Scottish Court of Session Decisions

The Companies Act 1880 (43 and 44 Vict. cap. 19), section 7, sub-section 5, enacts:—“If any company or member thereof feels aggrieved by the name of such company having been struck off the register in pursuance of this section, the company or member may apply to the superior court in which the company is liable to be wound up; and such court, if satisfied that the company was at the time of the striking off carrying on business or in operation, and that it is just so to do, may order the name of the company to be restored to the register, and thereupon the company shall be deemed to have continued in existence as if the name thereof had never been struck off; and the court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had never been struck off.”

The Companies Act 1900 (63 and 64 Vict. cap. 48), sec. 26, sub-sec. 2, enacts that in sub-section 5 of section 7 of the Companies Act 1880, “after the words ‘or member’ in each place where they occur shall be inserted the words ‘or creditor,’ and in the same sub-section, after the word ‘operation,’ the words ‘or otherwise’ shall be substituted for the word ‘and.’”

Augustine Healy, Bank House, 369 Brixton Road, London, a contributory of the United (Hannans') Exploring and Development Company, Limited, presented a petition in terms of the Companies Act 1880, section 7, sub-section 5, as amended by the Companies Act 1900, section 26, sub-section 2, praying the Court to order that the name of the United (Hannans') Exploring and Development Company, Limited, be restored to the register of joint-stock companies.

The United (Hannans') Exploring and Development Company, Limited, was incorporated and registered as a company limited by shares under the Companies Acts 1862 to 1893, on 23rd December 1898. Its registered office was in Edinburgh.

The company was formed for the purpose of taking over the undertaking of Hannans' Development and Finance Corporation, Limited, in Western Australia, Rhodesia, South Africa, and elsewhere, together with all the properties, works, &c., in connection therewith, and to undertake all or any of the liabilities, contracts, or agreements relating thereto, and for that purpose to carry into effect an agreement, dated 23rd December 1898, made between the said Hannans' Development and Finance Corporation, Limited, of the first part, the liquidator thereof, of the second part, and the company, of the third part. The objects of the company were, inter alia, to lend money to such parties, and on such terms, with or without security, as might seem expedient, and to dispose by sale, lease, surrender, mortgage, or otherwise, of any part of the undertaking, property, rights or privileges of the company, for such consideration as the company might think fit, and in particular, for the stocks, shares, debentures, or other securities or property of any other company. The capital of the company was declared to be £150,000, divided into 150,000 shares of £1 each. By the agreement of 23rd December 1898, before referred to, which was duly executed and filed with the Registrar of Joint-Stock Companies, it was provided that every member of Hannans' Development and Finance Corporation, Limited, should, in respect of every fully paid-up ordinary share thereof held by him, be entitled to claim an allotment of one share of £1 each in the company, with the sum of 17s. per share credited as paid thereon; and in respect of every fully paid deferred share in Hannans' Development and Finance Corporation, Limited, be entitled to claim an allotment of ten fully paid shares of £1 each, and five additional shares of £1 each in the company with the sum of 17s. per share credited as paid thereon, the liability of 3s. per share to be paid 3d. per share on application, 9d. per share on allotment, and the balance in calls as and when required. From the share register of the company it appeared that 33,984 shares of £1 each of the company were allotted in December 1898 and January 1899. Certain moneys due on application for shares were paid to the company.

On 4th November 1899 Lord Stormonth Darling in proceedings in the liquidation of Hannans' Development and Finance Corporation, Limited, refused to sanction the agreement of 23rd December 1898, above referred to, relating, inter alia, to the allotment of shares of the company. That allotment accordingly fell to be cancelled, and the moneys paid to the company by the parties who applied for shares fell to be repaid. Between the date of allotment, however, and said 4th November 1899, the directors of the company, of whom the petitioner was one, had employed the moneys

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subscribed for shares under the foresaid agreement by making advances on the security of a mortgage on certain mining properties. The company subsequently transferred this mortgage, receiving in consideration therefor a transfer of 6000 fully paid 10s. shares of the Premier Gold Mines, Limited, and obtaining a certificate in their name dated 16th April 1901. These were considered to be worth about £2000.

In October 1901 it was discovered by the petitioner and his co-director, when they sought to realise the company's holding in the Premier Gold Mines, Limited, that the company had in September 1900 been struck off the register of joint-stock companies on the ground that it had not filed the proper and requisite returns with the registrar. The petitioner averred that the failure to make these returns was occasioned by the neglect of the late secretary of the company, who had led the petitioner to understand that the returns had been duly made, and that at the date on which the company's name was struck off the register the company might be said to be in operation, inasmuch as it was in possession of the foresaid shares of the Premier Gold Mines, Limited, and was attempting to sell the same.

The Lord Advocate, as representing the Board of Trade and the Registrar of Joint-Stock Companies, lodged answers to the petition. It was stated in the answers that the name of the company was struck off the register in consequence of its failure to make the returns required by sections 2, 6, and 40 of the Companies Act 1862, section 19 of the Companies Act 1900, and section 45 of the Act of 1862 as amended by section 20 of the Act of 1900.

The respondents submitted that before the name of the company was restored to the register inquiry should be made as to whether the company at the time of the striking off was carrying on business or in operation, conform to section 7, sub-section 5, of the Companies Act of 1880, above referred to, and that the following returns should be made:—(1) Annual return under section 26 of the Companies Act 1862 for the years 1899, 1900, and 1901; (2) notice of change of registered office; (3) copy register of directors; and (4) A return of allotments of any shares that might have been allotted in 1901. They further submitted that the petitioner and the company should be ordained to pay to the respondents the expenses incurred in consequence of the failure of the company to make the necessary returns, including the expenses of the respondents in the petition.

The Court remitted to Sir Charles B. Logan, W.S., to inquire and report as to the regularity of the procedure and the facts and circumstances set forth in the petition and answers.

The reporter stated that the procedure in the petition had been regular, and that the petitioner had furnished him with all the documents and information called for, with the exception of the minute-book of the directors, which it was explained was in the hands of the late secretary, who refused to give it up.

The reporter further stated—“It does not appear to me that at the date when the name of the company was struck off the register in September 1900 the company could be said to be carrying on business or to be in operation, as the refusal of the Court on 4th November 1899 to sanction the agreement between the company and Hannans' Finance and Development Corporation, Limited, struck at the existence of the company, and it seems to me that the only course open to its directors was to take steps to have it wound up. On the other hand, I am of opinion that it would be just for your Lordships to order the name of the company to be restored to the register, in order that the assets, of which it appears to be possessed, may be realised and the company thereafter wound up. While I am not aware of any similar petitions having come before the Courts in Scotland, there have been a number of cases before the English Courts, and in these it has been the practice for the judge to satisfy himself that the proper and requisite returns would be filed before he pronounced an order ordaining the company to be restored— Hollingwood Estate Company Limited (Chitty, J., December 15, 1886, A. 203), W.N. [1887] 17. Following the course indicated in the English cases, I inquired of the petitioner's agents whether he was prepared to comply with the requirements of the respondents, and to lodge the returns referred to in the answers. The petitioner has lodged in process:—(1) to (4) Annual returns under section 26 of the Companies Act 1862 for the years 1899, 1900, 1901, 1902; (5) notice of change of registered office; and (6) copy of register of directors. With regard to the return of allotments of any shares that may have been allotted in 1901, mentioned in the answers for the respondents, I am informed that there have been no allotments, and no return therefore requires to be made.”

The reporter pointed out that, whereas it was stated in the returns that the calls unpaid amounted to £1739, 10s., the amount of unpaid calls should, on the figures stated as to sums received, have been £1724, showing a discrepancy unaccounted for of £15, 10s. He also pointed out certain other defects in the returns, and stated that in their present form the returns would not be accepted by the Registrar of Joint-Stock Companies, but the petitioner professed to be able to supply no further information. The reporter added:—“The failure of the petitioner to furnish correct particulars regarding the capital of the company has this direct bearing upon the present proceedings, namely, that the object of the petition being to have the company restored to the register and thus allow the petitioner and his co-director to realise an asset of the company with a view of distributing it among their shareholders, the petitioner admits that he has not the information concerning the capital of the company which would enable him to distribute the assets in a proper manner.”

Argued for the petitioner—The purpose of the application being made to have the

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company restored to the register was to enable the assets, and in particular the shares of the Premier Gold Mines, Limited, held by the company, to be realised and divided. It was not necessary to have complete returns, such as the reporter desiderated, where the company was in liquidation and the only object of getting on the register was to enable the company to be wound up and the assets distributed. A company which at the time of the striking off was carrying on business only for the purpose of winding-up and realising its assets was “in operation” in the sense of section 7, sub-section 5, of the Companies Act 1880— In re Outlay Assurance Society, 1887, 34 Ch. Div. 479. Further, it was “just” within the meaning of the Act—and it was so stated by the reporter—that the name of the company should be restored. After the name of a company had been struck off the register it was only by getting an order to restore the name of the company that a member of the company could secure the distribution of the assets. Otherwise such assets would fall to the Crown as bona vacantia. The petitioner was entitled to his expenses as a first charge on the price got on the realisation of the assets.

Argued for the respondent—The returns were defective, and it was for the consideration of the Court whether in these circumstances the name of the company should be restored. The respondents, however, did not object to the name of the company being restored if the Court thought it expedient. It had been held in England that when a company had been struck off the register the proper remedy of a creditor was to petition for a winding-up order— In re Anglo-Mexican Exploration and Development Company [1898], 1 Ch. 100; Palmer's Company Precedents, 8th ed. Part II., at p. 647. But this rule was probably altered by the provision of the Companies Act 1900, section 26, sub-section 2. In any event, the respondents were entitled to the expenses incurred in consequence of the failure to make the necessary returns, including their expenses in these proceedings.