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United Kingdom House of Lords Decisions
You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> City of Glasgow bank Liquidation - (Alexander Mitchell's Case) Alexander Mitchell v. The Liquidators [1879] UKHL 503 (20 May 1879)
URL: http://www.bailii.org/uk/cases/UKHL/1879/16SLR0503.html
Cite as: [1879] UKHL 503, 16 ScotLR 503
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SCOTTISH_SLR_House_of_Lords
Page: 503↓
House of Lords.
(Before the
v.
(In the Court of Session, Dec. 21, 1878, ante, p. 165).
Subject_Trust — Resignation by Trustee after Commencement of Liquidation Proceedings — Right to have Name Removed from Register.
Facts:
The City of Glasgow Bank stopped payment on 2d October, and no business was transacted thereafter. On 5th October notice was given to shareholders that at a meeting to be held on the 22d a resolution would be brought forward to have the bank would up by reason of its insolvency. A trustee resigned his office by minute of resignation dated 16th October, and entered the resignation in the sederunt book of the trust. The minute was signed by all the other trustees and by the beneficiaries. A certified copy of it was delivered next day to the secretary of the bank, with a request to remove the party's name from the register of members, or to make a note of the resignation upon the stock ledger, as was the bank's custom in such cases. . The directors declined to do either.
In a petition brought for removal of the name from the bank's register— held ( affirming
Page: 504↓
the judgment of the Court of Session) that the directors of the bank were entitled to decline to make any change upon the register after the issue of the notice of 5th October. Opinion per the Lord Chancellor (Cairns) that the power given to the directors of a joint-stock company to transfer shares was a power which was not intended to be in operation for the purpose of enabling individuals to escape from liability when the company has ceased to be a going concern, and when the general clauses of the deed of copartnership are no longer capable of being acted on.
Observed per Lord Penzance that the principle which obtains in all systems of bankruptcy—that the act of closing the trader's doors and suspending his business is the dividing period of time after which the rights of creditors ought not to be compromised by any transaction of the bankrupts—is alike applicable to the case of a joint-stock company incorporated under the Companies Act.
This was an appeal at the instance of Alexander Mitchell against a judgment of the Court of Session refusing a petition at his instance to have his name removed from the register of the City of Glasgow Bank. The circumstances will be found narrated in the report of the case in the Court of Session, ante, p. 165, and in the opinions delivered in the House of Lords ( infra).
At delivering judgment—
The facts are these:—The appellant was a trustee and executor of Andrew Waters, deceased, who died in 1875, and on the 16th of October 1878, £3500 stock of the bank was standing in name of the appellant and his co-trustees in the books of the bank.
On the 16th of October 1878 the appellant resigned his office of trustee under the 24th and 25th Vict. cap. 84, by a minute entered in the sederunt-book of the trust, and signed in the book by himself and the other acting trustees. On the 17th of October he caused a certified copy of the minute of resignation to be delivered to the secretary of the bank at its head office, and requested that in pursuance thereof his name should be removed from the register. On the same day the secretary replied—“I am instructed to say that under present circumstances we are unable to comply with your request.” The “circumstances” referred to in this letter were of course the insolvency and stoppage of the bank, and the facts with regard to the stoppage of the bank are these:—On the 2d of October it ceased to carry on business and closed its doors. It never resumed business, and it is admitted between the parties that its stoppage was notorious on and after that date throughout the United Kingdom, and that the directors knew at the time of the stoppage that the insolvency of the bank was irretrievable. On the 5th of October the directors convened an extraordinary general meeting of the shareholders by advertisement for the 22d of October, to consider, and if thought fit to pass, resolutions under the Companies Act 1862, to wind up the bank voluntarily by reason of its inability to carry on business. On the 11th of October the directors instructed the secretary, by a minute of that date, to reply to all requests for transfer of shares that the directors did not feel warranted to prepare or register any transfer of the bank stock. On the 16th October a further minute on the same subject was made, stating that counsel concurred in thinking that the directors in present circumstances were not warranted, and that it would be improper for them to execute or register any transfer. The last meeting of the directors was held in the forenoon of the 18th of October, and they took no charge of the business of the bank thereafter; and the following morning they were apprehended on a criminal charge. On the 22d of October the resolution was passed for the voluntary winding-up of the bank, and the winding-up under the Act commenced from that day.
The name of the appellant having been duly entered upon the register, and appearing there at the time of the winding-up, he is clearly liable to be placed on the list of contributories unless he can show something more than his mere resignation of his trusteeship. His resignation of his trusteeship alone would not terminate his liability to the bank. He ceased to be a trustee; but it remained for him to terminate his liability in respect of the bank by a transfer, or something equivalent to a transfer, of his shares. This transfer the bank refused to make, and the appellant has therefore to show, under the 35th section, that default has been made, or that unnecessary delay has taken place in entering on the register the fact of his having ceased to be a member.
The words of the section with regard to delay may be put out of the case. There is no question of delay. The application of the appellant was considered and was answered, and the answer was a refusal under the circumstances to remove his name. The real question therefore is, Was there a default in the directors in not removing his name?
My Lords, in an ordinary partnership there is of course no power in a partner to assign over his interest in the partnership, and thus to get rid of liabilities to those who have claims against the partnership. In the case of a joint-stock company the shares are made transferable; and the arrangements for effecting a transfer are part of the general power given to the directors in the management of the concern—the control vested in the directors over the right of transfer being in some companies greater and in others less.
My Lords, I should be very much disposed to hold that the power given to the directors to transfer shares—whether it were a power merely ministerial, or a power attended with a right of investigation or option—was, as was said by my noble and learned friend Lord Selborne in Allin's case (L.R., 16 Eq. 449), a power intended to be in
Page: 505↓
But, my Lords, I do not think that it is necessary in the present case to lay down a general rule in terms so extensive. The directors of the Glasgow Bank were acting in the management of the business of the company as the agents of the shareholders. Among their other duties was that imposed on them by the 46th article of the deed, which provided that if it should appear at any time on balancing the books that a sum equal to the whole of the reserved surplus fund, and also to one-fourth part of the paid-up capital stock, had been lost, a special general meeting of the shareholders should be called, and the company should thereupon be dissolved, unless a majority of two thirds in value should determine otherwise. The directors had closed their doors and publicly announced the stoppage of the business on the 2d of October. It would have been competent to any creditor at any time afterwards to have presented a petition to the Court for the winding-up of the company—for which petition there were ample materials—and the presentation of the petition would, under the Act, have been the commencement of the winding-up, after which no valid transfer of a share could have been made. It is impossible to doubt that what prevented an adverse application to wind-up the company was the notice issued by the directors on the 5th of October which, in effect stated to the public that they would call the shareholders together on the 22d for the purpose of winding-up the company voluntarily, on the ground of its insolvency. There was involved in this notice an appeal to all persons interested to support the directors in the proposal for a voluntary liquidation in preference to a judicial liquidation. Now, if the directors, after thus taking the step most calculated to disarm those who had a right to proceed adversely against the bank, had used the interval to permit or facilitate arrangements in the constitution of the bank, it appears to me they would have been acting both in opposition to the spirit of the 46th article and in bad faith to those having claims upon the company; and that not only were the directors of the company precluded under the circumstances from assenting to transfers, but that the shareholders also, whose agents and representatives the directors were, were precluded from making these transfers.
I am therefore of opinion that there was no default under the 35th section in the directors not entering on the register the fact of the appellant having ceased to be a member of the company, and that the decision of the Court of Session was right, and I must move that this appeal should be dismissed, with costs.
Lord Hatherley—My Lords, I concur entirely in the view which has been taken of this case by my noble and learned friend. I do not know that there is any special point of law which arises upon it, and as to the facts I am, as I have already said, satisfied with the printed opinion of my noble and learned friend, which I have read, and which sets forth the facts very clearly and concisely.
The appellant applied to have his name removed from the list of shareholders, not substituting any other, and not having made any arrangement with his co-trustees themselves by which he was to be removed from the list. The removal of his name from the share-list of the company under those circumstances would so far have removed, not only a security which his co-trustees had, but also a security of every shareholder and creditor of the bank. It seems to me that if this application was justified, a name might be removed on the application of any shareholder at the mere will and pleasure of the directors, at their option, and without any special ground for exempting that shareholder from the liabilities which had been incurred and which were then obviously on the point of being enforced. I do not think the section which speaks of “delay” and “default” is applicable to a case of that description, thinking, as I do, that it would have been a breach of duty on the part of the directors, who were to hold an equal hand as between all the shareholders, to show a favour to one particular shareholder, under the circumstances of the case, more than another.
There is no doubt that on the 16th of October 1878 he ceased to be a trustee by resignation of that office, but the question is, Whether in the events that happened he has established to your Lordships' satisfaction that his name ought to be removed from the register, and thereby from the list of contributories? There are two sufficient answers, I think, to this claim.
It is argued by the respondents—I quote from their printed case—that “the appellant's resignation of the office of trustee and executor cannot dissolve the partnership relation into which he and his co-trustees entered, in terms of the contract of copartnery of the City of Glasgow Bank. The office of trustee and executor, which the appellant took up by acceptance and laid down by resignation, is entirely different from the relation of partnership into which he entered, not by accepting office as trustee and executor, but by producing and recording the confirmation in the bank's books. He entered the partnership in terms of the contract, and must retire in conformity therewith.” In this reasoning I think your Lordships ought to concur.
Now, the only way in which a partner could, under the provisions of the deed of copartnery, divest himself of his share in the bank, would be by a deed of transfer, the form of which is to be regulated by the directors. But no such deed has ever been executed, and although the appellant would after his resignation have a right to call upon his fellow-trustees to concur in all necessary deeds and acts for effecting a transfer of his interests in the bank, and the bank would be bound under ordinary circumstances to give effect to such deeds and acts by removing his name from the register, the mere act of resigning
Page: 506↓
But there is a wider and more substantial ground upon which I consider the appeal should be rejected. The powers which the Court of Session and your Lordships are asked to exercise are the statutory powers conferred by the 35th section of the Companies Act 1862, by which it is provided that the Court may, “if satisfied of the justice of the case, make an order for the rectification of the register” by deleting the name of the applicant. But can it be said that the Court of Session ought to have been “satisfied of the justice of the case?” The bank had ceased to carry on its business upon the avowed ground of its hopeless insolvency before the appellant resigned the office of trustee or took any step to retire from the partnership. When he applied to the directors, therefore, to sanction his retirement from the partnership, he did so, not for the purpose of terminating his connection with the bank in future, and thereby exempting himself from its future obligations, for there could be none, the business being wholly suspended, but for the sole purpose of escaping his partnership liability for the past. The most that the appellant can urge is, that the resignation of the office of trustee operated as a gratuitous assignment of his shares, which “to be effectual” required, under section 34 of the deed, “to be sanctioned by the directors.” But how could the directors, with justice to the creditors and the other shareholders of the bank, sanction an assignment which, instead of being made in the ordinary course of business, and for the purpose of putting an end to the assignor's interest in the bank in future, could be designed only to free the shareholder from liabilities already incurred?
Without going so far as to say that the suspension of business on account of insolvency would necessarily in all cases operate to suspend all the powers of the directorate respecting the transfer of shares—upon which I offer no opinion—it is, I think, clear that such powers could not be exercised without a dereliction of duty in a case like the present. It is common, I believe, to all systems of bankruptcy to take the act of closing the trader's doors and suspending his business as the dividing period of time, after which the rights of his creditors ought not to be compromised by any transaction of the bankrupt. This is entirely conformable with justice; and although the present case, being that of a company, does not arise under the bankrupt laws, the principles of justice which should govern it appear to me to be the same. If, then, there had been an actual assignment by the appellant of his interest in the partnership stock, there is no clause in the deed which obliges the directors to “sanction” it, and there is nothing in the events and circumstances which occurred that ought to “satisfy” the Court of Session or your Lordships “of the justice of the appellant's case” in claiming to have his name removed from the register of shareholders.
He was admittedly the trustee and executor of Andrew Waters. As such he had stock duly registered in his own name in the month of October 1878, and unless the responsibility attaching to him as the holder of it has been somehow discharged, it equally attaches to him now. On the 16th day of October 1878 he ceased to be a trustee by resignation; and on the 17th he endeavoured to have his name taken from the register. His abandonment of the trusteeship could not confessedly affect his relations with the bank whilst his name continued on the register, and he did not require the removal of it until the 17th of October, after insolvency had been declared and business suspended, and the directors had summoned a meeting for the 22d of that month with a view of winding-up the concern.
Under those circumstances, I concur with my noble and learned friends that it was not only the right, but also the plain duty, of the directors to refuse the demand for removal. In refusing it they were not guilty either of “delay” or of “default.” They had closed the bank, and undertaken, subject to the opinion of a general meeting, to wind up the company; and the admission of a claim in the meantime to escape liability on the part of the registered stockholders would have been, in my opinion, at once a breach of their duty as agents for the persons interested, a misuse of powers which the position of the bank appears to me—although it is not necessary to give a decision on the point—to have rendered them incapable of exercising, and a fraud upon the creditors, who might easily, by the multiplication of such claims, if they were at all admissible, have been robbed of the entire security on which they had relied.
I think that this appeal also must be dismissed.
I think that after that circular had been issued it was too late for any shareholder to transfer his shares either to the copartnership itself or to any other person, and therefore too late for a trustee, previously registered and liable, to relieve himself from liability by resigning his office and intimating that resignation to the directors. The conclusion, as it appears to me, might safely be rested in this and the other cases depending on the same principle with which your Lordships have now to deal, on the 46th clause of the copartnership deed, which provides that, in the events which in the present case had beyond all question happened “a special general meeting of shareholders shall be called by the manager, under authority of the ordinary directors, and the company shall thereupon be dissolved, unless a majority of two-thirds in value of the share holders, personally or by proxy, present at such meeting shall determine otherwise,” and shall thereupon fulfil certain onerous conditions. A
Page: 507↓
The present proceeding is under the 35th section of the Act of 1872, and the first question, which if decided in favour of the respondents disposes of this and also of some other cases, is, Whether a refusal of the directors under such circumstances to register any transfers during the interval between the stoppage of the bank and the holding of the meeting on 22d October was a rightful refusal or was a default? This is, I think, a new question, not decided by any authority either in English or Scottish law which I have been able to discover.
If either those who framed the Act of 1862, or those who framed the deed of copartnership, had thought of providing for such a case, I cannot much doubt that it would have been expressly declared that it should not only be in the power, but should be the duty of directors to act as those did; but it has not been provided for expressly. I have felt more hesitation than either the Court below, or I believe any of your Lordships, as to how far we can properly import a condition which, however just and expedient, is not in terms expressed. But I have come to the conclusion that we must hold that the directors had authority to do this.
The board of directors are constituted the managing body of the company, and as such are agents of necessity, having authority to act for it in all cases of emergency where there is not time to consult their constituents. And therefore when the bank stopped payment they were acting strictly within their implied authority when they closed its doors and convened the extraordinary meeting; and it seems to me that no such meeting could properly and effectually be convened if all or any of the shareholders who were on the register and liable for its debts could use the necessary interval so as to escape from that liability. The maxim Quand alioquid, mandatur, mandatur et omne per quod pervenitur ad illud, is, I think, founded in reason, and applicable to these cases. And consequently, I think that, having come to the conclusion that authority was given to the directors to convene the meeting, I am bound to conclude that authority was also given to them to suspend the registration of all transfers till the result of the meeting so convened was known.
I consequently agree that this appeal must be dismissed, with costs.
Interlocutor appealed against affirmed, and appeal dismissed with costs.
Counsel for the Appellant—
Counsel for the Respondents— Kay, Q.C.,— Benjamin, Q.C.,— Davey, Q.C.,— Kinnear.