Scottish Court of Session Decisions

Section 76 of the Companies Act 1862 provides as follows—“If any contributory dies either before or after he has been placed on the list of contributories hereinafter mentioned, his personal representatives, heirs, and devisees shall be liable, in due course of administration, to contribute to the assets of the company in discharge of the liability of such deceased contributory, and such personal representatives, heirs, and devisees shall be deemed to be contributories accordingly.”

Abram Edward Howling and others, trustees of the late Abraham Howling, brought a note of suspension and interdict against A. Davidson Smith, C.A., Edinburgh, in which they sought to interdict him from acting in any way as liquidator, or representing himself to be liquidator of the North British Property Investment Company, under an alleged resolution of said Company dated 31st March 1904.

The facts of the case are fully set forth in the opinion of the Lord Ordinary.

The following are the articles of association referred to:—“XI. Proceedings at General Meetings—(Art. 61) Every notice shall be signed by the manager, or such other officer as the board may appoint, except in the case of a meeting convened by members in accordance with these articles, in which case the notice may be signed by the manager or such other officer, or by the members convening the same, or by one or more of their number duly appointed by them for that purpose. No business shall be transacted at any general meeting, except the declaration of a dividend, unless there shall be personally present at the commencement of the business ten or more members, and it is declared that ten members shall at all times form a quorum of the company. XXI. Dissolution of the Company—(Art. 128) It shall be in the power of members holding a fifth part of the subscribed capital of the company, or of five of the directors, to require an extraordinary general meeting of the company to be called for considering any proposition for the dissolution of the company, and if members holding three-fourths of the subscribed capital of the company, personally present at such meeting, or by proxy, shall agree to such dissolution, the company shall be dissolved, but not otherwise: Provided that such meeting shall be called by public advertisement in two Edinburgh newspapers, once each week for two months at least before such meeting, in which advertisement the intention of proposing such dissolution shall be expressly notified, and a minute in the books of the company declaratory of their resolution to this purpose shall be binding on the company without any other form. (Art. 129) No dissolution, however, of the company, other than by order of the Court, under the Companies Acts, 1862 and 1867, shall take place, if, at or before or within fourteen days after the extraordinary meeting to be held in terms of the 127th article, any of the members enter into a sufficient and binding contract to purchase, on such terms as shall be mutually agreed on, the shares of all those members who wish to retire from the company, and to indemnify them against any further liability arising therefrom. (Art. 130) On the dissolution of the company the affairs of the company shall be wound up in terms of the Acts of Parliament under which the company is incorporated.”

The complainers pleaded, inter alia—“(1) The respondent not having been validly appointed liquidator ought to be interdicted as craved. (2) A quorum of members not having been present when the said resolution was passed and confirmed the respondent is not entitled to found thereon.”

The respondent pleaded, inter alia.—“(1) No title to sue. (2) No relevant case. (3) The note being incompetent should be dismissed. (4) The complainers' averments so far as material being unfounded in fact interdict ought to be refused. (5) The appointment of the respondent having been made in accordance with the statutory requirements, and being in every way regular and valid, interdict should be refused, with expenses.”

On 7th June 1904 Lord Pearson granted interim interdict.

On 6th December 1904 he pronounced the following interlocutor:—“Sustains the first plea-in-law for the respondent: Reeals the interim interdict formerly granted, dismisses the note of suspension and interdict, and decerns.”

Opinion.—“The complainers are the trustees and executors of the late Captain Howling, who died in April 1902. He was at his death the registered owner of 140 shares, of the nominal value of £10 each, in the North British Property Investment Company, Limited. The executors gave up these shares in their inventory. They also executed a transfer of them in favour of a third party, and sent it in for registration in October 1902, but after some delay the

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directors, acting under a power conferred on them by the articles, declined to accept the transferree. Thus the executors were and remained liable only in their representative capacity under section 76 of the statute, and did not become members of the company.

“The directors had, for some time before Captain Howling's death, been realising the investments with a view to the ultimate winding-up of the company. The realisation evidently proved much worse than was expected, and ultimately a final call of £1 per share was made, which was duly paid by the executors early in 1903.

“In February 1904 the company intimated that the surplus funds, after discharging the whole debts and obligations of the company, admitted of a return of 4s. 3d. per share. This was tendered to the executors, and a formal receipt for £29, 15s. was sent them for signature. They explain that as the receipt bore to discharge the company of all claims they declined to sign it until there had been a final meeting of shareholders and a satisfactory accounting made.

“Thereupon the company issued notices for a meeting to be held on 31st March 1904, to pass a special resolution that the company be wound up voluntarily, and that Mr Davidson Smith, C.A., be appointed liquidator. It is said by the respondents that this resolution was duly carried and was duly confirmed at a subsequent meeting on 15th April.

“Within a month of that date the executors presented this note to have Mr Davidson Smith interdicted from acting as liquidator under the special resolution of 31st March. The sole ground alleged for interdict is that by article 61 of the company's articles of association it is provided that ‘no business shall be transacted at any general meeting, except the declaration of a dividend, unless there shall be personally present at the commencement of the business ten or more members; and it is declared that ten members shall at all times form a quorum of the company,’ and it is averred, and not denied, that ten members were not personally present at either of the meetings I have mentioned. The reply made by the respondents is that article 61 does not apply to any general meeting which has to do with liquidation, that such meetings are governed by article 130, which prescribes that the affairs of the company shall on dissolution be wound up in terms of the Acts of Parliament—that is, in terms of sections 129 and 51 of the Act of 1862, the provisions of which (it is said) were observed. Looking to the collocation of article 130 with articles 128 and 129, I doubt if it has any application to the present case. But even if it has, the question remains whether article 61 does not also apply to make more stringent the provisions of section 51 of the statute as to the requirements for passing a special resolution. In my opinion it does, and I therefore take the case on the footing that the special resolution was not legally passed.

“The question then comes to be, whether the complainers are entitled to state this objection in a process of interdict in which the bare legal objection is the sole ground of action, and in which on the one hand no misfeasance is alleged against anyone, and on the other no loss or damage is said to have accrued to the executry estate held by the complainers. I do not doubt that, if such averments had been made, the complainers would have a sufficient title to sue the wrongdoer, and to obtain redress upon making a relevant averment of breach of duty to them, and of loss accruing from it. They might even have a title to call for an accounting with a view to pecuniary redress. But I am unable to find any good ground in law for sustaining a claim at the instance of persons who are neither members of the company nor outside creditors to have the liquidation virtually declared null, without any averment whatever of loss or damage. In a case of urgency they might even have been entitled to apply to have the liquidation proceedings stopped until they had an opportunity of constituting their claim. But I have heard no suggestion of that here, and I am of opinion that the complainers' statement discloses no title or interest on their part to demand the remedy which they ask.”

The complainers reclaimed, and argued—As contributors, and liable as such to pay calls under section 76 of the Companies Act of 1862, they were entitled to see that the winding-up was properly carried out— Norwich Yarn Company, January 14, 1850, 12 Beavan, 366. The special resolution appointing the liquidator was illegal, as it directly contravened article 61 of the articles of association. The fact that it may have complied with the provisions of the Companies Acts as to special resolutions, particularly section 51 of the Act of 1862, was really immaterial, as the provisions of the Companies Act did not supersede those in the articles of association. The requirements of both must be strictly observed— De La Mott and Turner, January 14, 1875, 31 L.T. 773.

Argued for the respondent—The complainers had no title. They were not members of the company, and did not even aver that they had been in any way prejudiced by the appointment. As to the validity of the special resolution, there was nothing in the articles of the company properly construed to evade the provisions of the Companies Acts which had been duly complied with.