Scottish Court of Session Decisions

The Companies Act 1862 (25 and 26 Vict. cap. 89), section 138, enacts:—“Where a company is being wound-up voluntarily the liquidators or any contributory of the company may apply to the Court in England, Ireland, or Scotland, or to the Lord Ordinary on the Bills in Scotland in time of vacation, to determine any question arising in the matter of such winding-up, or to exercise, as respects the enforcing of calls, or in respect of any other matter, all or any of the powers which the Court might exercise if the company were being woundup by the Court; and the Court, or Lord Ordinary in the case aforesaid, if satisfied that the determination of such question, or the required exercise of power … will be just and beneficial, may accede, wholly or partially, to such application on such terms and subject to such conditions as the Court thinks fit, or it may make such other order, interlocutor, or decree on such application as the Court thinks just.”

The Companies Act 1900 (63 and 64 Vict. cap. 48), section 25, enacts—“In a voluntary winding-up an application under section 138 of the Companies Act 1862 may be made by any creditor of the company.”

The Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69), which came into operation 1st April 1909, by section 193 enacts—“(1) Where a company is being wound-up voluntarily the liquidator or any contributory or creditor may apply to the Court to determine any question arising in the winding-up, or to exercise, as respects the enforcing of calls or any other matter, all or any of the powers which the Court might exercise if the company were being wound up by the Court. (2) The Court, if satisfied that the determination of the question or the required exercise of power will be just and beneficial, may accede wholly or partially to the application on such terms and conditions as the Court thinks fit, or may make such other order on the application as the Court thinks just.”

On 20th March 1909 A. T. Crawford, as a contributory and creditor of Mitchell, Walker, & Crawford, Limited, in voluntary liquidation, presented a petition under the Companies Act 1862, section 138, and the Companies Act 1900, section 25, in which he asked the Court to determine authoritatively the following questions:—(1st) Whether a claim by Henry Walker for £2833, 6s. 8d. was a good claim against the company in liquidation to any, and if so, to what extent? And (2nd) Whether a claim by the petitioner for £1291, 13s. 4d. was a good claim against the company in liquidation, and if so to what extent?

The petitioner made averments to the following effect:—By the articles of association of the company it was provided that the petitioner Mr Walker and Mr William Mitchell should be managing directors of the company for a period of ten years from its formation (15th September 1900) with entire control of its business, and under the proviso that none of them should without the consent of the other two be concerned or interested directly or indirectly in other business. It was provided that for their services they should be paid salaries—Mr Mitchell at the rate of £600 per annum and Mr Crawford and Mr Walker at the rate of £500 per annum, and that they should be entitled to directors' fees. Under this arrangement the three directors continued to manage the affairs of the company till July 1902, when Mr Walker, by resolution of his co-directors, was retired in consequence of his not devoting his whole time to the business. Since that time Mr

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Walker had not acted as managing director. On 8th February 1900 a resolution was passed by the shareholders that the company should be wound up voluntarily, and Mr Richard M'Culloch, accountant, Glasgow, was appointed liquidator. The liquidator subsequently intimated to the petitioner that his services as managing director would no longer be required, and the petitioner thereupon lodged with the liquidator a claim against the company for breach of agreement with him, amounting to £1291, 13s. 4d. estimated upon the basis of his salary for the unexpired period of his service to 31st October 1910. On 29th August 1908 the liquidator forwarded to the petitioner a copy of a deliverance issued by him on the claim in the following terms “Deliverance by liquidator on the claim of £1291, 13s. 4d. lodged by A. Thomson Crawford. The liquidator rejects this claim as stated. Note.—If the company has been guilty of breach of contract, and if Mr Crawford has all along been the observing party, then at the best his claim can only be one of damages. Inasmuch, however, as the liquidator's claims against Mr Crawford far exceed any such possible claim of damages, it might be well to defer consideration of such claim until after Mr Crawford had settled with the liquidator his indebtedness to the company.” At the same time the liquidator intimated to the petitioner a claim in respect of calls on shares amounting to £712, 10s. The petitioner thereupon claimed to set off this amount against his claim for damages, and the liquidator then raised an action in the Sheriff Court at Hamilton for the amount of the calls, in which he obtained decree. The petitioner appealed to the Sheriff, and then presented this petition to the Court of Session on the averment that for the proper disposal of the claim against him it was necessary that certain other questions in the liquidation should be determined. These questions concerned a claim made by Mr Walker, petitioner's co-director, for salary from July 1902 to the date of liquidation at the rate of £500 per annum—£2833, 6s. 8d. The only outstanding claims of creditors against the company were his own and Mr Walker's claims. The liquidator had refused or delayed to deal with Mr Walker's claim, and further, had taken no steps to enact payment of calls on shares due by Mr Mitchell, petitioner's remaining co-director. In consequence of the liquidator's actings he, the petitioner, had suffered prejudice, as if Mr Walker's claim was unfounded there would be a surplus for division among the shareholders without taking into account the calls alleged to be due by himself and Mr Mitchell.

The liquidator lodged answers, in which he admitted that Mr Walker was dismissed from the office of managing director on 2nd July 1902, but stated that on 30th January 1905 he was re-elected a member of the board, and continued to act as such till the liquidation. He averred further that he hoped to compromise Mr Walker's claim. He maintained, inter alia, that the present petition was incompetent in respect that no deliverances had been pronounced by the liquidator upon the two claims upon which the Court was asked to adjudicate.

Argued for the petitioner—The present application was competent. The petitioner was both a contributory and a creditor, and applied to have questions as to the claim by himself and the competing claim by another creditor and contributory determined by the Court. The Court would grant this application subject only to the condition that it was “just and beneficial.” Had the question arisen under a supervision order this procedure would have been competent. The statute had failed to provide the machinery in the case of a voluntary liquidation, but the right remained— Union Bank of Kingston-upon-Hull, 13 Ch. Div. 803; Central de Kaap Gold Mines, 69 L.J. Ch. Div. 18; The Licensed Victuallers' General Plate Glass Insurance Company, Limited, 17 L.T. 8; Buckley on the Companies Acts, 9th ed., p. 438.

Argued for the respondent—The petition was incompetent. The petitioner's claim was unconstituted, and was properly a jury question. The present procedure was not an advantageous method of dealing with claims of damages. The cases quoted referred to a sharp question of law or mixed law and fact, and were not relevant.