Scottish Court of Session Decisions

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Cite as: [1923] SLR 361, [1923] ScotLR 361

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SCOTTISH_SLR_Court_of_Session

Page: 361↓

Court of Session Inner House First Division.

Saturday, March 10. 1923.

60 SLR 361

Tayside Floorcloth Company, Limited Petitioners.

Subject_1Company
Subject_2Memorandum of Association
Subject_3Alteration
Subject_4Incorporation and Registration in Foreign Country — Power to Sell, or Let on Rent, or Lease the Whole or Part of the Undertaking — Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69), sec. 9 (1).
Facts:

A limited company presented a petition for confirmation of a special resolution whereby it was proposed to alter its memorandum of association by taking power ( a) to procure the company
Page: 362↓
to be “incorporated, registered, or recognised” abroad, ( b) to sell or let or lease “the undertaking of the company or any branch or part thereof.” The Court confirmed the resolution, subject to the deletion of the word “incorporated” from the proposed new clause, and subject to the proposed clause conferring power to sell being amended so as to read “to sell, let, or lease any branch or part of the undertaking of the company.”

Headnote:

The Companies (Consolidation) Act 1908 enacts—Section 9 (1)—“Subject to the provisions of this section a company may by special resolution alter the provisions of its memorandum of association with respect to the objects of the company, so far as may be required to enable it ( a) to carry on its business more economically or more efficiently; or ( b) to attain its main purpose by new or improved means; or ( c) to enlarge or change the local area of its operations; or ( d) to carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company; or ( e) to restrict or abandon any of the objects specified in the memorandum.”

The Tayside Floorcloth Company, Limited, incorporated under the Companies Acts 1862 to 1900, petitioners, brought a petition in the Court of Session for confirmation of certain alterations in its memorandum of association.

The petition, inter alia, set forth—“At an extraordinary general meeting of the company, duly convened, and held on 19th October 1922, the following resolution was duly passed in the manner required for the passing of an extraordinary resolution, and at a subsequent extraordinary meeting, also duly convened, held on 9th November 1922, the same was duly confirmed as a special resolution of the company:—‘That the provisions of the memorandum of association of the company with respect to its objects be altered by cancelling the existing clause III thereof and by substituting therefor the following new clause, viz.—III. The objects for which the company is established are—… ( p) To procure the company to be incorporated, registered, or recognised in any foreign country, or in Australia, Canada, India, or any Colony or Dependency of the United Kingdom. … ( r) To sell, or let on rent, or lease the undertaking of the company, or any branch or part thereof, or any of the property, heritable and moveable, of the company, or any right or interest therein, and that for such consideration as the company may think fit, and in particular in consideration to accept shares, stocks, debentures, or securities of any other company in Great Britain or elsewhere having objects altogether or in part similar to those of this company.’”

On 14th December 1922 the Court remitted to Sir George M. Paul, C.S., to report on the petition.

Sir George M. Paul, after narrating the effect of a number of the proposed new clauses, including Clause ( p), reported—“These new clauses may all be found in the memorandum of association of a modern manufacturing concern. … As regards sub-clause ( r), to sell, let, or lease the undertaking of the company or any branch or part thereof, the reporter respectfully refers your Lordships to the unreported case of the Biggar Auction Mart Company, where your Lordships after hearing counsel refused confirmation of a power to sell the main undertaking of the company on the ground that the power of alteration conferred by section 9 of the Companies Act 1908 excludes the allowance of a power to dispose of the undertaking. Your Lordships are also respectfully referred to petition John Walker & Sons, Limited, S.C. 1914, 280, and petition Macfarlane, Strang, & Company, Limited, S.C. 1915, 196. The Act assumes that a company is not to lose its identity, and that an alteration of its objects must be for its advantage as a going and continuing concern. If your Lordships should see fit to refuse power to sell the undertaking, the clause might be expressed thus, ‘to sell, let, or lease any branch or part of the undertaking of the company.’”

The petition came before the First Division on March 10, 1923, when counsel was heard on the petition and report.

Judgment:

Lord Priesident—There are only two of the new powers we are asked to sanction with which it is necessary to deal. The first is in paragraph ( p)—“To procure the company to be incorporated, registered, or recognised in any foreign country, or in Australia, Canada, India, or any Colony or Dependency of the United Kingdom.” The difficulty arises on the word “incorporated.” There is, of course, nothing which gives rise to criticism in the company desiring to be “registered,” or “recognised” in a foreign country or colony, so as to push its business or promote its interests there; but a proposal to authorise the company to be “incorporated” elsewhere than in its own domicile may involve risk of change of status and may expose it, however unintentionally, to alterations in its constitution which might be inconsistent with its establishment as a British limited liability company. The expediency of allowing a power of this kind has come before the Court on more than one occasion, and there appears to be no reported case in which such a power has been approved. I am clear that it is not a power which the Court ought to grant, and therefore the word “incorporated” must come out of the paragraph.

The other matter arises on paragraph ( r), where a power is asked “To sell, or let on rent, or lease the undertaking of the company, or any branch or part thereof.” That again is a power which, as the authorities show, the Court does not consider itself entitled to grant. If it were given to a company the effect would be to authorise the company to commit suicide so far as its own undertaking was concerned—in other words, to do something which is inconsistent with the purpose of its incorporation. There is no harm, of course, in the company

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having power to sell such of its assets as it does not need, or in the company having power to sell part of its concern so long as its main undertaking remains unimpaired, and if the proposed power is restricted to these objects I think it may be sanctioned.

Lord Skerrington—I concur.

Lord Cullen—I also concur.

Lord Sands—With regard to the word “incorporated” contained in paragraph ( p), the objection is to the use of the word in the technical sense which our law attributes to it, and it is in that view that it falls to be deleted. It may be that the word may in some other country mean no more than “registered” or “recognised.” The powers conferred by these latter words are in no way affected by the deletion of the word “incorporated.”

The Court confirmed the alteration of the memorandum of association subject to the deletion of “incorporated” from clause ( p) and the amendment of clause ( r) as suggested by the reporter.

Counsel:

Counsel for thePetitioners— Lord Kinross. Agents— Shepherd & Wedderburn, W.S.
1923