Scottish Court of Session Decisions

William Benson Allan and others, trustees acting under the trust disposition and settlement of the deceased John MacKechnie, coppersmith and brassfounder, Port-Glasgow, first parties; Mrs Christina MacKechnie or MacKechnie, his widow, second party; Andrew MacKechnie, Port-Glasgow, only surviving child of John MacKechnie, with consent and concurrence of John MacKechnie's trustees as his curators-nominate, third party; and William Inglis Macadam, mercantile clerk, Govan, Glasgow, one of the residuary legatees under John MacKechnie's trust-disposition and settlement, fourth party, brought a Special Case for the opinion and judgment of the Court as to the powers of the trustees to form the business of the testator into a private limited liability company under the Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69).

The Case stated, inter alia—“By the said trust-disposition and settlement, the said John MacKechnie directed his trustees to hold his estate, inter alia—(first) for payment of his just and lawful debts and funeral expenses, and the expenses of the trust; (second) for delivery of certain furniture to his wife for her liferent use; (third) for payment of certain legacies; and (fourth) ‘I direct my said trustees to realise as soon after my decease as expedient the manufacturing business presently carried on by me in Port Glasgow, unless it appears to them, and to my said wife, whose views I request my trustees to obtain and consider on this subject, that it is desirable to retain the same and conduct it for behoof of my estate, in which latter event I direct my said trustees, with the concurrence of my said wife, to continue the said business, and to pay over to my said wife, so long as she remains unmarried, the whole, or such part of the net income thereof, as they may deem necessary for the maintenance in comfort of my said wife and of my child or children then surviving, due regard being had to the opinion of my said wife as to the amount necessary for her said maintenance, with power to my said trustees to appoint a manager, who may be one of themselves or any other fit person, and to assume such manager as a partner in said business, and to allow such manager or partner to conduct said business subject to their supervision, and to pay him an adequate remuneration for his services.’

The business carried on by the deceased John MacKechnie was that of coppersmith and brassfounder. The said business was conducted under the firm-name of William Hume & Company—John MacKechnie being the sole partner of the firm. The business is carried on in premises which are leased from year to year—the machinery and other fixed fittings required in connection with the business being the property of the deceased's firm. The value of the machinery, fittings, utensils, and stock-in-trade of the business, apart from the value of good-will, is about £2200 sterling. It is not possible to place a value on the good-will otherwise than by a rough estimate, but it might amount to about £1000.

At the time of the deceased's death trade was in a depressed condition, and the trustees were advised that if the business was to be then sold an adequate price could not be expected for it, and loss would be entailed to the estate, and they accordingly, with the concurrence of Mrs MacKechnie, resolved to continue the business for some time, and await better trade conditions before finally deciding as to the course which they ought to pursue.

During the interval that has elapsed since the deceased's death the business has been managed by one of the trustees. The nett profit earned by the business since the truster's death was as follows:—For the year ending 31st March 1909, £474, 12s. 10d.; for the year ending 31st March 1910, £352, 15s. 8d.; for the year ending 31st March 1911, £748, 19s. 9d.; and for the year ending 31st March 1912, approximately £600. The net profit for the fifteen months ending 31st March 1908 was £1466, 12s. 4d. The income arising by way of profit from said business is thus very substantially greater than could be looked for were the business to be realised and the proceeds invested in ordinary trust investments.

The trustees have, however, now come to the conclusion that it would not be expedient to continue to carry on the business as a private company, notwithstanding the fact that powers to do so are given in the settlement, as they consider it would be unwise in the interests of the trust estate to continue trading, with the risk that if a misfortune befell the business the free estate of the testator might be required to assist in paying the debts incurred in carrying on the business. They are of opinion, and the second and third parties agree with them, that if the business of William Hume & Company were formed into a limited liability company as after mentioned, with the capital belonging to the deceased still retained therein, it could be successfully carried on without endangering the other estate left by the deceased. The trustees therefore would propose to form the said business into a private limited liability company on the following lines, viz.—The company to be formed would be a private one within the meaning of section 121 of the Companies (Consolidation) Act 1908, and would be incorporated under the name of ‘William Hume & Company, Limited,’ the liability of each member being limited to the amount unpaid on the shares held by him. The nominal capital of the company would be fixed at £2500 or thereby in shares of £1

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each. Of this amount there would be issued to the trustees or others, their nominees, in trust for the late John MacKechnie's trustees, say 2300 shares as fully paid as against the value of the business transferred to the company. This represents the sum of £2300, which is the estimated amount presently at the credit of the trustees of Mr MacKechnie in the books of the firm after providing for all liabilities. This sum is made up of (1) The value of plant and machinery, estimated at £500 or thereby; (2) value of stock-in-trade, estimated at £1100 or thereby; and (3) debts due by sundry trade debtors, estimated at £700 or thereby. As, in the course of management of the business, accounts are, as a rule, paid monthly, and liabilities settled similarly, it has not been found necessary to provide further cash for the working of the business, and it would probably be unnecessary to issue any further capital than that issued as against the assets acquired. The trustees, however, regard it as in the interest of the business that the truster's widow, the second party hereto, should be allowed to become a shareholder, and she is willing to join the company if it shall be found to be within the competence of the trustees to form it for carrying on the business. She would take 100 shares either by purchase for cash, or by acquiring 100 of the shares to be issued to the trustees as fully paid. It is proposed that the number of shareholders should by the memorandum of association be limited to five, and that, with the exception of the second party, and one other person acting for the time being as manager as after mentioned, no person should be capable of holding more than ten shares in the concern otherwise than in trust for the first parties. Provision would be made whereby the directors of the company must be trustees for the time being under the said trust-disposition and settlement of Mr MacKechnie; and it is proposed to appoint the trustee who has been managing the business hitherto, or other competent person to be nominated from time to time by the trustees, to be manager of the company, subject to the supervision and control of the directors, at such remuneration as shall be fixed by the directors. The regulations of Table A of the Act would be made applicable so far as consistent with the foregoing proposals; and the objects of the company would be strictly limited to the carrying on of the business hitherto carried on under the powers of the trust-disposition and settlement.”

The question of law for the opinion and judgment of the Court was—“Under the terms of the trust-disposition and settlement of the deceased John MacKechnie, have the trustees power to form the business into a limited liability company in the manner proposed, and to retain therein the funds of the deceased presently embarked in the business?”

Argued for the first, second, and third parties—The proposal to form a private limited company under the Companies (Consolidation) Act 1908 (8 Edw. VII, cap. 69), sections 2, 121, and 137 (1) ( a) (i), to carry on the testator's business, was within the terms of the direction in the testator's will. The business remained the same as the trustees were empowered to carry on, and continued under their management, with this further advantage that nothing was risked. On the analogous question of what was to be done with money left in a business in these circumstances the following authorities were referred to:— Lawrie v. Lawrie's Trustees, March 17, 1892, 19 R. 675, 29 S.L.R. 525; Alexander v. Lowson's Trustees, March 8, 1890, 17 R. 571, 27 S.L.R. 448; Smith v. Patrick, May 7, 1901, 3 F. (H.L.) 14, 38 S.L.R. 613.

Argued for the fourth party—The proposal was ultra vires of the trustees. The primary purpose of the will was to realise the business, and though there was power given to continue, conduct, and retain it, turning the business into a limited company did not fall under any of these expressions. What the trustees proposed here was really the sale to a new company— Smith v. Patrick, cit. sup.; Thomson's Trustees v. Thomson, February 22, 1889, 16 R. 517, 26 S.L.R. 368.