Scottish Court of Session Decisions

James Baird, 68 Madeira Street, Leith, and William Burn, 49 Dudley Crescent, Leith, presented a petition praying for an order that Alhambra (Leith) Limited be wound up by the Court under the provisions of the Companies (Consolidation) Act 1908.

The petitioners averred—“That on 11th August 1919 Alhambra (Leith) Limited (hereinafter referred to as ‘the company’) was incorporated as a private company under the Companies Acts 1908 to 1917. The Company's principal business is that of proprietors, managers, and lessees of music halls and picture houses; and its registered office is at 200 Leith Walk, Leith. The share capital of the company is £75,000 divided into 30,000 preference shares of £1 each, 30,000 ordinary shares of £1 each, and 60,000 deferred shares of 5s. each, whereof there have been allotted and issued as fully paid up 12,250 preference shares, 21,750 ordinary shares, and 40,000 deferred shares. The petitioner James Baird holds 1500 preference shares and 3000 ordinary shares, and the petitioner William Burn holds 3000 ordinary shares. The principal shareholder is John Arthur Greig, presently residing at 6 South Learmonth Gardens, Edinburgh, who holds 7250 preference shares, 7750 ordinary shares, and 40,000 deferred shares. 2. By article 18 of the articles of association of the company Henry Lees, 13 Mayville Gardens, Leith, and David Smith Greig, 42 London Street, Edinburgh, were appointed permanent directors of the company, being entitled to hold office as long as they live unless disqualified from any of the causes specified in article 22 of said articles of association.… A return of directors filed with the Registrar of Joint Stock Companies on 20th February 1923 shows that the directors at that date were the said David Smith Greig and the said John Arthur Greig. It is believed and averred that the said John Arthur Greig was never validly appointed a director, and in any case his appointment has never been ratified by the shareholders. 3. From the inception of the company its affairs have not been conducted in a proper and businesslike manner nor in accordance with the provisions of the Companies Acts and the company's articles of association. The petitioners believe and aver that the interests of the shareholders have been and are still being seriously prejudiced, and that they have suffered considerable pecuniary loss and are in danger of suffering still greater loss owing to the failure of the directors to conduct the business of the company in accordance with proper methods and with the provisions of the said Acts and articles of association. In support of the above general statement the following averments are made:—( a) There has never been a meeting of the shareholders of the company. ( b) No proper books are kept by the company, ( c) So far as petitioners know no balance sheet has ever been made out, and in any event no balance sheet has ever been sent to any of the shareholders. ( d) No auditors have been appointed, and it is believed and averred that no audit of the company's accounts has ever taken place ( e) The titles to the following heritable properties belonging to the company are, among others, held in the name of the said John Arthur Greig, viz.:—Alhambra Theatre, Leith Walk, Leith; Leith Picture House, Laurie Street, Leith; The Paviliou Picture House, Stockbridge, Edinburgh; The Oxford Picture House, Lochee, Dundee; and The Queen Hotel,

Page: 72↓

Leith. The Tron Picture House, High Street, Edinburgh, is held on lease by the company, and the lease is in the name of the said John Arthur Greig. ( f) No bank account is kept in the company's name, and it is believed and averred that all moneys belonging to the company are banked in the name of the said John Arthur Greig without any declaration or qualification as to the ownership of said money. 4. The said John Arthur Greig conducts the business of the company as though it were a private business of his own, The said David Smith Greig, a director of the company, takes little or no interest in its affairs. The shareholders are never consulted with regard to the conduct of the business or the policy to be pursued by the company, nor have they ever been asked to ratify or confirm any important step taken by the company. No dividends have been paid on the ordinary shares of the company and no dividend has been paid on the preference shares since December 1921, although it is. believed and averred that the company is in a position to pay dividends. 5. By section 129 of the Companies (Consolidation) Act 1908 it is provided, inter alia, that—‘A company may be wound up by the Court:—… (ii) If default is made … in holding the statutory meeting … (vi) If the Court is of opinion that it is just and equitable that the company should be wound up.’ In the circumstances above set forth the petitioners humbly submit that the said Alhambra (Leith) Limited should now be wound up by the Court in terms of the said Act and an official liquidator appointed for that purpose. The petitioners respectfully suggest that James Butler Bolton, chartered accountant, Edinburgh, is a suitable person for appointment to that office.”

Answers were lodged by two of the shareholders, namely, Henry Lees, Duntroon, West Linton, and John Arthur Greig, 6 South Learmonth Gardens, Edinburgh, in which they stated—“1. It is admitted that the company, Alhambra (Leith) Limited, was incorporated as a private company on 11th August 1919 under the Companies Acts 1908 to 1917. It is admitted that the principal business of the company is that of proprietors, managers, and lessees of music halls and picture houses, and that its registered office is at 200 Leith Walk, Leith. It is admitted that the share capital of the company is as stated, that the respondent John Arthur Greig is the principal shareholder, and that he holds the number of shares stated. It is admitted that the petitioners are registered as holders of the shares specified in the petition. The respondent Henry Lees is also a shareholder in the company. It is explained that the petitioners are not the true owners of the shares of which they are the registered holders, and that actions at the instance of the respondents have been raised in the Court of Session to have this fact judicially declared. Prior to 25th December 1915 Leith Picture House and the Alhambra Theatre were owned by the petitioners, the respondent John Arthur Greig, and James Kinghorn Miles, S.S.C., Leith. As from the said 25th December 1915 the said picture house and theatre were sold to the respondents at the price of £20,000. The terms and conditions of the said sale are set forth in an agreement between the buyers and sellers dated 12th February and 27th March 1916. By the said agreement the petitioners agreed to allow their shares of the purchase price to remain on loan to the respondents on the terms narrated in the said agreement. The said agreement also provided that the petitioners ceased to have any voice in the management or disposal of the business, property, and assets of the said picture house and theatre, and that their rights were limited to participation in the profits so long as their capital remained in the business. The respondents having added other places of entertainment to the said business so transferred resolved to form the company to take over the whole properties then held by them. By arrangement with the respondents the directors of the company took over the said properties and businesses at the price of £60,000. The respondents arranged that £16,000 of the price should remain on loan to the company, and they provided £1200 additional as working capital. The respondents agreed to take up the following shares in the company:—

12,250 preference of £1 each.	£12,250
21,750 ordinary of £1 each.	21,750
40,000 deferred of 5s. each.	10,000
	£44,000

This was and is the whole issued share capital of the company. The proceeds of these shares were applied towards payment of the price, and the respondents became creditors of the company for the balance of £16,000 and the said additional working capital less certain bonds over part of the properties to the amount of £5250. The respondents were at this time indebted to the petitioners and to other persons for various sums in terms of the said agreement and otherwise in connection with their picture-house business. At the request of the respondents there were allotted to these persons certain proportions of the shares which the respondents had agreed to take up— inter alia, to the petitioners the shares of which they are at present the registered holders. The petitioners did not themselves apply for shares or come under any obligation to take shares. Their only right to hold them is as nominees of the respondents, and in security of the sums due to them by the respondents.… The present respondents alone have a substantial interest in the company. Of the total issued capital of £44,000 they hold in their own names £28,000, including the whole of the deferred shares issued. The whole remaining shares are held by nominees on their behalf, or in security only for the implement of personal obligations jointly or severally undertaken by the respondents. In particular the respondents are the true owners of the shares standing in names of the petitioners. The petitioners have accordingly no right or title to present the petition.… 2. It is admitted that by the

Page: 73↓

articles of association, article 18, the respondent Henry Lees and David Smith Greig were appointed directors of the company on the terms stated in the petition. It is admitted that the directors at the time of the said return were the said David Smith Greig and the respondent John Arthur Greig. The memorandum and articles are referred to. Quoad ultra the averments in statement 2 of the petition are denied. The respondent John Arthur Greig was appointed an additional director on 18th November 1921 in terms of Article 85 of Table A of the Companies (Consolidation) Act 1908, which is incorporated in the articles of the company. In April 1922 he was appointed managing director in terms of Article 72 of Table A. This was done largely at the desire of the respondents. 3. The whole averments in statement 3 of the petition are denied subject to the following explanations:—( a) It is admitted that there has not been a general meeting of the shareholders other than the respondents and the directors. No shareholder has been prejudiced thereby. The petitioners have been informed of all that has been done since the respondent John Arthur Greig was appointed managing director, and have been in close touch with all details of the business of the company. In any event the petitioners, under article 13 of the company's articles of association, had the power of owners of shares at their own hand to call such a meeting, but they have never suggested doing so. The petitioners have not exhausted the remedy given them by the company's articles, and are barred from presenting this petition. The petitioners ave never addressed any communication to the company or to the directors, but have all along corresponded with the respondent John Arthur Greig as an individual in regard to the company's affairs. ( c) It is admitted that no balance sheet has been sent to the nominal holders of shares. ( d) The books of the company are audited by Messrs A. W. Angus & Company, chartered accountants, Edinburgh. ( e) The titles of the Alhambra Theatre and of the Pavilion Picture House are in name of the respondent John Arthur Greig. The titles of the Leith Picture House, the Oxford Picture House, Lochee, and the Queen Hotel are in the names of both the present respondents. The lease of the Tron Picture House is in name of the respondent Henry Lees. ( f) In December 1922 the company's bank account was overdrawn to the extent of £340. The respondent John Arthur Greig paid off the said overdraft. The account was then closed, and the moneys since received by him from the company have been insufficient to meet this and other necessary disbursements made by him on its behalf. For the reasons already stated, the petitioners have no right or interest to take exception to any act or omission on the part of the directors. 4. The averments in statement 4 of the petition are denied. The respondent John Arthur Greig has done nothing out with his powers as managing director of the company. The practical working of the business has, however, been deputed to salaried employees, as was necessary. These employees included the petitioners, and the least successful parts of the company's business have been those in charge of the petitioners.… 5. The Act is referred to. 6. It is not just and equitable, or in the interests of the shareholders, that the company should be wound up at present.… Looking to (a) the extent of their holding in the company, ( b) the obligation which they have undertaken to pay all shareholders in full, and ( c) the fact that any loss or expense will fall to be borne by the respondents alone, it is just and equitable that their views on the question of winding-up ought to prevail. 7. In any event the respondents would object to the appointment as liquidator of Mr James Butler Bolton. Mr Bolton has been consulted by the petitioners, and has been advising them on the information they have supplied to him for some time back. 8. The respondents humbly submit that the petition should be dismissed on the following grounds:—1. That the petitioners have no title to present it, they not being the true owners of the shares of which they are the registered holders. 2. That the petitioners have no interest to present it, as full payment of their interest in the shares in respect of which they are registered, on whatever footing they may hold them, is assured. 3. That in view of the arrangement narrated, and the terms of the minute of the directors' meeting held on 7th September 1923, the petition is unnecessary. 4. That no sufficient reason has been adduced for interfering with the exercise by the directors and shareholders of their discretionary powers in regard to the time and method of realising and winding—up. 5. That the petitioners are not acting in bona fide, but have presented the petition from improper motives. 6. That the petitioners have, by their actings as averred herein in answer to statement 3 ( a) of the petition, barred themselves from taking the present proceedings against the company. 7. That the material averments of the petitioners are unfounded in fact. 8. That no prejudice has been suffered by the petitioners or shareholders through any alleged irregularities in the conduct of the company's business. 9. That a winding-up order at the present juncture would be prejudicial to the interests of the company and of the shareholders. 10. That it is not just and equitable that the company should be wound up. In any event the respondents submit that proceedings in the petition should be sisted until the decision of the actions relating to the ownership of the shares of which the petitioners are the registered holders.”

Argued for petitioners—The prayer of the petition should be granted in respect that (1) the statutory meeting of the company had never been held, and (2) that the admitted irregularities in the conduct of the company's affairs constituted a “just and equitable” cause for winding-up, as these words had been construed in recent decisions— Galloway Saloon Steam Packet Company v. Wallace, 19 R. 330, 29 S.L.R. 264; Symington v. Symingtons' Quarries, Limited,

Page: 74↓

8 F. 121, 43 S.L.R. 157; Ellice v. Invergarry and Fort—Augustus Railway Company, 1913 S.C. 849, 50 S.L.R. 550; In re Genidje Tobacco Company, Limited, [1916] 2 Ch. 426.

Argued for respondents—The complainers had not exhausted the remedies available under the articles of association by calling a meeting of the company. The irregularities complained of were not sufficient to justify a compulsory winding-up in view of the fact that respondents were willing to wind up voluntarily after three months. Counsel referred to the following authorities:—Palmer's Company Law (11th ed.), pp. 163 and 412; In re Middlesborough Assembly Rooms Company, (1879) 14 Ch. Div. 104, per Cotton, L.J., at 110; Gardner& Company v. Link, 21 R. 967, 31 S.L.R. 804; Cox v. “Gos ford” Ship Company, Limited, 21 R. 334, 31 S.L.R. 257; Symington v Symingtons Quarries, Limited ( cit.); Scobie v. Atlas Steel-Works, Limited, 8 F. 1052, 43 S.L.R. 739; In re Anglo-Greek Steam Company, 1866, L.R., 2 Eq. 1; In re Rica Gold Washing Company, (1879) 11 Ch. Div. 36; In re Suburban Hotel Company, 1867, L.R., 2 Ch. App. 737.