Scottish Court of Session Decisions

The Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69), sec. 287, enacts—“The provisions of this Act with respect to winding-up shall not apply to any company of which the winding-up has commenced before the commencement of this Act, but every such company shall be wound up in the same manner and with the same incidents as if this Act had not passed, and for the purposes of the winding-up, the Act or Acts under which the winding-up commenced shall be deemed to remain in full force.”

The Companies Act 1862 (25 and 26 Vict. cap. 89) enacts, sec. 133 (1)—“The property of the company shall be applied in satisfaction of its liabilities pari passu.…” Section 158—“In the event of any company being wound up under this Act, all debts payable on a contingency, and all claims against the company, present or future, certain or contingent, ascertained or sounding only in damages, shall be admissible to Proof against the company, a just estimate being made, so far as is possible, of the value of all such debts or claims as may be subject to any contingency or sound only in damages, or for some other reason do not bear a certain value.”

Alfred Alison Todd, C.A., liquidator in the voluntary winding-up of Millen & Somerville, Limited, presented a note seeking approval, inter alia, of his deliverances on claims. Messrs Millen & Somerville

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and James Alexander Millen and others, the individual partners of the firm, as such partners and as individuals, lodged answers. In their answers the respondents, whose claim was for the amount of certain bonds and dispositions in security over the property of the company under which they were personally liable, and who had been refused a ranking, craved the Court “to refuse approval of the said deliverances on their claim, to recal the same, and to admit the respondents to a ranking for the full amount of their claim, or otherwise to direct the liquidator to set aside a dividend on the full amount of their claim to await the contingency of the security subjects held by the creditors under the said bonds and dispositions in security not realising the amount of the respondents' obligations thereunder, of which the company is bound to free and relieve them.”

The following narrative of the facts of the case is taken from the opinion of Lord Johnston:—“The firm of Messrs Millen & Somerville carried on business in Glasgow as constructional engineers, but in the spring of 1907 they transferred their business to a limited company, registered under the style of Millen & Somerville, Limited. The claim in question arises out of the agreement of sale which was duly adopted by the company. By this agreement it was provided, firstly, that the firm should sell and the company purchase the business and the goodwill thereof of Messrs Millen & Somerville, together with their works and all their assets, including book debts, current orders, &c., as at 31st December 1906, ‘subject always to payment by the company of the whole debts and liabilities of the business outstanding’ at said date or since contracted, the consideration being entirely in shares of the company. Now one of the liabilities of the firm was a debt of £1800, secured over their works and other heritable property.

“As bearing upon this particular liability two further clauses of the agreement require to be considered. It provided, fifthly, that the company on the transfer of the works and business should ‘undertake to perform and execute in exoneration of the first parties,’ that is, the firm and its members, all obligations, contracts, and engagements connected ‘with the said business current on the said 31st December 1906 or since entered into,’ while it provided eighthly that the firm should ‘exhibit and deliver a good title to the property so to be made over to the company, free from all claims except a bond and disposition in security for £1800.’ In point of fact the debt stood on sundry bonds amounting in all to £1800.

Delivery and possession was given as from 15th February 1907, although I understand that the company's title to the heritable property was not made up till recently in the liquidation, and then in such form as to avoid the assumption of the personal obligation under the bonds for £1800. But the situation created by the agreement was this, that while the firm were not bound to clear the heritage of the bonds in question, but, on the other hand, the company undertook to do what was necessary ‘in exoneration’ of the firm from the obligation thereunder, the company did not undertake to pay off the bond on obtaining a title to the property, or at any other specific time.

The company carried on business for some time, but on 6th April a resolution to wind up voluntarily was passed, and the voluntary liquidation was subsequently placed under supervision. The bondholders had already entered into possession of the security subjects, but it has as yet been found impossible to realise them at a price to pay the bonds, and the holders have therefore called upon the firm and its members to make payment under their personal obligation.

In these circumstances the firm and its partners have lodged a claim in the liquidation for the sum of £2121, being the amount of principal in the bonds and arrears of interest in respect of the obligations undertaken by the company in the agreement above narrated, and in respect of the personal obligations resting upon the claimants in respect of the bonds, of which obligations the company and the liquidator were bound to relieve the claimants. This claim the liquidator rejected on the ground that the security subjects were not valued.”

On 12th November 1910 the Lord Ordinary ( Cullen) refused the respondents' crave.

The respondents reclaimed, and the case on coming up in the First Division was dropped after being partly heard in order that the liquidator might decide whether he was to take a conveyance to the property. On the case again appearing in the rolls, counsel for the liquidator intimated that a conveyance had been taken but exclusive of the personal obligation under the bond.

Argued for respondents (reclaimers)—The liquidator and the Lord Ordinary were wrong in refusing to allow the claimants a ranking on their claim. The claimants were entitled to be relieved within a reasonable time of their personal obligation— Doig v. Lawrie, January 7, 1903, 5 F. 295, 40 S.L.R. 247, per Lord Low. The present debt was not a contingent claim, and the claimants were not bound to wait till they paid before they were ranked. They were bound to pay the debt in the bond. Further, the claimants held no security at all, and therefore section 65 of the Bankruptcy (Scotland) Act 1856 (19 and 20 Vict., cap. 79), as to valuation of securities, could not apply. But even if they had a security, it was in their option to waive it and offer it to the liquidator, who was bound to take it. In any event, the Lord Ordinary under section 51 of the above Act should have ordered the claimants to rectify their claim. The minute of agreement made it clear that the limited company were bound to relieve the claimants of all obligations under the bond. The following cases were also referred to — Assets Company v. Jackson, April 27, 1889, 26 S.L.R. 592; Latta v. Dall, November 28,

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1865, 4 Macph. 100; Ritchie's Trustees v. M'Call's Trustees, June 25, 1904, 6 F. 883, 41 S.L.R. 642.

Argued for the petitioner (respondent)—The claimants must be debtors in a liquid sum before they could be admitted to a ranking, and they were not proved to be that. Their claim might be a present debt as between them and the creditors, but it was only a contingent claim in a question with the liquidator. The claimants might be liable for a debt to a third party, but they could only get from the petitioner what they actually paid. What they claimed was not a sum of money but a right of relief, and they ought to call on the liquidator to value their claim accordingly—Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69), section 208, applying the Bankruptcy (Scotland) Act 1856, section 53. In any event, the claimants held a security here, and they should be compelled to value that security before claiming a ranking—Bankruptcy (Scotland) Act 1856, section 65.

At advising—