Scottish Court of Session Decisions

I have before me a Note by the joint liquidators of Automatic Oil Tools Ltd ("the Company"), which seeks to raise for my decision a question whether the contributories or personal representatives of deceased contributories whose names appear on the list of contributories of the Company, as settled by the court, have together the right to the whole of the assets of the Company in the hands of the noters as its liquidators after deduction of the expenses of the conclusion of its winding-up, or whether part of those assets falls to be transmitted to the Accountant of Court.

The Company was incorporated under the Companies Acts as a company limited by shares. Its original name was White City (Glasgow) Limited. Its name was changed to Automatic Oil Tools Limited on 27 December 1972. The registered office of the Company is in Glasgow. The objects for which the Company was incorporated were inter alia to carry on the business of manufacturers and merchants of electronic, electric and mechanical machines, instruments, computers, equipment and systems of every description, all as more fully set out in clause 3 of its memorandum of association. The authorised share capital of the Company is £200,000 divided into 4,000,000 shares of 5p each, of which 2,475,000 have been issued and are fully paid. Pursuant to the powers contained in a bond and floating charge granted in their favour by the Company dated 6 April 1973 and registered on 17 September 1973 and by an instrument of appointment dated 28 October 1976 Midland Bank plc appointed William Gawen Mackey, London, to be receiver of the whole of the Company's property. Mr Mackey resigned from and ceased to act in that office on 17 September 1986. By instrument of appointment also dated 17 September 1986 Midland Bank plc appointed Nigel James Hamilton, C.A., London, to act as receiver. On 27 April 1990, on the application of Mr Hamilton, this court ordered that the Company be wound up by the court under the provisions of the Insolvency Act 1986 ("the 1986 Act") and nominated and appointed the present Noters to be joint liquidators of the Company. In the winding-up petition Mr Hamilton averred, under reference to sections 122(1)(f) and 123(2) of the 1986 Act, that the Company was unable to pay its debts, the value of its assets being less than the amount of its liabilities, taking into account its contingent and prospective liabilities.

The present Note has been lodged in circumstances which are somewhat unusual in two respects. In brief, the first of these is that the Noters have not been able to trace all the members of the Company, and the second is that there is a surplus in the hands of the Noters which is available for distribution to the contributories. This gives rise to the question whether the contributories on the list of contributories settled by the court are entitled to distribution of the whole surplus among them, or whether a proportion of the surplus attributable to untraced members must be transmitted to the Accountant of Court. The fact that there are untraced members has arisen from the loss, at some time since the commencement of the receivership, of the statutory books of the Company, and in particular the register of members. This cannot be said to be satisfactory, but the Noters have clearly been making considerable efforts to make good the loss. The Noters have not been assisted by a discrepancy in the Company's last annual return, in which the figure for the issued share capital is greater than the total number of the shares shown on the following pages. The Noters have however been able to identify and trace many of the members or personal representatives of members of the Company. By interlocutor dated 3 August 1998 this court, in terms of section 148(1) of the Insolvency Act 1986 ("the 1986 Act"), settled the list of contributories of the Company, pursuant to an application by the present Noters. By an earlier interlocutor dated 5 June 1998 the list had been settled ad interim to the extent of amending the draft list by the insertion of three entries. By interlocutor dated 21 April 1999 the interlocutor dated 3 August 1998, settling the list of contributories, was altered by the addition of six entries to the list. Further information has come to light since the lodging of the present Note which will make it appropriate to amend the interlocutor dated 3 August 1998 by the addition to the list of contributories of further members or their personal representatives. It is not necessary for the purposes of this opinion that I should set out the most recent information.

The present Note was served on the Accountant of Court and on a Mr Northedge, who had lodged answers to two previous Notes by the Noters relating to the list of contributories and has the same interest in the subject matter of this Note as the other contributories, but no answers to this Note have been lodged. Accordingly, only the Noters were represented at the hearing on the Note. I was greatly assisted at the hearing by counsel for the Noters whose written and oral submissions ensured that all relevant considerations were before me.

It appears that a situation such as the present, unusual as it is, has not been the subject of any reported decision of the Scottish Courts. My task is, therefore, to interpret the relevant statutory provisions as best I can, with the assistance of counsel's research into the history of the legislation and reference to such English cases as may provide some guidance. The relevant statutory provisions, in summary, are as follows. Section 74(1) of the 1986 Act provides that when a company is wound up, every present and past member is liable to contribute to its assets to any amount sufficient for payment of its debts and liabilities, and the expenses of the winding-up, and for the adjustment of the rights of the contributories among themselves. This is subject to the provisions of sub-section (2), which provides inter alia (d) that in the case of a company limited by shares, no contribution is required from any member exceeding the amount (if any) unpaid on the shares in respect of which he is liable as a present or past member. I need not set out the provisions which define which past members of the Company may be contributories. By section 79(1) the expression "contributory" in the 1986 Act is defined as meaning every person liable to contribute to the assets of a company in the event of its being wound up, and for the purposes of all proceedings for determining, and all proceedings prior to the final determination of, the persons who are to be deemed contributories, includes any person alleged to be a contributory. Section 148(1) provides that as soon as may be after making a winding-up order, the court shall settle a list of contributories, with power to rectify the register of members in all cases where rectification is required in pursuance of the Companies Act 1985 or the 1986 Act, and shall cause the Company's assets to be collected, and applied in discharge of its liabilities. Sub-section (2) provides that if it appears to the court that it will not be necessary to make calls on or adjust the rights of contributories, the court may dispense with the settlement of a list of contributories. Section 149 provides for the making of orders on contributories to pay money due to the Company, and section 150 provides for the making of calls on contributories to the extent of their liability. Section 154 provides that the court shall adjust the rights of the contributories among themselves and distribute any surplus among the persons entitled to it. Subject to provision in the memorandum and articles of association of the Company that the surplus be paid elsewhere, the persons entitled to it would prima facie be the contributories. In the ordinary case, where the register of members was extant and did not require rectification, the contributories would be the members appearing in the register of members or their personal representatives. Section 191 provides that where a company is being wound up, all books and papers of the company and of the liquidators are, as between the contributories of the company, prima facie evidence of the truth of all matters purporting to be recorded in them. Subject to this, settlement of the list of contributories would have to be based on the best evidence available.

This brings me to section 193 of the 1986 Act, which applies where a company registered in Scotland has been wound up, and is about to be dissolved, as is the case here. Sub-section (2) provides that the liquidator shall lodge in an appropriate bank or institution (for which a definition is provided) in the name of the Accountant of Court the whole unclaimed dividends and unapplied or undistributable balances, and the deposit receipts shall be transmitted to the Accountant of Court. Sub-section (3) provides that the provisions of section 58 of the Bankruptcy (Scotland) Act 1985 ("the 1985 Act") apply with any necessary modifications to sums lodged in a bank or institution under section 193 as they apply to sums deposited under section 57 of the Act.

The answer to the question raised in the Note depends on the correct interpretation of section 193 of the 1986 Act. Counsel submitted that this raises two issues. The first is the interpretation of the phrase "unclaimed dividends" and, in particular, whether it comprises only dividends payable to contributories who cannot now be traced but whose names have been identified either on a list of contributories settled by the court under section 148 or in an order of the court authorising payment to contributories under section 154 of the 1986 Act. Reference was made to In re Phoenix Oil and Transport Co Limited (No.2) [1958] Ch. 565. The second issue is the correct interpretation of the phrase "unapplied or undistributable balances", and in particular whether this means assets in the hands of the liquidator before the Company's dissolution, which it does not beneficially own, or whether, in any event, it does not means assets to which unidentified contributories would have been entitled had they been identified before the Company's dissolution.

Counsel had been unable to find any direct authority on the meaning of the expression "unclaimed dividends". He submitted, however, that it means only dividends, payment of which has been authorised to identified contributories. Section 57(1) of the 1985 Act refers to "any unclaimed dividends and any unapplied balances", without the words "or undistributable" after "unapplied". Section 58 of the 1985 Act provides that any person producing evidence of his right may apply to the Accountant of Court to receive a dividend deposited under inter alia section 57(1), if the application is made not later than seven years after the date of such deposit. The predecessor of section 193 of the 1986 Act was section 643 of the Companies Act 1985, which was in similar terms to section 193 but with an application of the provisions of section 153 of the Bankruptcy (Scotland) Act 1913. Section 643 was in substantially the same terms as those of its predecessors, section 344 of the Companies Act 1948 and section 112 of the Companies Act 1928, each of which contained a reference to section 153 of the Bankruptcy (Scotland) Act 1913. Sub-section (1) of this latter provision directed the trustee in sequestration to deposit the unclaimed dividends and any unapplied balances in a bank and for a list to be kept of all the creditors entitled to such unclaimed dividends, and by sub-section (2) provision was made for any person producing evidence of his right to apply for authority to receive any such dividend which had been deposited in terms of that section within seven years immediately preceding the date of such application. Section 153(2) did not refer to the unapplied balances. The predecessor of that section was section 153 of the Bankruptcy (Scotland) Act 1856, which provided for the deposit of unclaimed dividends, without any reference to unapplied balances, and for the keeping of a list and for any person producing evidence of his right to apply for authority to receive such dividends. Section 135 of the Bankruptcy (Scotland) Act 1839 contained similar provisions, again referring to unclaimed dividends and not to unapplied balances. The expression "unapplied balances" therefore appeared for the first time in section 153 of the Bankruptcy (Scotland) Act 1913. In the course of his researches, counsel had consulted the report of the Cullen Committee which preceded the enactment of the Bankruptcy (Scotland) Act 1913 and the standard textbooks of the time, and had found no discussion of the reason for the appearance of the expression "unapplied balances". Counsel submitted that if a significant change had been intended by the introduction of this expression there would have been contemporaneous discussion of it.

Counsel went on to submit that, in the case of a company, if "unclaimed dividends" are those payable to named creditors, this must also apply to named contributories, identified by reference to the procedures provided by section 148 or section 154 of the 1986 Act. These speak of "distribution" and "distribute". Counsel submitted that "distribution" is synonymous with "dividend" in section 193. In section 153 "distribution" includes one made to contributories: see Butler v Broadhead [1975] Ch.97 at p.109, where express reference was made to section 264 of the Companies Act 1948, the predecessor of section 153 of the 1986 Act. As counsel pointed out, the distribution referred to in sections 153 and 154 must be to identified contributories.

The case which gave counsel some difficulty was In re Compania de Electricidad de la Provincia de Buenos Aires Limited [1980] Ch. 146. Unidentified holders and former holders of bearer shares were due money as arrears of pre-liquidation dividends and a pre-liquidation repayment of capital. Slade J. held inter alia that the present and former shareholders of a company to whom the company owed money by way of dividends or repayment of capital were to be treated in any winding-up as creditors for the purposes of the relative provisions of the Company's Act 1948, but accordingly the provisions of rule 106(1) of the Companies (Winding-up) Rules 1949 applied, thus enabling the joint liquidators to fix a certain date by which such shareholders or former shareholders must prove their debts or claims, and to exclude those who failed to do so from the benefit of any distribution of assets. At p.178 he said that if arguments put forward as to the non-applicability of rule 106 had succeeded, then the liquidator would necessarily have had to set aside monies to meet the full amount of the possible claims of members of the classes whom they represented and either seek leave to retain them for the purposes of the liquidation or put moneys into the insolvency services account. In either event, such moneys would have remained frozen, unless and until the interested persons identified themselves and established their claims. Counsel accepted that it could be taken from this passage that in circumstances such as the present the same course would have to be followed. There is however, as he pointed out, a material distinction between the legislative provisions applicable in England and those applicable in Scotland (leaving aside the fact that there is no counterpart to the Companies (Winding-up) Rules in Scotland). Section 343(1) of the Companies Act 1948, which applied to all liquidations in England, made provision in respect of "any money representing unclaimed or undistributed assets of the Company". I accept that this is materially different from the expression "unclaimed dividends".

Turning to the expression "unapplied or undistributable" balances, counsel had again been unable to find any direct authority. However, he submitted that the expression means only assets which the Company does not beneficially own or, in any event, that it does not apply to assets to which unidentified contributories would have been entitled. He pointed out that "undistributable" is not the same as "undistributed". He submitted that in a liquidation assets in the hands of a liquidator, which in practice must by then be sums in a bank account, can be undistributable only because the Company does not beneficially own them, for example assets held in trust. A second consideration was that section 58 provides a procedure for payment to be obtained only of unclaimed dividends. This limitation on the scope of section 58 would not be anomalous if any unapplied or undistributable balances were owned beneficially by any person who could establish his ownership outside the winding-up or sequestration. Counsel submitted, under reference to the history of the legislation, which I have already outlined, that the addition of the word "undistributable" in section 153 of the Bankruptcy (Scotland) Act 1913 was intended simply to make it clear that an unapplied balance was one which the trustee could not distribute because the bankrupt did not own it.

While counsel advanced his submissions with some diffidence, as he said, I have decided that they are correct. It appears to me that the construction of section 193 which he asked me to adopt produces a more satisfactory result in practical terms than would result from leaving part of the surplus undistributed because some of the members could not be traced. As counsel pointed out, this construction would produce consistency between the rights of those on a list of contributories in a solvent winding-up and the liabilities of those on such a list in an insolvent winding-up. In the latter case the contributories on the list would require to pay the whole liabilities of the insolvent company, even if it was clear that there were persons who should have been on the list but whose identities were unknown. This follows from the combined effect of sections 74(1), 148(1) and 150 of the 1986 Act. It is not difficult to suppose that Parliament intended that, if those on the list would be required to pay all the Company's liabilities in an insolvent winding-up, they should be entitled to all of its surplus assets in a solvent winding-up. It appears to me that the key to the whole matter is the power of the court under sections 148 and 154 to settle a list of contributories and adjust the rights of the contributories among themselves. Particularly where the register of members is not extant or is unreliable, it is clear that the court has a decisive part to play in this regard. In In re Phoenix Oil and Transport Co Limited (No.2) supra the register of members was significantly out of date and accordingly the court ordered that "something in the nature of an inquiry as to who are the persons entitled to the surplus assets must be made by the liquidator". This appears to me to recognise, as for present purposes I hold, that the surplus assets are to be paid only to those contributories who have been traced as a result of appropriate inquiry by the liquidator and can thus be included in the list of contributories. Of course, a contributory included in the list might fail to claim the dividend to which he was entitled, in which case the provisions of section 193 would apply. But in my opinion they do not apply to someone who has not been included in the list of contributories. In short, the list is definitive of those who are to be entitled to participate in the surplus of the distributable` assets of the Company.

I shall accordingly grant the prayer of the Note to the extent of directing that the contributories or personal representatives of deceased contributories whose names appear on the list of contributories of the Company, as settled by the court, have together the right to the whole of the assets of the Company in the hands of the Noters as its liquidators after deduction of the expenses of the conclusion of its winding-up. Counsel also moved me further to alter the interlocutor dated 3 August 1998 by making additions to the list of contributories to reflect the information most recently obtained by the Noters. While I am prepared to do this, I would prefer to be addressed first on the question whether the possibilities of inquiry have now been exhausted, so I shall put the matter out By Order for that purpose.