Scottish Court of Session Decisions

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URL: http://www.bailii.org/scot/cases/ScotCS/1886/24SLR0146.html
Cite as: [1886] ScotLR 24_146, [1886] SLR 24_146

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SCOTTISH_SLR_Court_of_Session

Page: 146↓

Court of Session Inner House First Division.

Thursday, December 2 1886.

24 SLR 146

Commercial Bank of Scotland (Limited)

v.

Lanark Oil Company (Limited).

Subject_1Public Company
Subject_2Winding-up
Subject_3Companies Act 1862 (25 and 26 Vict. c. 89), sec. 80, sub-sec. 1 Security to “the reasonable satisfaction of the creditor.”
Facts:

A creditor holding a security over the heritable property (consisting of part of its works) of a limited company, having demanded payment as provided in sec. 80 of the Companies Act 1862, and remaining unpaid, presented a petition for a winding-up order, alleging that the company was unable to pay its debts. Held that it was not a good answer by the company that the apparent value of the security greatly exceeded the debt, unless it could also be shown that it was truly a marketable security for the amount of the debt.

Headnote:

The Lanark Oil Company (Limited) was on the 3d August 1883 incorporated under the Companies Acts 1862 to 1880. The amount of the shares was by the beginning of 1886 fully called up, and there was then no uncalled capital belonging to the company.

This was a petition by the Commercial Bank for a winding-up order, on the ground that the company was unable to pay its debts. The company had borrowed money from the bank under a cash-credit bond and assignation in security over the works and property of the company, duly recorded, whereby the company was bound, conjunctly and severally with the other obligants in the bond, to pay the principal and interest to the bank at any time when the same should be demanded after three months from the last date of the bond.

At 26th August 1886 the company owed under this cash-credit a balance of £10,000, 7s. 10d., conform to certificate by the accountant of the bank as stipulated in the bond, as well as £567, 0s. l0d. of interest. On 30th September the bank served a demand on the company requiring payment. Payment was not made. It was in respect of this debt, and of an alleged debt of £1000, constituted by a promissory-note in favour of the company, of which the bank alleged that they were indorsees and onerous holders, that the petition was presented.

The 80th section of the Companies Act 1862 provides, sub-section (1)—“A company under this Act shall be deemed to be unable to pay its debts (1) whenever a creditor by assignment, or otherwise, to whom the company is
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indebted at law or in equity in a sum exceeding £50 then due, has served on the company, by leaving the same at their registered office, a demand under his hand requiring the company to pay the sum so due, and the company has for the space of three weeks succeeding the service of such demand neglected to pay such sum, or to secure or compound for the same to the reasonable satisfaction of the creditor.”

The company lodged answers, in which they stated that the sum originally borrowed by the company from the petitioners was £20,000, of which £14,250 was upon the said cash-credit, and £5750 upon a temporary overdraft, but that the said loan of £20,000 was in April 1886 reduced by a payment to account thereof to the said balance of £10,000, 7s. 10d.; that in security of the said balance and interest now remaining due the petitioners held as a first charge the company's works and property at Lanark, which cost £80,000, and after writing off a sum of £30,000 for depreciation, stood in the company's books at the value of £50,000, and that in addition to the heritable estate and plant thus held by the petitioners in security for the balance of the said cash-credit, they held the personal obligation of three of the late directors of the company, viz., Mr William Potts, Mr Mungo Lauder, and the now deceased James Thornton, who were bound, jointly and severally, as co-obligants along with the company for the said balance and interest. They alleged further, that the whole unsecured debts owing by the company amounted to a sum not exceeding £5515 or thereby, of which £2000 was due to the present directors for advances, but for which they held no security, and that the whole debts of the company, both secured and unsecured, did not exceed £32,000, while the assets of the company exceeded £85,000. They denied the alleged debt of £1000, and stated that an action in regard to the note was still sub judice.

Argued for the petitioners—The demand made by them could not be met. The entries in the company's books were no evidence of the value of the property. It was not enough to say that the security of the creditor was ample; it must be marketable.

Argued for the respondents—The security was ample. It consisted not only of the works, &c., of a value far exceeding the debt, but of the personal security of the guarantors. The bank was the only creditor pressing for payment, and it was secured. The value of the security was to be estimated at the time when it was taken. Besides, such an application under section 80 was not competent to a secured creditor. He could not get this order until he had tried the market with his security.

Petitioners' authority— In re European Life Assurance Society, October 15, 1869, L.R., 9 Eq. 122.

Respondents' authority— In re London and Paris Banking Corporation, November 21, 1874, L.R., 19 Eq. 444.

At advising—

Judgment:

Lord President—The remedy given to the creditor of a limited company under the Act of 1862 of applying to the Court for a winding-up order is no doubt stringent, but I agree very much with what was said by the Solicitor-General that this remedy comes in the place of all the remedies open to the creditors of an ordinary trading company. In the case of an ordinary trading company, the creditor in an undisputed debt could apply for its sequestration, and he would be entitled to proceed, not only against the company, but also against the partners. This winding-up under the Companies Act of 1862 comes in the place of all these remedies. A creditor's application for an order of this sort is not to be lightly refused, for if he is creditor in an undisputed debt it is his right under the statute. Here the debt is a debt under a bond by which the company is bound to make payment of the amount outstanding at any time after three months from the date of the bond on demand, principal and interest. Now, that period has long since expired, and there can be no doubt of the right of the Commercial Bank to make this demand. The fact that the debt is long since due will not of itself justify the creditor in presenting a petition. He must first make out to the satisfaction of the Court that the company is unable to pay its debts; and the 80th section of the Act provides what shall be sufficient to infer that it is in that position. The first sub-section of that section enacts that a company shall be deemed to be unable to pay its debts, “whenever a creditor, by assignment or otherwise, to whom the company is indebted at law or in equity, in a sum exceeding £50 then due, has served on the company, by leaving the same at their registered office, a demand under his hand requiring the company to pay the sum so due, and the company has for the space of three weeks succeeding the service of such demand neglected to pay such sum, or to secure or compound for the same to the reasonable satisfaction of the creditor.” That is the evidence of inability to pay which satisfies the statute, and what the statute prescribes was done here. A notice was served on the company on September 30th 1886. The term has expired, and the debt has not been paid, and the only answer made to the demand of the petitioners by the company is that they have sufficient security for their debt—the word used is “ample”—and that being so, that the cas is taken out of the operation of sub-section 1 of section 80. Now, I am willing to concede for the construction of this subsection that a company debtor “has not neglected” to pay or secure the debt if it can show that there is in existence an ample security for its debt. If the creditor had a bond over a landed estate, and the rental showed a large margin, it would be impossible to say that the creditor was not amply secured. But where the circumstances are of that character a case is not very likely to arise, for such a debtor would not resist payment. He could raise the money on the estate and pay off the debt. But such a case will never be tried, for a petition such as this will never be presented where the security is ample. I rather think that it is only where the security either is or is suspected to be insufficient that a question such as this can arise. And I think that the true test of the sufficiency of a security is whether it could command that amount of money when put into the market. In short, it must be a marketable security, or else it is not a security “to the reasonable satisfaction of the creditor.” That being so, I do not think that the company have made any answer to the demand of the petitioners. And when they suggest to the creditor to exhaust the security by selling the works and applying the price to the liquidation of their claim, I must say that they are suggesting a course which would be as destructive to their existence as a company and to their business and credit as the course proposed by the petitioners. I am therefore of opinion that the petitioners are entitled to have a winding-up order.

Lords Mure, Shand, and Adam concurred.

The Court granted the prayer of the petitioner.

Counsel:

Counsel for Petitioners—Sol.-Gen. Robertson, Q.C.— Lorimer. Agents— Melville& Linde—say, W.S.

Counsel for Respondents— Balfour, Q.C.— M'Kecbnie. Agent— Gecrge M. Wood, S.S.C.
1886