Scottish Court of Session Decisions

J. A. Robertson-Durham, C.A., and James Craig, C.A., both of Edinburgh, were appointed on the 19th February 1904 official liquidators of the Scottish Drug Depot, Limited, which was ordered to be wound up under the provisions of the Companies Acts 1862 to 1900. On the 10th January 1905 they presented a note with a view to having the liquidation closed, and produced therewith a schedule of the claims lodged, with their deliverances thereon. Amongst the claims to which it was proposed to give a preferential ranking was that of the Collector of Poor and School Rates for the City Parish of Edinburgh, where the company had carried on its business, for unpaid poor and school rates due at the commencement of the winding-up from certain premises, amounting to £20, 0s. 6½d. The note stated that the liquidators' account showed a balance in hand of £925, 18s. 10d., out of which fell to be paid (1) the liquidators' remuneration and their law expenses; (2) the preferable claims which, as admitted, amounted to £117, 9s. 4d.; and (3) the balance to the ordinary creditors, pro rata on their admitted claims, which anounted to £4708, 3s. 11d. The prayer of the note was, inter alia, “(3) to fix the remuneration of the liquidators; (4) to authorise them to take credit therefor and to pay the law expenses incurred by them as these may be taxed by the Auditor of Court; (5) to approve of the deliverances of the liquidators in the said schedule, or to make such alteration on such deliverances as may be required, and to rank the said claims of such creditors accordingly; (6) to authorise the liquidators to pay the said preferable claims as the same may be allowed by your Lordships, and to divide the surplus funds thereafter in the hands of the liquidators among the ordinary creditors pro rata of their claims as the same may be allowed by your Lordships.”

Alexander Fraser, Collector of Poor and School Rates for the City parish of Edinburgh, lodged answers, which, after reciting the Poor Law (Scotland) Act 1845, sec. 88, stated—“The liquidators, in the prayer of this petition, crave the Court, inter alia, to authorise them to pay the liquidators' fees and the law expenses of the liquidation preferably to the said Alexander Fraser's claim for poor rates, and the said Alexander Fraser accordingly objects to said claims being preferred to his in the order of payment, and maintains that the Court should direct and ordain the said liquidators to pay the above-mentioned poor rates ‘out of the first proceeds of the estate, and preferably to all debts of a private nature,’ and in particular preferably to the liquidators' fees and law expenses incurred by them, and to rank the said Alexander Fraser's claim accordingly.”

The liquidators in their replies, inter alia, referred to the Preferential Payments in Bankruptcy Act 1888 as regulating the matter in dispute.

The Poor Law (Scotland) Act 1845 (8 and 9 Vict. cap. 83), section 88, provides—“The whole powers and right of issuing summary warrants and proceedings, and all remedies and provisions enacted for collecting, levying, and recovering the land and assessed taxes, or either of them, and other public taxes, shall be held to be applicable to assessments imposed for the relief of the poor; and the sheriffs, magistrates, justices of the peace, and other judges may grant the like warrants for the recovery of all such assessments in the same form and under the same penalties as is provided in regard to such land and assessed taxes and other public taxes; Provided always that it shall nevertheless be competent to prosecute for and recover such assessments by action in the Sheriff's Small Debt Court;

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and all assessments for the relief of the poor shall in case of bankruptcy or insolvency be paid out of the first proceeds of the estate, and shall be preferable to all other debts of a private nature due by the parties assessed.”

The Preferential Payments in Bankruptcy Act 1888 (51 and 52 Vict. cap. 62) provides, section 1 (1)—“In the distribution of the property of a bankrupt, and in the distribution of the assets of any company being wound up under the Companies Act 1862 and the Acts amending the same, there shall be paid in priority to all other debts—( a) All parochial or other local rates due from the bankrupt or the company at the date of the receiving order, or as the case may be, the commencement of the winding up, and having become due and payable within twelve months next before that time, and all assessed taxes, land tax, property, or income tax assessed on the bankrupt or the company up to the fifth day of April next before the date of the receiving order, or as the case may be, the commencement of the winding-up and not exceeding in the whole one year's assessment;… (3) Subject to the retention of such sums as may be necessary for the costs of administration or otherwise, the foregoing debts shall be discharged forthwith so far as the property of the debtor or the assets of the company, as the case may be, is or are sufficient to meet them.”

Upon the 3rd March 1905 the Lord Ordinary (Low) issued an interlocutor in which he found that the poor rates due from the said company at the commencement of the winding-up thereof did not fall to be paid preferably to the liquidators' fees and law expenses incurred by them, but fell to be paid in terms of section 1 (3) of the Preferential Payments in Bankruptcy Act 1888, and in respect that the liquidators had admitted the claim for said poor rates to a preferable ranking and tendered payment thereof in full, found it unnecessary to pronounce further upon the answers, and dismissed them with expenses.

Opinion.—[ After narrating the purport of the note and answers and the collector's contention based upon section 88 of the Poor Law ( Scotland) Act 1845]—“Even if that enactment was the statutory provision now in force in the case of companies in liquidation, it would be necessary to consider how far it supported the claim of the collector that poor rates fall to be paid before any provision is made for the expenses of the liquidation. But it is unnecessary to consider that question if, as the liquidators contend, the matter is now regulated by the Preferential Payments in Bankruptcy Act 1888 (51 and 52 Vict. c. 62).

“In regard to that Act I think that there are strong reasons for holding that it is not applicable to Scotland so far as sequestrations under the Bankruptcy Acts are concerned, but I see no sufficient ground for affirming that it does not apply to Scotland in the case of companies which are being wound up under the Companies Acts.

“ Prima facie the Act applies to Scotland, because Ireland is excluded from its operation while Scotland is not excluded, and further, I do not think that there is any difficulty in applying its provisions, so far as companies in liquidation are concerned, to Scotland. It is also worthy of observation that the Act was amended in 1897 by an Act (60 and 61 Vict. cap. 19) which makes provision in certain cases for the payment of the debts declared to be preferable by the Act of 1888 in priority to the claims of holders of debentures under a floating charge created by the company. These provisions are not appropriate in the case of Scotch companies, and accordingly it is provided that the Act shall not extend to Scotland. The Act, however, is made applicable to Ireland, which was excluded from the Act of 1888, and it is so made applicable by declaring that in its application to Ireland the Preferential Payments in Bankruptcy (Ireland) Act 1889 shall be substituted for the Act of 1888. That shows that the Legislature had in 1897 considered the position of the Act of 1888 as regards both Scotland and Ireland, and had deliberately allowed the Act to remain, as it bore to be, an Act applicable to Scotland.

“It was argued, however, that if the Act had been intended to apply to Scotland the 88th section of the Poor Law Act would have been repealed. If the Act of 1888 does not apply to sequestrations, that argument is not of much weight, because the terms of the 88th section are more appropriate to cases falling under the bankruptcy laws than to insolvent companies, for the winding-up of which a special code was provided by the Companies Act of 1862. If, as I think was the case, the Act of 1888 applied only to companies in Scotland, that would account for the 88th section of the Poor Law Act not being to any extent repealed.

“I am therefore of opinion that the Act of 1888 applies, and it provides that the parochial rates and the debts specified shall, ‘subject to the retention of such sums as may be necessary for the costs of administration or otherwise, be discharged forthwith so far as the assets of the company are sufficient to meet them.’

“That enactment does not support the collector's contention that the parochial rates fall to be paid preferably to the liquidators' fees, and the expenses incurred by them. These appear to me to fall within the words ‘the costs of administration.’ The rates, however, are, subject to retention of the amount necessary to meet the costs of administration, to be paid ‘forthwith.’ That I take to mean that they shall be paid out of the first funds available for division.

“In the present case the circumstances were these—The company had carried on business as chemists and druggists, having their principal place of business at Nicolson Street, Edinburgh, and having seven branches in various places in Edinburgh and Leith. The liquidators deemed it to be advisable in order that the assets of the company might be realised to the best advantage to carry on the business for a certain time, and the Court authorised them to do so until Whitsunday 1904. The

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present note was presented on 10th January 1905, and the liquidators stated that they had then realised the businesses and all other assets of the company.

“The winding-up order was not pronounced until 19th February 1901, so that I do not think, considering the nature of the assets, that there has been any delay in realisation, and I am not surprised that the liquidators did not deem it expedient to make any division of the funds until the whole estate was realised.

“It may be that the liquidators were at a somewhat earlier date in possession of funds out of which the rates and other debts which the Act of 1888 directs to be paid ‘forthwith’ might have been paid, and it may be that to have paid them at an earlier date would have been more in accordance with the directions of the statute. I have, however, no information upon that point, and I do not think it necessary to inquire, as all the preferable debts will be paid in full.’

The collector reclaimed, and argued—Section 88 of the Poor Law Act 1845 gave an absolute preference which had never been taken away. The Preferential Payments in Bankruptcy Act 1888 did not take away this preference and could not have been intended to do so, for it would in that case have repealed the section of the 1845 Act as it repealed certain other Acts. The true position was that that statute did not apply to Scotland at all. While it might be said that in this case the question was not of importance, inasmuch as payment in full was tendered, payment had been unduly delayed, and the collector was entitled to have his position recognised by the Court. That would then establish a rule for other cases of a similar nature, which had of recent years been very numerous— Northern British Property Investment Company, Limited v. Paterson, July 12, 1888, 15 R. 885, 25 S. L.R. 641, was referred to.

Counsel for the liquidators were not called upon.