception, and the corporators or members of the corporation would not have been liable for the corporation debts; but then the section proceeds, “but with such liability on the part of the members to contribute to the assets of the company in the event of the same being wound up as is hereinafter mentioned.” The liability therefore of the corporators, which would not have existed if it were a corporation without qualification, is made to depend on what is “hereinafter mentioned,” and that we find in section 38.
Section 38 provides:—“In the event of a company formed under this Act being wound up, every present and past member of such company shall be liable to contribute to the assets of the company to an amount sufficient for payment of the debts and liabilities of the company, and the costs, charges, and expenses of the winding-up, and for the payment of such sums as may be required for the adjustment of the rights of the contributories amongst themselves” under certain qualifications. The liability, then, of the members is only to come into operation in the event of the company being wound up, and the amount of the liability is the amount sufficient for payment of the debts, costs, charges, and expenses of the winding-up, and for payment of such sums as may be required for the adjustment of the rights of the contributories “amongst themselves.” Thus the adjustment amongst themselves, after the debts and liabilities of the company have been satisfied, can take place only under the statute. It cannot take place under the Bankrupt Act, for the duty of the trustee in a sequestration is only to realise the assets and pay the creditors; if there is any surplus, then his duty ends by paying it over to the bankrupt in accordance with the express provisions of the Act of 1856. So that under a sequestration there can be no such adjustment of the rights of contributories amongst themselves. Therefore, it is plain to me that when section 38 speaks of the liabilities of a company under a winding-up, it must mean a winding-up under the Act, for it extends expressly to the adjustment of the rights of contributories. The qualifications adjected to section 38 I do not think very material, except that as regards past members, that is to say, those who have been, but have ceased to be members, rules are introduced (sub-secs. 1, 2, and 3) which are not the rules of the common law; and so the liability under section 38, which is the sole liability of the members of the corporation, is not a liability conform to the common law, but is defined and limited by the statute. The only other section which is important in the construction of the words “winding-up,”—which is to be the occasion of bringing the liability of the members into operation—is the 195th. It is in that part of the statute which is applicable to companies registered though not formed under the Act. A company formed under a deed, Act of Parliament, or charter, when registered, comes under its provisions, and among
Page: 218↓
There cannot, I apprehend, be two meanings of this section, for winding-up cannot mean by way of sequestration or a private trust-deed; it must mean winding-up under the statute. The obtaining of a winding-up order is entirely a statutory process.
If, then, the only remedy competent to creditors of a company not formed but only registered under the Act is to obtain a winding-up order, much more must it be the only remedy competent when the company is also formed and constituted under the Act. The Act cannot mean in such a case as that anything else than is meant in sec. 195.
In these circumstances, whether it is expedient that there should be sequestration or not, I am of opinion that the statute clearly excludes such a process, and therefore we must hold that on the insolvency or bankruptcy of a company registered under the Act, its winding-up must be subject to the provisions of the Act.
I am therefore for recalling the sequestration.
This case is just one of several which show that the Acts regulating joint-stock companies are defective in two particulars, because, in the first place, the equitable rules of ranking have no place in a liquidation, and in the second place, because those statutes do not provide for the cutting down of diligences used before the company went into liquidation as is the case with regard to sequestration.
In England, so far as regards the first point, there is a provision in the Judicature Act of 1875 (38 and 39 Vict. cap. 77), the 10th section of which is to this effect—“In the winding-up of any company under the Companies Acts 1862 and 1867, whose assets may prove to be insufficient for the payment of its debts and liabilities and the costs of winding-up, the same rules shall prevail and be observed as to the respective rights of secured and unsecured creditors, and as to debts and liabilities provable, and as to the valuation of annuities, and future and contingent liabilities respectively, as may be in force for the time being under the law of bankruptcy with respect to the estates of persons adjudged bankrupt.” Whether there is a further power of cutting down diligences commenced on the eve of declared insolvency I do not know, but I hope that one result of this case will be that the Legislature will consider this question.
On the merits of the question we have to deal with I entirely agree with your Lordships. In the English Bankrupt Acts there are express provisions that they shall have no application to the case of companies registered under the Act of 1862. In Scotland there is no similar provision, but though there is no express provision in the Bankruptcy Act or in the Joint-Stock Companies Acts, I am yet of opinion that the language of the Joint-Stock Companies Acts by the clearest implication excludes the provisions of the Bankruptcy Act. We must take the provisions of the Act of 1862 and subsequent Acts as a whole, and I agree in thinking that as the statutes have provided an express mode of creating incorporations by means of registration, so they have provided the only means for bringing them to an end when the time for their dissolution arises. In addition to the provisions of the statute of 1862 it is worthy of notice that in the Act 42 and 43 Vict. cap. 76 [Companies Act 1879], which deals with joint—stock banking companies, there are provisions for enabling such companies to hold a certain amount of uncalled capital, and that there is a proviso that this capital is not to be capable of being called up except in the event of the company being “wound up.”
It appears to me that the term “winding-up,” as used in these Acts, relates entirely to the mode of winding-up which the statutes created. In the case of a sequestration the machinery is entirely
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The statute, however, with which we are dealing provides that in the case of a winding-up a great deal more can be done than that, for the rights of the contributories can be adjusted amongst themselves, and that either voluntarily or with the aid of the Court. Again, it is a question how far the general provisions of the Act of 1862 are to be applied in the case of a sequestration. An argument was maintained to the effect that the term “winding-up” might include sequestration—which I am satisfied was not intended,— but then I ask, Would the provisions in the winding-up clauses be applicable to the case of a sequestration? I think if that were so it would be impossible to see where the confusion would end.
I hold that by clear implication the general terms of the Joint-Stock Companies Acts refer exclusively to the mode of winding-up under those Acts, and that therefore the sequestration of joint-stock companies is entirely incompetent.
The Court pronounced these interlocutors:—
(1) In the petition for recal of the sequestration.
“Having considered the cause and heard counsel for the parties on the reclaiming note for the Standard Property Investment Company (Limited) against the interlocutor of Lord Fraser (Lord Ordinary on the Bills) of 12th August last, recal the said interlocutor, and in terms of the prayer of the petition recal as incompetent the sequestration of the estates of the Dunblane Hydropathic Company (Limited), awarded by the Sheriff of Perthshire on 11th July last (1884), and appoint this judgment of recal to be entered in the Register of Sequestrations and on the margin of the Register of Inhibitions, all in terms of the 31st section of the Bankruptcy Act 1856: Find the petitioners entitled to expenses, &c.”
(2) In the petition for judicial winding-up.
“Remit the petition to the Second Division of the Court ob contingentiam of a petition at the instance of Patrick Stirling, Esquire, of Kippendavie, of date 9th June 1884, for the judicial winding-np of the Dunblane Hydropathic Company (Limited).”
Counsel for the Standard Property Investment Company— Mackintosh— Low. Agents— Duncan Smith & Maclaren, S.S.C.
Counsel for Thomas Whitson— Sol.-Gen. Asher, Q.O.— Lorimer. Agents— Dundas & Wilson, C.S.