Scottish Court of Session Decisions

This was a petition at the instance of Henry Drew, 33 Monmouth Road, London, for the rectification of the register of the United Industrial Corporation, Limited, incorporated under the Companies Acts 1862

Page: 323↓

to 1893, under the following circumstances:—Prior to the formation of the company a memorandum of agreement was entered into between Drew and a trustee for the company which was then in process of formation, by which Drew sold to the trustee certain options for the sum of £7500, payable either in cash or in fully paid-up shares, at the option of the company. The arrangement was adopted by the company, when formed, by a memorandum of agreement, dated 1st June 1897, and in pursuance of its terms 2000 shares, Nos. 1 to 2000 inclusive, were issued to Drew, with share certificates bearing that the shares were fully paid. No contract was, however, filed with the Registrar of Joint Stock Companies either at or before the issue of these shares. By section 25 of the Companies Act 1867 it is provided that “every share in any company shall be deemed and taken to have been issued and to be held subject to the payment of the whole amount thereof in cash, unless it shall have been otherwise determined by a contract duly made in writing and filed with the Registrar of Joint Stock Companies at or before the issue of such shares.”

In his petition Drew stated that in the memorandum between him and the company it was provided that the company should procure the registration of the new memorandum or some proper contract with the proper officials before the issue of any fully paid shares, and should do whatever was necessary to ensure such shares being treated in all respects as fully paid. He also stated that the issue of the shares before any such contract was filed was due to a mistake on the part of the secretary of the company.

The prayer of the petition was in the following terms:—“May it therefore please your Lordships to order this petition to be intimated on the walls and in the Minute-Book in common form, and to be served on the United Industrial Corporation, Limited, and to ordain them to lodge answers thereto, if so advised, within eight days; and thereafter upon resuming consideration thereof, with or without answers, to declare that the name of the petitioner was improperly entered on the register of members of the said company in respect of two thousand shares in the company, numbered 1 to 2000 inclusive, before any sufficient agreement in respect of said shares was registered with the Registrar of Joint-Stock Companies, pursuant to section 25 of the Companies Act 1867; and to order that the register of members of said company be rectified by striking out the name of the petitioner as holder of the said two thousand shares, numbered Nos. 1 to 2000 inclusive, and that notice of this order be given to the Registrar of Joint-Stock Companies for Scotland; and further, to order that after the said memorandum of agreement, executed upon the first day of June 1897, between the petitioner of the first part, Frederick Adolphus Rawlings, of 27 Langbourn Chambers, Fenchurch Street, in the City of London, of the second part, and the said The United Industrial Corporation, Limited, of the third part, or other sufficient agreement for the issue to the petitioner of such shares as fully paid up, shall have been duly filed with the Registrar of Joint-Stock Companies for Scotland, the said company allot or issue to the petitioner fully paid-up shares of the same nominal value and number as he now holds, as aforesaid, and in exchange for the certificates of the like shares now held by him, and to direct notice of the issue of said shares to be given to the said Registrar; and to find the said company liable to the petitioner in the expenses of this application, or to do otherwise or further in the premises as to your Lordships shall seem proper.”

The petition was intimated and served, and no answers were lodged, whereupon the Court remitted to Mr C. B. Logan, W.S., to inquire into the facts and circumstances set forth in the petition, and the regularity of the proceedings.

The company lodged in process an acknowledgment that the petition had been served on them, and a consent by them to the cancellation of the 2000 shares in question, and the filing with the Registrar of Joint-Stock Companies of a new agreement for the issue of said shares as fully paid up.

There were also lodged in process—“Affidavits by the secretary of the company, and by one of the partners of the firm who act as London solicitors for the company, both dated 7th December 1897, to the effect that it was incumbent on the company to see that the contract for the issue of the shares was duly filed at or before the issue thereof; that the petitioner relied on the officials of the company doing whatever was necessary for his protection, and that he believed that they had done so until quite recently; that failure to file the contract was due to a difficulty having arisen in regard to the adjudication of the stamp-duty on the agreement, and that while negotiations were going on between the solicitors of the company and the Board of Inland Revenue, the secretary, per incuriam, issued the shares without consultation with and out with the knowledge of the solicitors.”

Besides these affidavits there was an affidavit “by the secretary of the company dated 7th December 1897, to the effect that the company has no creditors with the exception of the petitioner, the Edinburgh and London solicitors of the company, who have current bills of costs against the company, and the West Central Furnishing Company, from whom the company hold certain office furniture on a hire purchase agreement; that the company is solvent, and that it has sufficient funds in hand to pay the amounts of the solicitors' costs and for the furniture.”

Mr Logan lodged a report, which, after stating the facts, proceeded—“So far as I am aware, only one similar petition for the rectification of the register of a company has come before the Scottish Courts and is reported, namely, that of Harvey v. The Distillers' Company Limited,

Page: 324↓

11th March 1885, 22 S.L.R. 532, in which case The Distillers' Company were represented by counsel, and the Second Division of the Court of Session, being satisfied with the admission of the facts by the company and the bona fides of the application, granted the prayer of the petition without further inquiry. In the two cases of Liquidators of Coustonholm Paper Mills Company, Limited v. Law, 8th July 1891, 18 R. 1076, and Furness & Company v. Liquidators of ‘Cynthiana’ Steamship Company, Limited, 8th December 1893, 21 R. 239, it was held that as agreements relating to the amount paid up on certain shares of these companies had not been registered, the shares must be held as unpaid up, and the allottees placed on the list of contributories. Similar petitions for the rectification of the register of a company have, however, frequently come before the English Courts, and in one of the most recently reported, The Darlington Forge Company, 1887, L.R., 34 Ch. Div. 522, Mr Justice North, in reviewing previous cases, laid it down that the ignorance of the allottee as to the neglect to register the contract should be established, that the rights of creditors should be protected by provision being made for the existing debts of the company, and that the Court should see the agreement proposed to be filed by the Registrar of Joint Stock Companies.”

The report proceeded to state that the reporter was satisfied with the bona fides of the application, that the facts and circumstances of the case, admitted by the company, were as set forth in the petition, and that the petitioner was ignorant of the neglect of the company's officials to file the memorandum of agreement; that the company appeared to be solvent, and therefore that advertisement might be dispensed with, and the prayer of the petition be granted.