Scottish Court of Session Decisions

Upon 14th May 1892 W. Morrison & Company, Limited, printers and publishers, Hawick, presented a petition to the First Division of the Court of Session under the Companies Act 1867, sections 9 and 19, and the Companies Act 1877, sections 3 and 4, praying the Court, after due intimation and advertisement, “to pronounce an order confirming the reduction of capital resolved on by special resolution of 23rd March 1892.”

The petitioners set forth that “by the memorandum of association it was declared that the capital of the company was £2000 sterling, divided into 2000 shares of £1 each, 1000 of which we recalled ‘founders’ shares,’ and the others ‘ordinary shares.’ All the shares into which the capital of the company was divided have been issued. The sum of £1 has been paid up on each share issued. Since its incorporation the company has carried on the business for which it was formed. It has been found necessary to reduce the capital of the company in consequence of the price paid by the company for the business of William Morrison & Company, printers and publishers, Hawick, having been at least £500 in excess of the real value of the concern, and of the original capital of the company having thus been lost to the extent of £500. With the object mentioned in the last paragraph, the company accordingly, of these dates, March 8th 1892, and March 23th 1892, passed and confirmed the following special resolution:—‘That the following article be added to the articles of association—The company shall have power, by special resolution, to modify the conditions contained in its memorandum of association, so as to increase or reduce its nominal or paid-up capital, or to reduce the amount paid up in the nominal capital;’ and of these dates, March 23rd 1892, and April 7th 1892, passed and confirmed the following special resolution—‘Being satisfied that the price paid by the company for the business of William Morrison & Company, printers and publishers, Hawick, was at least £500 in excess of the real value of the concern, and that the original capital of the company has thus been lost to the extent of £500, it is hereby resolved to modify the conditions contained in the company's memorandum of association to the effect of reducing its paid-up capitial from £2000 to £1500 as follows, viz.—1000 founders’ shares of £1 each, fully paid up, to 1000 founders’ shares of £1 each, with 15s. per share paid up; and 1000 ordinary shares of £1 each, fully paid up, to 1000 ordinary shares of £1 each, with 15s. per share paid up. And the said paid-up capital is hereby declared to be reduced accordingly.’”

Upon 1st June 1892 the Court remitted to Mr Charles B. Logan, W.S., to inquire and report as to the regularity of the proceedings, and the reasons for the proposed reduction.

Upon 14th July 1892 Mr Logan reported, inter alia, as follows—“The effect of the above resolution, [viz., the resolution to reduce, set forth supra,] would be that instead of the whole capital of £2000 being held to be fully paid up as at present, only £1500, or 15s. per share, would be deemed to be paid up, the remaining £500 of the paid-up capital being cancelled or written off as paid up, but revived as uncalled capital, with the sum of 5s. per share on the whole shares remaining uncalled. This would imply not only a reduction of the present capital, which is competent, but the creation, in an irregular manner,

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of £500 of new capital to be called up, with the imposition upon the shareholders of an additional liability which does not attach to them at present. It appears to me that the course proposed is irregular, and that the proper course for the company to have adopted (if they desired to raise £500 of new capital) would have been to have passed a resolution reducing their present capital from 1000 founders' shares of £1 each fully paid up to 1000 founders' shares of 15s. each fully paid up, and 1000 ordinary shares of £1 each fully paid up to 1000 ordinary shares of 15s. each fully paid up; and thereafter to have created £500 of new capital in the manner authorised by the Companies Act 1862, and articles 26 to 28 of Table A appended to that Act. It does not appear to me that the resolution of the company is one which your Lordships can be competently called upon to confirm… . From the last report and balance-sheet of the company, and information supplied to me, I am satisfied that the amount of loss of capital, and the explanations of the petitioners as to how it has arisen, are substantially correct, and that the reasons so stated are sufficient to warrant the reduction. … I am satisfied that the resolutions, if competent in themselves, were regularly passed and confirmed in conformity with the statutes and regulations of the company. … If your Lordships should be of opinion that, notwithstanding the doubts I have suggested, the resolution sought to be confirmed is competent, I have humbly to report that the whole proceedings prior to and since the date of the presentation of the petition have been regular, and the proposed reduction appearing to be warranted, an order may be pronounced confirming the reduction, and granting the prayer of the petition.”

Argued for the petitioners—They might have reduced their capital by one resolution, and replaced it, in the way suggested by the reporter, after a second resolution. That they had sought to attain their object by a different method set forth in one resolution did not make the resolution to reduce incompetent. That resolution ought to be confirmed.

At advising—