Scottish Court of Session Decisions

The Companies Act 1862, section 87, enacts—“When an order has been made for winding up a company under this Act, no suit, action, or other proceeding shall be proceeded with or commenced against the company except with the leave of the Court, and subject to such terms as the Court may impose.”

Section 163 is given in the rubric.

The trustees of the late James Anderson, in the liquidation of James Donaldson & Company, Limited, presented a note, under section 87 of the Companies Act 1862, craving the Court to grant them leave to proceed with and prosecute to judgment an action of sequestration of the moveables upon a certain piece of ground of which they were the superiors and James Donaldson & Company the vassals, the ground of the action being the refusal of the liquidator to pay the feu-duty.

The presenters of the note stated, inter alia—“Upon 1st June 1907 an order was pronounced by the Court for winding up James Donaldson & Company, Limited, registered and incorporated under the Companies Acts, and having its registered office at No. 157 Great Junction Street, Leith, and appointing J. Maxtone Graham, Chartered Accountant, Edinburgh, as liquidator. Upon 4th June 1907 the compearers raised an action of sequestration in the Sheriff Court at Edinburgh against, inter alios, the said James Donaldson & Company, Limited, in liquidation, praying for sequestration of the whole moveables on … [ the ground described], … and the Sheriff having on 4th June 1907 granted warrant to cite and sequestrated, the petition and deliverance thereon were duly served on 5th June 1907, and the moveables were of that date inventoried by the sheriff officer. The present liquidator had not extracted his appointment at that date, and the petition was not served upon him, but it was served upon William Home Cook, Chartered Accountant, Edinburgh, the former liquidator. The compearers are the superiors of the area of ground referred to, and as the liquidator declines to pay the half-year's feu-duty of £107, 10s., due at Whitsunday last, and to give security for the current year's feu-duty of £215, it is necessary, in order to give effect to the superiors' hypothec upon the moveables on the ground, to proceed with the said sequestration. At the time when said action was raised the compearers did not know whether the limited company claimed any interest in the goods attached, but in a letter by the liquidator's agents to the compearers' agents on 12th June 1907 the present liquidator expressly claimed that the whole goods attached are the property of the company.”

Answers were lodged for the company and liquidator.

On 25th July 1907 the Lord Ordinary on the Bills ( Mackenzie) pronounced an interlocutor refusing the prayer of the note.

The trustees of the late James Anderson reclaimed, and argued—The Lord Ordinary's interlocutor should be recalled, and leave to proceed with the action granted. Admittedly if it fell under section 163, leave could not be granted under section 87 (although upon this point the Courts in England had taken a different view)— Allan v. Cowan, November 15, 1892, 20 R. 36, 30 S.L.R. 114; Radford & Bright, Limited v. D. M. Stevenson & Company, February 20, 1904, 6 F. 429, 41 S.L.R. 330. The question therefore was, did it fall under section 163? It did not. The superior, quâ superior, had, prior to and independently of the liquidation, a preferential right of security by virtue of his infeftment—Bell's Com. vol. ii, p. 26, 27; Yuille and Others v. Lawrie & Douglas, January 24, 1823, 2 S. 155 (N.S. 140). The case of Athole Hydropathic Co., Limited, in Liquidation v. Scottish Provincial Assurance Company, March 19, 1886, 13 R. 818, 23 S.L.R. 570, decided that section 163 only applied to cases where the creditor attempted to acquire a preference not already his, and did not strike at the case of a creditor only seeking, as here, to make effectual a preference he already had. In Athole, moreover, the creditor was a heritable creditor pursuing an action of poinding who was in a less favourable position than a superior pursuing an action of sequestration for feu-duty. Athole had been followed in Holmes Oil Company in Liquidation, 8 S.L.T. 360, and the ratio of Athole had been approved and explained in Allan v. Cowan, cit. sup. There was no inconsistency between the cases of Athole and Allan v. Cowan. In the latter, the rate collector who was asking leave to proceed had no absolute antecedent preference such as a superior has for his feu-duty; he had merely a statutory preference which might come into competition with similar statutory preferences, and these preferences were therefore appropriate to be worked out as a matter of ranking in the liquidation. Further, however, and in any event, the word “sequestration” in section 163 was not applicable to a superior's action of sequestration for feu-duty—Bell's Dictionary, p. 976; Bankruptcy (Scotland) Act 1856, sections 3, 7, 107. The fact that in the Bankruptcy Acts certain rights and remedies of superiors and heritable creditors were expressly reserved, whereas there was no such reservation in the Companies Acts, was explained by the fact that, there being automatic vesting in the trustee in bankruptcy, such express reservation was necessary in order to save

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those rights. There being no automatic vesting in the liquidation, no such reservation was necessary. The fact that the action had been commenced without the leave of the Court was no bar to leave being now granted— D. M. Stevenson & Company v. Radford & Bright, Limited, and Liquidator, June 4, 1902, 10 S.L.T. 82.

Argued for the respondent—The Lord Ordinary was right, and leave should be refused. The action for sequestration fell under section 163. The word “sequestration” was expressly employed in the section, and even if it could be shown that sequestration for feu-duty was not “sequestration” in the precise sense of the word as employed in the section, its language was otherwise so comprehensive as to include every kind of diligence— In re Wanzer, 1891, 1 Ch. 305. The only difficulty in the way was the case of Athole, cit. supra. But that case, even if rightly decided, was not really an adverse authority. It dealt with something different, viz., a poinding of the ground, and was not applicable to the superior's hypothec, which was not really a pre-existing and independent right of security depending wholly upon his infeftment, but a right which had to be made real by the diligence of sequestration—see Erskine, ii, 6, 56, and 62. The present action of sequestration was therefore really an attempt to obtain a new security, and was not struck at by Athole, but fell under Allan v. Cowan, cit. sup. If, however, the cases of Athole and Allan were inconsistent, the latter was to be preferred. For no good reason could be suggested for putting a heritable creditor or a superior in a more favourable position than a creditor to whose debt a preference had been given by Act of Parliament. It was further significant that whereas the Bankruptcy Act of 1856 saved the remedies of superiors and heritable creditors, the Companies Acts contained no such provisions. In any event leave to proceed should be refused, the action having been commenced in breach of section 87. The case of Stevenson, cit. sup., relied upon by the appellant in this connection, was quite different, as it did not deal with the question of diligence, which was strictissimi juris.