Scottish Court of Session Decisions

The Companies Act 1882 (25 and 26 Vict. cap. 89), sec. 79, enacts—“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 company is unable to pay its debts.” Sec. 80 enacts—“A company under this Act shall be deemed to be unable to pay its debts (1) whenever a creditor, by assignment or otherwise, to whom the company is indebted, at law or in equity, in a sum exceeding fifty pounds then due, has served on the company by leaving the same at their registered office, a demand under his hand requiring the company to pay the sum so due, and the company has for the space of three weeks succeeding the service of such demand neglected to pay such sum, or to secure or compound for the same to the reasonable satisfaction of the creditor. … (4) Whenever it is proved to the satisfaction of the Court that the company is unable to pay its debts.”

On November 9, 1906, Messrs W. & J. C. Pollok, solicitors, Hamilton, presented a petition to the Court praying that the Gaeta Pioneer Mining Company, Limited, incorporated in 1905 under the Companies Acts 1862 to 1900 with a capital of £50,000, and having its registered office at Irvine, Ayrshire, should be wound up by the Court under the said Acts.

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The petition stated—“… That by the 79th section of the Companies Act 1862 (25 and 26 Vict. c. 89) it is provided, inter alia, that 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 company is unable to pay its debts;’ and by sec. 80 of the Companies Act 1862 it is provided, inter alia, that a company under this Act shall be deemed to be 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.’

The petitioners are creditors of the said company to the extent of £121, 6s. 9d., being the amount incurred to them for legal and professional services as per account rendered and herewith produced. The petitioners have demanded payment of the said sum from the said company, but they delay to make payment of the same.

The mine is situated in Queensland, Australia. It is fully equipped, and has been crushing ore for about five months at a loss.

The system of gaining the gold has proved too costly, with the result that the company is now in debt in Queensland to the extent of over £1000, for which a writ has been served upon the company there.

In this country the company owe the British Linen Bank upwards of £400, and the secretary's, consulting engineer's, and directors' salaries have been for some time unpaid. There are also other claims against the company.

In these circumstances the petitioners humbly submit that the said company should now be wound up by the Court in terms of said Act, and an official liquidator appointed for that purpose. The said company cannot pay its debts….”

The respondents lodged answers, in which they stated—“Admitted that the salaries of the secretary, consulting engineer, and directors are unpaid, but explained that payment has not been demanded. Quoad ultra the statements in the petition are denied.

The petitioners some time since rendered the account on which this petition is based, but which as then rendered amounted to £42, 8s. 6d. Mr James Cullen Pollok, a partner of the petitioners' firm, was a director of the respondents' company, and was then due the company arrears of calls, which he has since paid, to the amount of £40. On 16th August 1906 he offered, by letter addressed to the company's solicitor, Mr John Watt, Irvine, to discharge the account for £40, to be put to the credit of said calls. Said offer was not accepted, and by Mr Pollok's desire the account was not submitted to the board of directors until 1st October 1906. The directors being of opinion that the account was overcharged, and that it included some items for which the company was not liable, gave instructions that it should be taxed by the Sheriff Court auditor in Ayr. The said James Cullen Pollok, who was present at the meeting, stated no objection to the account being so taxed, and it was accordingly laid before said auditor, who on 13th October 1906 taxed it at £8, 13s. The account with the auditor's docquet thereon is produced herewith. Thereafter on 27th October 1906 the petitioners wrote the respondents as follows:—‘As you have objected to our account as rendered, we beg herewith to withdraw it, and herewith send you amended account, and beg to intimate that unless same is now paid action will be taken. We may say we are prepared to submit this account to the taxation of the Auditor of the Court of Session.’ Said amended account was simply the account formerly rendered re-charged and with one or two of the items omitted. It contains several items for which the respondents do not consider themselves liable and is much overcharged. As is well known to the petitioners, it is the practice of the respondents' board of directors to meet once monthly, on the 3rd Wednesday of each month. There had therefore been no meeting between the date when said ‘amended account’ was rendered and the presentation of the petition. The respondents have always been prepared to pay any sum truly due to the petitioners on the amount thereof being duly ascertained. …”

Argued for the respondents—The petition should be refused. The amount of the account was in dispute, and a disputed debt could not be made the ground of a petition for winding up— Cuninghame, &c. v. Walkinshaw Oil Company, November 17, 1886, 14 R. 87, 24 S.L.R. 66; in re London and Paris Banking Corporation (1874), L.R., 19 Eq. 444. Further, the respondents were willing to find caution for the amount of the account, and thus the creditor's interest was secured, and he was not entitled to have the company wound up — Commercial Bank of Scotland, Limited v. Lanark Oil Company, Limited, December 2, 1886, 14 R. 147, 24 S.L.R. 146. If the petitioner's debt was safe he had no title to apply for a winding-up merely because the company was unable to pay its debts. The averments were too vague and general to base a winding-up order under sec. 79. The facts necessary to prove the company's insolvency were lacking in the averments.

Argued for the petitioners—A creditor was in the same position in this matter as a contributory—Companies Act 1862, sec. 62—and averring that other debts than his own were unpaid was entitled to apply for a winding-up order. There were sufficient averments as to the inability to pay debts to entitle the creditor to apply in terms of sec. 80 (4) and sec. 79 (4) of the statute. There was no limitation of the right to petition if it was averred that the company was unable to pay its debts. Whether the debt was constituted or not was of no moment. The cases cited were not in point. They were cases under the Companies Act 1862, sec. 80 (1), which sub-section applied when the debtor company “neglected” to pay a demand, and the accounts in these cases being disputed, there was obviously no “neglect”; consequently the petitions were refused. This petition was not under

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that sub-section, but under sec. 80 (4) on a general averment of insolvency. Proof should be allowed.