Scottish Court of Session Decisions

A note was accordingly presented which set forth the resolution, and stated that a majority of the creditors approved of the voluntary winding up and of the liquidator appointed, and a mandate stating the approval of creditors to the extent of £3176, 7s. 9d., who were a majority in number and value, was lodged in process.

The petitioning creditor contended that the shareholders had no locus standi to oppose his petition; that no creditor opposed the petition and the mandate produced was not sufficient; that out of eight creditors for whom the mandate was lodged five were or had been directors of the company, and so had other interests than those of creditors; and that the liquidator appointed was the nominee of one of the directors.

Held that as the majority of the creditors as well as the shareholders desired the voluntary winding-up to be continued under supervision, and as there was no suggestion that the petitioners would be prejudiced by the liquidation commencing at a later date than if the petition for compulsory winding-up were granted, or in any other way, a supervision order should be made and the liquidation be continued with A as liquidator.

In re West Hartlepool Iron Works Company, 1875, L.R., 10 Ch. 618, approved and followed. Expenses—Petition for Winding-up Order—Resolution of Company to Wind-up Voluntarily under Supervision—Refusal of Winding-up Order—Expenses of Petitioner.

Where the Court, giving effect to the wishes of a large majority of a company's creditors, and taking into consideration the whole circumstances of the case, refused the petition of one creditor for a winding-up order, and decided that the voluntary winding-up

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under supervision resolved on by the company subsequent to the petition being presented should be continued, it allowed the petitioning creditor his expenses, and directed them to form part of the expenses of the liquidation. By sec. 79 of the Companies Act 1862 (25 and 26 Vict. cap. 89) it is provided,—“A company under this Act may be wound up by the Court as hereinafter defined under the following circumstances (that is to say) … (4) whenever the compay is unable to pay its debts; (5) whenever the Court is of opinion that it is just and equitable that the company should be wound up.” By sec. 80 of said Act it is provided—“A company under this Act shall be deemed unable to pay its debts … (4) whenever it is proved to the satisfaction of the Court that the company is unable to pay its debts.”

By sec. 91 it is provided—“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.… In the case of creditors regard is to be had to the value of the debts due to each creditor.…”

By sec. 147 it is provided—“When a resolution has been passed by a company to wind up voluntarily, the Court may make an order directing that the voluntary winding-up should continue, but subject to such supervision of the Court, and with such liberty for creditors, contributories, or others, to apply to the Court, and generally upon such terms, and subject to such conditions as the Court thinks just.” By sec. 149 it is provided—“The Court may, in determining whether a company is to be wound up altogether by the Court or subject to the supervision of the Court, in the appointment of liquidator or liquidators, and in all other matters relating to the winding-up subject to supervision, have regard to the wishes of the creditors or contributories as proved to it by any sufficient evidence.… In the case of creditors regard shall be had to the value of the debt due to each creditor.…”

On January 4, 1906, George Elsmie & Son, coal merchants, Aberdeen, presented a petition praying the Court to order that the Tomatin Spey District Distillery, Limited, be wound up and James Alexander Robertson-Durham be appointed official liquidator. The said company was on 8th June 1897 registered and incorporated under the Companies Acts 1862 to 1890 and had its registered office in Inverness. The nominal capital of the company was £12,000, divided into 1200 shares of £10 each. Of these 600 were issued and fully paid up. The working capital of the company was thus £6000.

In the narrative of the petition the petitioners set forth that they were creditors of the said company to the amount of (1) £140, 7s. 7d., with legal interest from 13th November 1905, being the amount of the balance due to them for coal supplied to the company, and for which sum with interest as above they held a decree of the Lord Ordinary (Salvesen) dated 7th December 1905; and (2) to the amount of £12, 0s. 1d., being the total amount of expenses incurred in the action in which they obtained decree as above stated, for which sum they also held decree dated 21st December 1905. They further set forth that application had been made to the company for payment of the sums decerned for, but that they still remained unpaid; that the distillery had not been working for some time past; and that the company was and had been for some time insolvent and unable to pay its debts. The petition was served on the company, and on 9th January notice of this application was given by advertisement in the Edinburgh Gazette, Scotsman, and Inverness Courier.

On 13th January an extraordinary general meeting of the company duly convened was held, when the following extraordinary resolution was duly passed, viz.—“That it has been proved to the satisfaction of this meeting that the company cannot by reason of its liabilities continue its business, and that it is expedient to wind up the same; and accordingly that the company be wound up voluntarily.”

At the same meeting the following additional resolutions were also duly passed, viz.—“(1) That Mr James Forsyth, solicitor, Union Street, Inverness, be and is hereby appointed liquidator for the purposes of winding up the company, with every power which by the Companies Act 1862, and Acts amending and extending the same, is conferred on liquidators. (2) That the liquidator be instructed to take the necessary steps for having the liquidation placed under the supervision of the Court of Session.”

On 17th January a note was lodged on behalf of the company and Forsyth as liquidator. In this note the company admitted that the petitioners were its creditors to the extent of £152, 7s. 8d. as above set forth and that it could not by reason of its liabilities continue its business, and it set forth the resolution of January 13 above quoted. The company, however, stated that there were debenture holders to the amount of £6000 (the debenture holders did not make any appearance) and ordinary creditors besides the petitioners to the amount of about £3321. The note further stated—“The shareholders and the great majority of the creditors are opposed to a winding-up by the Court, and desire that the company should be wound up voluntarily under the supervision of the Court. They also desire that in the interest of economical and efficient management the liquidator should be a person resident in the locality. They accordingly oppose the appointment of the nominee of the petitioners, and desire that the present liquidator James Forsyth should act as liquidator in the winding-up.”

Mandates were lodged in process from eight creditors of the company, whose debts together amounted to £3176, 7s. 9d., approving of the voluntary liquidation of the company under the supervision of the Court and of the appointment of Forsyth as liquidator.

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Argued for the petitioners (Elsmie & Son)—(1) There was no appearance for any creditor in opposition to the petition. The shareholders of the company and the liquidator had no locus standi to resist the petition of a creditor asking for a compulsory winding-up. An order continuing the voluntary winding-up and approving of the liquidator, could not be pronounced without a petitioning creditor; the mere lodging of mandates of creditors was not sufficient. (Lord Stormonth Darling referred to Drysdale & Gilmour v. Liquidator of International Exhibition, Nov. 13, 1890, 18 R. 98, 28 S.L.R. 91, where an order was pronounced though there was no petitioning creditor). (2) Of the eight creditors who had lodged mandates approving of the continuation of the voluntary winding-up and of the liquidator nominated at the meeting, one was a director, one had been a director but had lately resigned, one was judicial factor for the late managing director, one was secretary of the company, and one was a nominal firm the sole partner of which was a director, These were not true creditors, in the sense that they had other interests than that of creditors. It might perhaps turn out that they had kept the business going longer than they ought, and so be personally liable. (3) In any event the liquidator appointed was the nominee of a director whose suggestion the shareholders had adopted, and the Court should appoint an independent liquidator resident in Edinburgh, because the majority of the creditors were resident in the south of Scotland. Reference was also made to Lindley on Companies, 5th ed. 874, and to sections 137, 138, and 151 of the Companies Act 1862 (in addition to the sections quoted).

Argued for the Tomatin Spey District Distillery, Limited, and Forsyth—The great bulk of the creditors had by their mandate approved of the voluntary winding-up under supervision resolved on by the shareholders, and of the liquidator appointed. The mandates were sufficient evidence of their wishes. There was a difference of opinion here between one creditor and the great majority, and the onus accordingly was on Elsmie & Son to show that they would be prejudiced by a supervision order being pronounced— in re West Hartlepool Ironworks Company, July 30, 1875, L.R. 10 Ch. 618; in re New York Exchange, Limited, July 27, 1888, 39 Ch. Div. 415; Pattisons, Limited v. Kinnear, February 4, 1899, 1 F. 551, 36 S.L.R. 402—and the choice of liquidator was equally committed to the majority of the creditors by sec. 149. It was true that the liquidator had been suggested by a director at the company's meeting, but he was suggested because he was an independent person, and after two liquidators originally proposed had been objected to as being interested in the company. The liquidator had been chosen by the shareholders and their choice had been approved of by the creditors in their mandates. No specific objection had been made against the liquidator appointed.