Scottish Court of Session Decisions

On 11th October 1910 John T. Clark & Company, Limited, incorporated under the Companies Acts 1862 to 1900, and having their registered office at 22 Bridge Street, Aberdeen, presented a petition to the Court for confirmation of reduction of capital resolved on by special resolution, and for dispensing with the words “and reduced” as an addition to the name of the company. The petition was presented under the Companies Acts 1862 to 1908, and more particularly under secs. 46 to 56, both inclusive, of the Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69). On 26th October 1910 the Court remitted to Mr Charles Young, W.S., to inquire and report as to the regularity of the proceedings, and whether the proposed powers should be granted. The proceedings are narrated in Mr Young's report, which stated—“The proposal is to reduce the capital of the company from £20,000 to £18,500 by cancelling 1500 shares. The shareholder who offers to surrender these 1500 shares was the vendor to the company, and he received as the price of the goodwill of his business 2000 ordinary shares, which were deemed to be fully paid up. The directors have entered into an agreement with him to cancel 1500 of these shares, so that the goodwill will in future appear at £500. While no reason for this depreciation is given in the petition, it was presumably on account of being to that extent not represented by available assets, and the petitioners' agents confirm this. The articles of association of the company only authorise the company to reduce capital by paying off capital, or cancelling capital which has been lost or is unrepresented by available assets.

The resolution passing and confirming the proposed reduction of capital was passed at properly called meetings. At the first meeting at which the resolution was said to be passed, there were present nine shareholders, two of whom produced proxies, and one voted on a power of attorney, so that in terms of the statute there were twelve members present entitled to vote—on the assumption that a power of attorney is a proxy within the meaning of the Companies Act and the company's articles of association. This latter is, however, a point which your Lordships might consider. The reporter draws your Lordships' attention to the number of members present, as it does not appear to him that the proper statutory majority to pass the special resolution was got. As stated in the petition, the vote was eight to two, which was brought about by two members not voting, but it must be borne in mind that they were present and entitled to vote, therefore it would appear that it would require a majority of nine to pass the resolution. Even if a power of attorney is not a proxy which would entitle one shareholder to vote for another, the majority of eight to two is still less than the necessary three-fourths, as there would then have been eleven present.

The minute of meeting bears that the chairman declared the resolution carried, and that one of the objecting shareholders had thereafter expressed himself satisfied with the ruling, The petitioners' agents call attention to the provisions of section 69, sub-section 3, of the Companies Act 1908, which states that a declaration on the part of a chairman that a resolution is carried is conclusive evidence of the fact without proof of the number or proportion of the votes recorded in favour of or against the resolution. The reporter cannot think, however, that this section can possibly override the first subsection of section 69, which requires that an extraordinary resolution must be passed by a majority of not less than three-fourths of such members entitled to vote as are present in person or by proxy (where proxies are allowed). A special resolution must be passed in the same way (section 2).

The reporter would further point out that the company has not used the words ‘and reduced’ as part of its name. This omission has been very frequent in similar petitions, and while the practice of not using the words has crept into use, the Act

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of 1908 makes it obligatory in a case like the present from the date of presenting the petition until such time as the Court grants an interlocutor dispensing with it. The Lord Ordinary officiating on the Bills in this case, when ordering intimation and service, dispensed meantime with the use of these words, but the statute directs that they should have appeared before that.

If your Lordships are of opinion that the special resolution has been properly passed, and that it was unnecessary for the company to have used the words ‘and reduced,’ the reason for the proposed reduction of capital is one of which your Lordships may approve, and you may be pleased to pronounce an interlocutor granting the prayer of the petition.”

Argued for the petitioners—(1) The three-fourths majority prescribed by sub-section 1 of section 69 of the Companies Consolidation Act 1908 (8 Edw. VII, c. 69) was after all merely a question of form. There was no opposition to this petition. All the shareholders were of opinion that the reduction was desirable. The majority was more than a three-fourths majority of those who voted. Moreover a poll was not demanded, and accordingly the declaration of the chairman was conclusive—section 69 (3). There was no conclusive evidence under the hand of the company as to what proportion of those entitled to vote actually did vote. This case was accordingly distinguishable from Cowan v. Scottish Publishing Co., February 4, 1892, 19 R. 437, 29 S.L.R. 375, where it was held that as the minute showed that the resolution had not been passed by the requisite statutory majority the resolution could not receive effect. In re Indian Zoedone Co., 26 Ch. D. 70, was referred to. (2) The words “and reduced” was as a matter of practice usually omitted in petitions of this kind. The petitioners had merely followed the bad usage that had been established. The Court could by section 48 dispense with the words altogether. This was eminently a case where the Court should exercise its power and retrospectively dispense with them.