Scottish Court of Session Decisions

The Brescia Mining and Metallurgical Company, Limited, was registered in June 1892, the objects being to acquire and work certain mines in Italy. By special resolutions passed on 2nd and confirmed on 17th November 1896 it was resolved “(1) That it is desirable to reconstruct the company, and that with a view thereto the company be wound up voluntarily, and that Thomas Watson Duncan be and is hereby appointed liquidator for the purpose of such winding-up.” It was also resolved that a draft agreement to be entered into between the old company and a new company, to which its assets were to be transferred, should be approved. It was provided by the fourth article of the draft agreement that the new company was to undertake the whole obligations of the old company with regard to certain mortgage debentures which had been issued by the company for £12,000. By the sixth article it was provided that the holders of all preference shares, and of all ordinary shares in the old company, should be entitled to receive an allotment of one share in the new company for each held by them in the old, the snares to be of £10 each, and issued as paid-up to the extent of £8, 15s. The balance of £1, 5s. per share was to be payable, 10s. on allotment, 5s. at an interval of not less than four months, 5s. after not less interval, and the remaining 5s. only with the concurrence of a majority of a general meeting of shareholders. It was further provided that in the event of the debenture-holders failing to assent by a sufficient majority to the terms contained in article 4, before or within seven days from the date of the agreement, or of the Court setting aside the assent, or of an order being made for the winding-up of the company under the supervision of or by the Court, the new company might rescind the agreement.

On November 20th 1896 a petition was presented by John Wotherspoon, holder of 100 £10 ordinary shares fully paid, and of 20 £50 debentures, and his wife, who held 10 £50 debentures, craving for an order for the judicial winding-up of the company.

The petitioners averred that the half-year's interest on his debentures, amounting to £32, 10s., due to Mr Wotherspoon on 1st July 1896, had not been paid, and that though he had “consented to payment being delayed for a short time, he is now anxious to get payment, and is unable to obtain it.”

They averred further that the original capital of the company in June 1892 was £21,000 divided into 550 preference shares of £10 each, and £1550 ordinary shares of £10 each; that as the result of various resolutions it consisted now of 585 preference shares of £10 each, all fully paid, and 4041 ordinary shares £10 each, all issued as fully paid, whereof, however, 528 were “bonus” shares, which had been issued without payment to certain of the original preference shareholders, and that there were 1374 shares unissued.

They submitted—“The petitioners believe and aver that the holders of the said 528 bonus shares in the old company which were allotted to them without any payment being made therefor are liable to make full payment of the nominal value thereof to the company. This asset, however, which is one of the main assets of the company, will be lost if the agreement with the new company is allowed to be carried out. Further, Mr T. Watson Duncan, the liquidator named in the foresaid special resolutions, is a holder of a number of these bonus shares.”

By the 79th section of the Companies Act 1862 (25 and 26 Vict. c. 89) it is, inter alia, provided that “a company under this Act may be wound up by the Court, as hereinafter defined, under the following circumstances, that is to say, … “(4) Whenever the company is unable to pay its debts; (5) Whenever the Court is of opinion that it is just and equitable that the company should be wound up.” By the 80th section of the said Act it is enacted that “a company under this Act shall be deemed to be unable to pay its debts.” … (4) When ever it is proved to the satisfaction of the Court that the company is unable to pay its debts.”

On a motion being made for intimation, service, and advertisement of the petition, the company and the liquidator appeared and objected to the motion, and were allowed to lodge answers. These were lodged on the 27th November.

The respondents averred that the petitioner John Wotherspoon had been a director of the company till November 2nd 1896, and had agreed as such not to present his coupon for payment of debenture interest, but that they were ready and hereby offered to pay it; that none of the debentures fell due till July 1905; that the question as to the “bonus” shares had been fully considered at the meetings where the special resolutions to wind up voluntarily were passed and confirmed, and at which the petitioner John Wotherspoon was present, and had concurred in the scheme, and that the effect of the scheme would be to provide more capital than could possibly be recovered from the holders of the bonus shares.

They averred—“The liquidator of the company has presented an application to the Court on 24th November 1896 for the purpose of having a meeting of the debenture holders summoned, to whom the scheme of reconstruction will be submitted and their opinion taken. The petitioners will have an opportunity at the said meeting of expressing their opinions and influencing the action of the debenture holders. The company is at present working under two mining rights in Italy. One is the Royal Concession, known as Costa Rica and Costa Bella, near Bovegno, province of Brescia, dated in 1894, referred to in the petition. This property is mortgaged to the debenture-holders, and upon it much work has been done by way of development,

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and a considerable quantity of zinc and lead ore taken from it. A further deposit of these ores has lately been tapped, and another, and it is believed a more extensive deposit, is being driven for, but it cannot be reached for four or five months. A stoppage just now would seriously depreciate the debenture-holders' security, while on the other band the discovery of an additional body of ore would greatly enhance it. The other mining right is what is termed a ‘right of research’ in the Torgola Valley, in the same province. As such it is not capable of being mortgaged. So long as this right is worked it is unchallengeable, but if operations are stopped the right lapses to the Government. It is desirable to preserve this right with a view to obtain a royal concession if the mine proves valuable. If a winding-up order were pronounced, and a stoppage took place, this right would be lost to the company.”

On the petitioners' motion for intimation the respondents opposed.

Argued for petitioners—There was a debt presently due by the company, and accordingly they fell under the terms of the statute. As a matter of fact they could not pay their debts, though not technically insolvent, and they did not really deny this. The petitioners had therefore a clear prima facie title for presenting the petition, and were entitled in the first place to an order for intimation. The only case where such an order had been refused was where public intimation would be clearly injurious to the interests of the company— Macdonell's Trustees v. Oregonian Railway Company ( infra)—but that could not be said here, since the respondents admitted that there had been a resolution to wind up voluntarily, so no harm could be done by granting this order.

Argued for the respondents—1. The petitioners had no title. They did not set up any existing debt, for the directors were willing and offered to pay the interest due, and the Court would not consider the liability for the capital of the debentures not yet payable, there being no certainty that the existing and probable assets would be insufficient to meet it— In re European Life Assurance Society, 1869, L.R., 9 Eq. 122. 2. Nor could the Court order public intimation in circumstances like these, where it would be injurious to the interest of the company— Macdonell's Trustees v. Oregonian Railway Company, June 12, 1884, 11 R. 912. 3. Moreover, the petitioner John Wotherspoon had assented to the reconstruction scheme, and was accordingly barred from presenting this petition.