Scottish Court of Session Decisions

On 18th June 1894 G. P. Gardner and Company presented a petition for the purpose of having the Columba Steamship Company wound up by the Court.

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The petitioners were creditors of the Columba Steamship Company for two sums of about £100 each constituted by separate decrees. The company had been duly charged to make payment of the sum contained in one of said decrees, but the days of charge had expired without payment being made.

Answers were lodged for John Waldo Link, and four other creditors of the company, who craved the Court to refuse the petition, or to direct that it should stand over for such time as the Court might think fit, and at all events until a meeting could be held for the purpose of ascertaining the wishes of the creditors.

The respondents stated—“The respondents are creditors to the amount of £27,400 or thereby. … The other debts of the company, excluding the petitioners' debt, do not much, if at all, exceed £1000. The respondents as creditors are opposed to the company being put into liquidation by the Court, and submit, in the circumstances after stated, that that course would be very injurious to the just interests of the creditors of the company, and would defeat their prospect of being paid their claims; further, that the petitioners could not gain anything by a winding-up order.

The company was formed for the purpose of acquiring steamships, and founding a line of steamers. The company acquired four steamers known as the ‘Pelican,’ ‘Kent,’ ‘Louisiana,’ and ‘Alabama’ for its purposes, and the price was to be paid partly by cash raised on mortgages of the vessels, partly by bills, as well as from other sources. Money was raised on mortgage of certain of the vessels.

Some time after the formation of the company, the company, without having themselves worked the vessels, arranged for the sale of their property, or a great part thereof, including said four vessels, to a society or company formed and registered in Belgium, which company was to pay a lump price of £89,000, being £40,000 in cash and £49,000 in its own shares. The ‘Kent’ and the ‘Pelican’ have been delivered to the said Belgian Company, and the said Belgian Company have made payment of about £16,000 in cash, and have undertaken to transfer £24,000 of their shares to the Columba Company; but the ‘Louisiana’ and ‘Alabama, which also form part of the property sold for said lump price, are at present in the possession of a mortgagee, a Mr Stewart, engineer, Glasgow.

In order to the Columba Company receiving the balance of the said lump price of £89,000, it will be necessary for the Columba Company to transfer the remainder of the property agreed to be transferred, including the ‘Louisiana’ and the ‘Alabama,’ to the Belgian Company, and, on making such transference, they will be in a position, as the respondents believe and aver, to make payment of the debts due to all the creditors, and will have a valuable property in said Belgian Company.

If, however, a winding-up order were pronounced as craved by the petitioners, the said ‘Louisiana’ and ‘Alabama’ would not pass into the possession of the liquidator, but would be realised by said mortgagee, and the value would be entirely lost to the Columba Company, and further, there would arise to the said Belgian Company against the Columba Company a large claim of damages for the non-fulfilment of the contract to transfer the property at the said lump price, as well as for repayment of what has been already paid. A liquidator would further be without funds to incur the responsibility of questions arising between the Columba Company and the said Belgian Company.

If the Columba Company be not forced into liquidation, the mortgagee has expressed his intention not to proceed to realise his security.

The respondents further have ascertained and aver that under the memorandum and articles of association, the directors of the Columba Company have, in order to secure premiums of insurance, hypothecated to underwriters at Lloyds the calls which might otherwise have been made by a liquidator upon the shares so far as not fully paid up (or issued as fully paid up), and that in the event of a liquidation a liquidator would only have the claim upon the said Belgian Company, which he would not be able to enforce if unable to perform the Columba Company's part of said contract.”

The majority of the respondents were also shareholders of the company.

The Court had also before it another petition for the winding-up of the company presented by another creditor in January 1894, but this petition need not be further referred to, as the petitioner was willing that some delay should be granted in accordance with the respondents' request.

Section 79 of the Companies Act of 1862 provides that a company under said Act “may be wound-up by the Court under the following circumstances. … (4) Whenever the company is unable to pay its debts.” Section 80 provides that a company “shall be deemed to be unable to pay its debts (3) Whenever, in Scotland, the induciæ of a charge for payment on an extract decree … have expired without payment being made.”

Argued for the petitioners—The company could not pay its debts, and the Court was bound ex debito justitiæ to grant the winding-up order craved—Companies Act 1862, sections 79 and 80; Buckley on the Companies Acts, section 79 of the Act of 1862. No ground had been stated by the respondents for taking the case out of the ordinary rule. The wishes of the respondents were not a ground for refusing the petitioner the right which the statute gave him, especially as the majority of the respondents were shareholders as well as creditors. The cases quoted did not support the respondents' contention. In these cases the company had earned profit, and had every prospect of earning more. Here the company had never earned any, and all that remained to be done could be carried through by a liquidator quite as well as by the directors. Further, in the

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Uruguay Railway Company's case the petitioner was a debenture-holder, and a debenture-holder was not to be put in the same position as an outside creditor. The Court was also satisfied in that case that the petitioner could gain nothing by a liquidation. The Chapelhouse Colliery Company's case, where the application of an outside creditor had been refused, was treated by the Court as very exceptional, and the ground on which the Court proceeded was, that the petitioning creditor could take no benefit by the liquidation as there were no assets available for satisfaction of his debt. That was not shown to be the case here. Nor would the Court delay granting the petition unless a good reason was adduced to justify delay, such as had been given in the case of the St Thomas Dock Company, where the object of the delay was to get information as to the earnings of the dock, which was in the West Indies. In the present case no good reason for delay existed, and six months had elapsed since the date at which the first petition for a winding-up order had been presented without anything being done. If, however, the Court were of opinion that delay was advisable, the petitioner would suggest that a provisional liquidation should be appointed as had been done in certain cases— in re Olathe Silver Mining Company, 1884, L.R., 27 Ch. Div. 278; Benhar Coal Company, February 25, 1879, 6 R. 706.

Argued for the respondents—The question whether the company should or should not be wound up was for the creditors to decide. The Court was only bound to grant a winding-up order ex debito justitiæ where the question was between a petitioning creditor and the company. The Court would not order a winding-up where a large majority of the creditors were opposed to that course being taken, or where the petitioning creditor would get nothing by the liquidation of the company, and both these conditions existed here— Uruguay Central Railway Company, 1879, L.R., 11 Ch. Div. 372; in re Chapelhouse Colliery Company, 1883, L.R., 24 Ch. Div. 259; Buckley on the Companies Acts, section 91 of the Act of 1862. At any rate, a petitioning creditor was not entitled to an immediate order, and this was a case in which delay should be granted, at all events until a meeting of the creditors could be held—Companies Act 1862, sec. 91; St Thomas Dock Company, 1876, L.R., 2 Ch. Div. 116; Brighton Hotel Company, 1868, L.R., 6 Eq. 339; in re Western Canada Oil Company, 1873, L.R., 17 Eq. 1.

At advising—