Scottish Court of Session Decisions

Subject_1Company
Subject_2Reduction of Capital
Subject_3Capital Lost or Unrepresented by Available Assets
Subject_4Assets Consisting of Ships of Diminishing Value — Companies Act 1877 (40 and 41 Vict. cap. 26), sec. 3. Headnote:

In a petition by the Grianaig Shipping Company Limited for confirmation of a resolution to reduce its capital by writing off capital lost and unrepresented by available assets to the extent of £25,116, the Court, there being no opposition, remitted the petition to Sir Charles B. Logan, W.S., to report.

Sir Charles Logan submitted a report, containing, inter alia, the following passage— “I have examined the audited and published balance-sheets, and profit and loss accounts of the company since its incorporation, and I am satisfied that the loss of capital which it has sustained, as therein shown, and as referred to on page 2 of the petition, is correctly stated at £24,167, and to this extent the proposed reduction of capital appears to be competent. It will be observed, however, that the petitioners propose to write off capital to the extent of £25,116, being £6 per share on 4186 issued and fully paid-up shares, or nearly £1000 above the total loss set forth in the petition. Looking at the assets which the company still hold, I find that these consist of 56/64th shares of the ship ‘Lady Wentworth,’ which were acquired during the financial year 1896–97 at the price of £17,477, 5s. 1d. These shares are stated in the petition to be worth, at the date when the reduction of capital was resolved on, £17,508, and if to that sum there be added a small balance on hand, the assets of the company exceed the capital as proposed to be reduced by about the sum of £1000. In view of this difficulty the petitioners have obtained from Messrs Lachlan & Company, valuators for the English Admiralty Court, a valuation as in May last (when the proceedings for the proposed reduction of capital were instituted) of the shares of the ‘Lady

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Wentworth’ held by the company. That valuation is lodged in process, and your Lordships will observe from it that Messrs Lachlan & Company value the shares at that date at £16,748, being £760 below the estimate in the petition. In these circumstances it will appear that the proposed reduction of capital paid up exceeds the amount of capital which has been lost, or is unrepresented by available assets by a sum slightly exceeding £200. I have thought it necessary to bring this fact under your Lordship's notice, as the Companies Act of 1877 appears to authorise the reduction of capital in cases of loss only to the extent of that loss, or so far as the capital is unrepresented by available assets; but looking to the fluctuating values of shipping property, your Lordship may be disposed to disregard the comparatively small sum by which the assets of the company exceed the capital as reduced.”

By the Companies Act 1877, section 3, it is provided—“The word capital as used in the Companies Act 1867 shall include paid-up capital, and the power to reduce capital conferred by that Act shall include a power to cancel any lost capital, or any capital unrepresented by available assets, or to pay off any capital which may be in excess of the wants of the company.”

Counsel for the petitioners submitted that, looking to the fact that the property of the company consisted of ships, which tended to diminish in value, the whole £25,116 should be regarded as lost or unrepresented by available assets, within the meaning of the section quoted above.