Scottish Court of Session Decisions

The Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69) enacts—Section 13—“(1) Subject to the provisions of this Act and to the conditions contained in its memorandum a company may by special resolution alter or add to its articles. …”

Section 46—“(1) Subject to confirmation by the Court, a company limited by shares, if so authorised by its articles, may by special resolution reduce its share capital in any way. …”

Section 69—“(1) A resolution shall be an extraordinary resolution when it has been passed by a majority of not less than three-fourths of such members entitled to vote as are present. … at a general meeting of which notice specifying the intention to propose the resolution as an extraordinary resolution has been duly given. (2) A resolution shall be a special resolution when it has been ( a) passed in manner required for the passing of an extraordinary resolution; and ( b) confirmed by a majority of such members entitled to vote who are present. … at a subsequent general meeting of which notice has been duly given, and held after an interval of not less than fourteen days nor more than one month from the date of the first meeting.”

The Oregon Mortgage Company, Limited and Reduced, presented a petition for confirmation of reduction of capital.

Under the original articles of association the company had no power to reduce its capital. At an extraordinary general meeting, duly convened and held on 19th November 1908, certain resolutions were duly passed, and at a subsequent extraordinary general meeting, duly convened and held on 10th December 1908, the same were duly confirmed as special resolutions. The first of these resolutions was as follows, viz.:—

“1. That as and from the date of the confirmation of this resolution the articles of association contained in the printed document submitted to the meeting, and for the purpose of identification subscribed by the chairman of the company, be and the same are hereby approved and adopted as the regulations of the company to the exclusion of and in substitution for the existing articles of association thereof.” The third resolution provided for the reduction of the company's capital by the cancellation of a certain sum per share.

The articles of association to be substituted for the existing ones under the first resolution contained the following provision:— “9. The company may from time to time reduce its capital in any manner permitted by law, and capital may be paid off on the footing that it may be called up again, or otherwise.”

On 15th June 1910 the Court remitted to Mr C. E. Loudon, W.S., to report. In his report Mr Loudon pointed out, that though the company had power to reduce its capital by the new articles of association, it was questionable if it possessed that power at the date of the reduction.

The petitioners moved in the Single Bills that the prayer of the petition be granted, and argued — If the alteration of the articles was effected only when the resolution altering them was confirmed, similarly the capital was reduced only when the resolution reducing it was confirmed, and there was therefore at that time power to reduce under the new articles. If, on the other hand, the reduction was effected at the first meeting, subject to confirmation, the same must be true of the power to reduce, and again there was power to reduce when the resolution reducing was passed.