Scottish Court of Session Decisions

The 79th section of the Companies Act 1862 (25 and 26 Vict. cap. 89) provides, inter alia, that “a company under this Act may be wound up by the Court as hereinafter defined, under the following cirumstances (that is to say) … (4) whenever the company is unable to pay its debts; and (5) whenever the Court is of opinion that it is just and equitable that the company should be wound up.”

Section 91 of the Act provides, inter alia, that “the Court may as to all matters relating to the winding up have regard to the wishes of the creditors or contributories as proved to it by any sufficient evidence.” The Holmes Oil Company, Limited, was incorporated on 4th April 1884 under the Companies Acts 1862 to 1883, its registered office being at Holmes, Uphall, Linlithowshire. Its nominal capital was £100,000, divided into 10,000 shares of £10 each, and the objects for which it was incorporated were to purchase or lease seams of shale and other minerals; to manufacture mineral products; to manufacture oil and all products of oil, shale, and petroleum; and kindred purposes.

On 3rd October 1900 the trustees of the late Robert Bell, who were the lessors of a shale field leased by the company, presented a petition to the Court, in which they craved an order for the winding up of the company by the Court.

The petitioners averred that they were unpaid creditors of the company to the amount of £4628, of which sum £1268 was overdue lordships, rent, &c., and the remaining £3000 was a claim of damages against the company in respect of its having allowed the mines leased to become flooded. They also averred that the company was unable to pay its debts or to implement its obligation to keep the workings in a good workable state.

The petitioners also produced a disposition dated 15th and recorded 17th August 1900, by which the company disponed to the Royal Bank of Scotland two pieces of ground extending to 5 roods 20 poles or thereby.

Answers were lodged on 16th October for the company. The respondents did not dispute that it was necesary that the company should be wound up, but averred that they had taken measures with the object of winding up the company with a view to reconstruction; that they had called a meeting of shareholders for 31st October, to which a complete statement of affairs would be submitted, and at which, if it was thought advisable, a special resolution for the winding up of the company would be passed; and that a meeting of creditors had been called for 16th October. They further averred that in the meantime it was believed that the interests of the company and its creditors would be seriously prejudiced if the company was forced into a judicial liquidation, as the prospects of

Page: 12↓

reconstruction would be much diminished thereby. They therefore craved that proceedings should be sisted till after the meetings above mentioned.

On 22nd October answers were also lodged for John Wood, Limited, J. & J. Cunningham, Limited, Love & Stewart, Limited, and the Armadale Colliery Company, Limited. They averred as follows—“The respondents are creditors of the Holmes Oil Company, Limited. They represent claims in the shape of ordinary trade debts amounting to £3103, 19s. 8d. or thereby, or 75 per cent. in value of the whole creditors of the company other than the petitioners and secured creditors. Owing to the short time which has elapsed since the respondents became aware of the petition, it has not been possible to communicate with all the creditors. The respondents believe that by the time the petition is heard all or nearly all the ordinary creditors will have signified their concurrence with them. The company called a meeting of its creditors for Tuesday the 16th October 1900, the petition having been gazetted on the 9th. At the said meeting a committee of creditors was appointed, including representatives of each of the petitioners, and this committee inspected the works on 18th October. The committee has not had time to complete its inquiries into the position of the company and into the prospect of a successful reconstruction, but they will be in a position to report to the creditors on these matters shortly. At this meeting and at the shareholders' meeting, which has been convened for the 31st inst., the question of voluntary liquidation will also be determined.”

Argued for the petitioners—Where a joint stock company was unable to pay its debts, a creditor of the company was entitled to—and the Court had no discretion to deny—a winding-up order, unless (1) no advantage could be obtained by the creditor from such an order being pronounced, or (2) unless it clearly appeared that the company was in a position to retrieve itself and that its circumstances were improving, so that it was for the advantage of the creditors that the business should be carried on— In re Chapel House Colliery Company 1883, L.R., 24 Ch D 259, opinion of Bowen, L.J., 269, approved in Gardner & Co. v. Link, July 11, 1894, 21 R. 189; in re Krasnaspolsky Restaurant, &c. Co. [1892], 3 Ch. 174; in re The General Rolling Stock Co., Limited, 1865, 13 W.R. 423. In the present case it was admitted that the company could not pay its debts, and it was for the petitioners' advantage that further loss should not be occasioned. Besides, the disposition produced by them clearly showed that if any further delay were granted a preference would be created in favour of the bank to the prejudice of the petitioners. A voluntary winding-up commenced at the date of the resolution to wind-up—section 130 of Act of 1862—and that date would necessarily be more than sixty days after the date of the deed. Section 3 of the Companies Act 1886 did not strike at a disposition of the nature of the one in question. In all the cases quoted on the other side there were three concurring circumstances—(1) A large majority of the creditors opposed to the winding up; (2) a probability that the company would retrieve itself; (3) the fact that the petitioning creditor would suffer no prejudice from delay. None of these circumstances were present in this case.

Argued for respondents—The Court had complete discretion to refuse the petition or direct the matter to stand over for a period. It was not bound ex debito justitice to make an immediate order on the petition of a creditor, whose debt was admitted and not paid, especially when other creditors opposed the granting of an immediate order—Buckley on the Companies Acts (7th ed.) 288; in re Brighton Hotel Co., 1868, L.R., 6 Eq. 339; in re Western of Canada Oil Lands and Works Co. (1873), L.R., 17 Eq. 1. It would not prejudice anyone and would facilitate a re-construction if delay were granted, so that the shareholders could resolve on a winding up under supervision. The same course would thus be followed as in Drysdale & Gilmour v. Liquidators of International Exhibition of Electrical Engineering and Inventions, November 13, 1880, 18 R. 98. [ Lord Moncreiff—I am not sure that that case can be given much weight to. It was decided by a Court collected together at a moment's notice, and as far as I remember there was not much discussion]. Pattisons Limited v. Kinnear, February 4, 1899, 1 F. 551. No advantage would be obtained by compulsory winding up which would not be obtained by a voluntary winding up under supervision. The alleged preference would be nullified under section 3 of the Companies Act 1886. The respondents included the great majority of the creditors and the Court should give effect to their wishes. The sum of £3000 claimed for damage to the mines was absurd; all the cost of pumping the mine free of water would be £150. A delay of a fortnight was all that was desired.

At advising—