Francis Beaufort Palmer.

Company precedents for use in relation to companies subject to the Companies acts, 1862 to 1890 ... (Volume 2) online

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Bui^ervision order.

Directors generally dislike petitioning for a compulsory order, seeing that tlio
sbareholders may comjilain, and may object, and that, if the petition is dismissed,
they may be saddled with the costs and unable to pay them out of the company's
assets. See Smith v. Buke of Manchester, 24 0. D. 611.

Sometimes they get a friendly creditor to present a petition, and thus obtain time
to pass a resolution for winding-iip, and then the creditor asks for a supervision
order. There may, however, be cases in which the best course is for the directors
to apply for a compulsory order, e. g., when the company has become totally insolvent,
or the directors cannot act harmoniously and there is no prospect of a voluntary
winding-up, even under supervision, being tolerated.

As to a Creditor's Petition.

When the company is indebted to the petitioner in a sum of money presently due,
he is emphatically a creditor within the section.

The assignee of a creditor can petition. Paris Skating Rink Co., 5 C. Div. 959.

The depositee by way of mortgage of debentures to bearer, the interest on which
is in arrears, can petition. Olathc Silver Mining Co., 27 C. D. 278.

A secured creditor may petition [Moor v. Anglo-Italian Bank, 10 C. D. G81) ; even
after obtaining the appointment of a receiver in an action. Borough of Fortsmouth
Tramivays Co., (1892) 2 Ch. 362.

An admitted claim, by the executor of a deceased life policy holder, for a sum
by the policy made payable out of the assets, is sufficient to support a petition.
Masonic and General Life Assurance Co., 32 C. D. 373.

A debt incurred in a voluntary winding-up may suffice. Bank of South Australia (2),
(1895) 1 Ch. 578.

Sect. 145 of 1862. — The voluntary winding-up of a company shall not be a bar to Effect of
the right of any creditor of such company to have the same wound up by the Court, voluntary
if the Court is of opinion that the rights of such creditor will be prejudiced by a lifiindation.
voluntary winding-up.

As to contributories and shareholders, see Bank of Gibraltar and Malta, 1 Ch. 69 ;
Gold Co., 11 C. D. 701 ; Varieties, Ltd., (1893) 2 Ch. 235.

But a garnishee order against a company does not make the garnishor a creditor
of the company. Combined TVeighing, ^-c. Machine Co., 43 C. D. 99.

Nor is a person who has a claim against the company for unliquidated damages
a creditor within the section. Ten-y-van Colliery Co., 6 C. D. 477.

Nor can a person who has guaranteed the payment of a debt due from the com-
pany, but has not paid such debt, petition as a creditor. Vron Colliery Co., 20 C. D.
442.

A claim for money borrowed by a company ultra vires will not support a winding-
up petition. National Building Soc, 5 Ch. 309.

A landlord is not a creditor within the section as regards futiu'e rent. United
Club Co., 60 L. T. 665. Nor is a vendor whose title has not been made out. Milford
Bocks Co., 23 C. D. 292.

And it has been held that the holder of a bill of exchange not yet payable cannot Bill before
petition ( TV. Powell ^- Sons, (1892) W. N. 94) ; but the matter was not very fidly dis- maturity,
cussed, and it has yet to be settled whether " creditor," in sect. 82, means exclu-
sively a creditor whose debt is presently due. It may be that this is the meaning,
but the word is ambiguous, and may be held to mean a creditor, whether his debt
is presently due or not.

In sect. 80 of the Act of 1862, the legislature shows clearly that it understood



40



WINDING-UP BY THE COURT. [ChAP. III.



that the word "creditor" alone might extend to a creditor for money not yet due,
for it refers to " a creditor ... to whom the company is indebted ... in a smn
exceeding 501. then due.'" Wliy, it may be said, were not these words repeated
in sect. 82 if " creditor " there was intended to refer exclusively to a creditor whose
debt was presently due ? If that section had said ' ' a creditor or creditors in respect of
a debt then due," the meaning would have been clear. PrimA facie, the change of
language imports change of intention, and goes to show that the legislature did not
intend to qualify the word creditor in sect. 82 as it had done in sect. 80.

But it may be said that to hold that a debt not actually due is a good foundation
for a petition would work injustice and be absurd, for why should a creditor for
such a debt be entitled to claim payment before his contract matures ? The answer
is, that if the company is tinable to pay its debts, and is therefore commercially
insolvent, or insolvent in the sense that its assets, if realized, would not suffice to
satisfy its debts and liabilities, or if its substratum is gone, there is nothing absurd
in holding that a creditor whose debt is not presently due may petition for a
winding-up, and thus bring about a pari passu distribution of the limited fund to
which alone the creditors must look. Is it just that such a creditor should in a
case of insolvency be obliged to stand by whilst the other creditors, whose debts are
presently due, scramble for and exhaust the assets ? And if the substratum of the
company is gone, is it just that such a creditor should be unable to stop the
concern ? In either of these cases a member of the company can petition, although
he may have but little interest. Are the creditors to be in a worse position?
Surely the Court in construing the section should, of the two alternatives, adopt
that which enables creditors whose debts are not presently due to step in where
there is an insolvency, or where the substratum is gone, and secure a pari passu
distribution of the assets.

It may, however, be said that if tliis is the true construction of sect. 82, what
need was there for sect. 21 of the Life Assurance Companies Act, 1870, which
enables a current policy holder to petition ? The answer is that the enactment was
necessary because the holder of a current policy is not a creditor. His debt is not
debiium in prcesenti solvendum in futiiro [Ex parte Price, 10 Ch. 648). "The holder
of a subsisting policy is not a creditor at all ; and in order that he may become a
creditor of the company which issued the policy, he must keep up his policy with
the company, and the event iusured must happen whilst the policy is so kept up ' '
(Lindley on Companies, 259).

A creditor whose debt is presently due, and who cannot get paid, is entitled, ex
debiio justitice, as between himself and the company, to a winding-up order. Bowes
V. Hope Soc., 11 H. L. C. 389.
Discretion of The words of sect. 86 of the Act of 1862 (see Chap. VIII.) are in form permis-
sive, but it is not a mere matter of discretion whether the Coui't will order a company
to be wound up or not — it is the duty of the Court to give the creditor that relief
which the legislature intended to give him. Per Bowen, L. J., Chapel House
Colliery Co., 24 C. Div. 259, 270.

But this rule does not apply as between the petitioning creditor and other creditors
of the company, and if the majority oppose the petitioner, the Court ought to have
regard to their wishes under sects. 91 and 149 of 1862. West Hartlepool Co., 10 Ch.
618 ; Western of Canada, ^-c. Co., 17 Eq. 1 ; Chapel House Colliery Co., 24 C. Div. 259.

And the rule docs not apply when the opposing creditors show that the petitioner
can get no benefit by a winding-up order. Chapel House Colliery Co., nhi supra.

But tliose who oppose on this ground must prove their case. Krasnapohky Co.^
(1892) 3 Cli. 174. In this case Vaughuu AVilliams, J., was of opiuion that, if the
circumstancf'S appearing by affidavit show prima facie that an investigation into the
fonriatiou or promotion of the company, or the issuing of the debentures or shares,



Court.



WINDING-UP PETITIONS. 41

is required, that alone is an advantage to the unsecured creditors (p. 178). And,
at any rate, in the case of a private company the Court makes some inquiry Vjcfore
accepting this defence. London Health Electrical Institute, W. N. (189G) 170 ; on
app. W. N. (1897) 16. It is conceived, however, that the circumstances which
render an investigation expedient should be stated on the face of the petition, so
that the order may be secundum allegata et probata. Wear Emjine TForks, 10 Ch. 191.

It has been pointed out in previous editions of this work that when the necessity
for investigation is put forward as an argument for making a compulsory order
in lieu of a supervision order, it should be borne in mind that, under sect. 115
of the Act of 1862, there is full power to investigate, even publicly, the affairs of
a company, for there is nothing in the section to the effect that the examination
must be private, and that under sect. 10 of the Act of 1890, promoters, directors,
and others, can be compelled to make good their misfeasance and breaches of trust,
"whether the winding-up is compulsory, under supervision, or voluntaiy.

It has been held that a creditor cannot make out that he is prejudiced by a
supervision order, merely because such order will not involve the public examina-
tion of the directors and promoters. " The only advantage of a compulsory order
would be that which would be gained by the public if these matters were investi-
gated. Great as that advantage is to the public, I cannot regard it as such an
advantage to the petitioners that, by not having it, they would be ' prejudiced '
within the meaning of sect. 145 of the Act of 1862." Per Kekewich, J., Electrical
Engineering Co., 64 L. T. 658.

" It is said that, by the Companies (Winding-up) Act, 1890, much larger powers
of investigation have been given to the Court. But I think that the law remains
the same as it was under the previous Acts, that to enable a creditor to obtain an
order for the compulsory winding-up of a company, when there is a voluntary
winding-up, he must satisfy the Court that his rights will be prejudiced by the
voluntary winding-up — that is, that he will suffer by it." Per North, J., Eussell,
Cordncr ^- Co., (1891) 3 Ch. 175. (But see National Debenture, ^c. Co., (1891) 2 Ch. 518,
and Medical Battery Co., (1894) 1 Ch. 444.)

Having regard to the decision of the House of Lords in Ex parte Barnes, (1896)
A. C. 146, and the consequent difficulty in obtaining a public examination, Vaughan
Williams, J., does not attach so much importance as he formerly did to the investi-
gation argument. See Thos. Ed. Brinsmead and Sons, (1897) 1 Ch. 45, 61 , but see
the remarks on appeal, 13 T, L. R. 232.

As to Contrihitory^ s Petition.

Sect. 40 of 1867. — No contributory of a company under the principal Act shall be
capable of presenting a petition for winding-up such company unless the members
of the company are reduced in number to less than seven, or unless the shares in
respect of which he is a contributory, or some of them, either were originally allotted
to him or have been held by him, and registered in his name, for a period of at least
six months during the eighteen months previously to the commencement of the
winding-up, or have devolved upon him through the death of a former holder :
Provided that where a share has during the whole or any part of the six months
been held by or registered in the name of the wife of a contributory either before or
after her man-iage, or by or in the name of any trustee or trustees for such wife or
for the contributory, such share shall for the pui-poses of this section be deemed
to have been held by and registered in the name of the contributory.

" Held," in the above section, means standing in the name of the contributory.
Wala Wijnaad, 21 C. D. 849 ; but see Patent Steam Engine, 8 C. D. 464. The
petition should, but is not bound to, show that, under the section, the petitioner is
entitled to petition. City and County Bank, 10 Ch. 470.



42



WINDING-UP BY THE COURT. [ChAP. III.



Evidence on
petition.



Provi.Hion;j.l
order.



A fully paid up shareholder is a contributory, and is entitled to petition, but his
position is not favourable. See note to Form 28, infra. A shareholder whose shares
are only in part paid up has a better chance of success, but he is to a great extent
at the mercy of the majority, who may say that they prefer a voluntary winding-up.
Langham Skating Rink, 5 C. D. 669 ; Dord Gallery, W. N. (1891) 98. The Court
will, however, inquire into the composition of the majority. Varieties, (1893) 2 Ch.
235.

A shareholder who is in aiTear of calls must make out a very special case to justify
his petitioning in such circumstances, and he may be required to pay the calls into
Coiu't, or to give an undertaking for payment thereof, and if he gives such an
xmdertaking, and his petition is subsequently dismissed, he will be compelled to pay
up. Diamond Fuel Co., 13 C. D. 400; Crystal Reef Co., (1892) 1 Ch. 408.

The mere fact that the company is a losing concern does not make it just and
equitable to wind it up. Suburban Hotel Co., 2 Ch. 757. If the shareholders choose
they can wind up voluntarily or proceed under sub-sect. (1) above, and the Court is
not willing, unless a very strong case is made out, to take upon itself to interfere
with the domestic forum which has been established for the management of the
affairs of a company. See James, L. J., Langham Skating Rink, 5 C. Div. 683.

A shareholder who complains that he has been induced to take his shares by
misrepresentation should bring an action, not petition, for winding-up. Unioti Hill
Silver Co., 22 L. T. 402.

So, also, a winding-up petition is not the proper mode of stopping an ultra vires
proceeding. Fox^s case, 6 Ch. 176. Or sustainable because it would result in a
surplus by calls on those to whom shares have been issued at a discount. Fioneers
of Mashonahmd Syndicate, (1893) 1 Ch. 731.

The fact that there is a voluntary winding-up in progress is prima facie a bar to
a winding-up order on a shareholder's petition. Bank of Gibraltar, 1 Ch. 74 ;
Imperial Bank of China, 1 Ch. 339 ; London and Mercantile Discount Co., 1 Eq. 277.

It is for the petitioning shareholder to show the Court that he will derive from a
compulsory order some real benefit. Re Dore Gallery, W. N. (1892) 98.

But the Court does not require such a strong case as before 1890. Anglo-
A-Ustrian Co., 35 S. J. 469. And it will examine the composition of the majorities
in favour of voluntary winding-up resolutions. Varieties, (1893) 2 Ch. 235.

It will be borne in mind that, by virtue of Rule 36 of 1890, the statutory affidavit
i\xrn\^e'S, prima facie evidence of the statements contained in the petition. Accord-
ingly, if a proper case for winding-up is alleged, the company is compelled to meet
it. But, of course, if the case alleged is not well founded, the evidence afforded by
the statutory affidavit may be disposed of very readily. Re Gold Hill Mines, 23
C. Div. 210. However, when a company puts forward some person to deny
the allegations, a cross-examination of the deponent may displace Ids evidence.

Although the petitioner may establish his case, it does not follow that he will be
entitled to an order if other creditors oppose.

It was formerly not uncommon, where a company alleged itself to be solvent, to
make a winding-up order, with a direction that it shoidd not be drawn up for a
week, so as to give the company an opportunity of paying off the petitioner's debt.
But this practice has been discontinued. Baker, Tuckers ij' Co., "W. N. (1891) 33.



As to Official llccciver^s Petition.

Sect. 14 of 1890. — Whore a company is being wound up voluntarily or subject to
the HuporviHion of the Court, the ofliciul receiver attached to the Court having juris-
diction to wind up the company may present a petition that tho company be wound
up by tho Court, and thereupon, if the Court is satisfied that the voluntary winding-



WINDING-Ur PETITIONS. 43

tip or winding - up subject to supervision cannot bo continued with due regard to
the interests of the creditors or contributories, it may make an order that the com-
pany be wound up by the Court.

No petition under this section has so far been presented, but a form of petition
has been drafted for the Board of Trade.

As TO Drafting the Petition.

Whatever the ground for petitioning, care should be taken that the petition
alleges a proper case for the order. It is not enough to allege that the winding-up
is just and equitable, although sect. 79 of the Act of 1862 specifies that as one of
the cases for an order ; the facts which make it just and equitable must be stated.
Eica Gold Co., 11 C. Div. 41. Thus, where the petitioner relies upon the company's
inability to pay its debts, he should allege such inability without qualification.
Tf'ear Engine Works, 10 Ch. 191 ; Patent Cocoa Fibre Co., 1 C. D. G17 ; Steam
Stoker Co., 19 Eq. 416, And where a fuUy paid-up shareholder petitions, he should
allege that there will be a substantial surplus for the shareholders. Rica Gold Co.,
11 C. Div. 36. And if fraud is alleged, the facts constituting the fraud must be
stated. Jtica Gold Co., ubi supra.

So, too, where a second petition is presented with knowledge of a prior pending
petition, the second petitioner should explain the presentation of his petition, e.g.,
by alleging that the prior petition is collusive, or has been settled, or is not being
lon&fide prosecuted. Norton Iron Co., 47 L. J., Ch. 9. And see^os^, p. 52.

Where the petitioner relies on the substratum of the company being gone he
should allege accordingly, and where he relies on fraud in the formation of the
company he should state the facts, as general charges of fraud are not regarded.
Rica Gold Co., II C. Div. 36 ; St. Fciersburgh Gas Co., W. N. (1874) 196 ; 33 L. T.
637.

So, too, where a creditor petitions for a compiilsory order after the commence-
ment of a volimtary winding-up [sect. 145 of 1862], he should allege the voluntary
winding-up, and that his rights will be prejudiced thereby. Felham Fiiblishing Co.,
25 S. J. 429 ; St. Fetersburgh Co., ubi supra; New York Exchange, 39 C. Div. 415 ;
Electrical Engineering Co., 64 L. T. 658 ; Eussell, Cordner ^- Co., (1891) 3 Ch. 175.
And see sect. 14 of 1890 as to a petition by the official receiver.

R. 33 of 1890. — Every petition for the winding-up of any company by the Court,
or subject to the supervision of the Coiu't, shall be in the Forms Nos. 12 and 13 in
the appendix, with such variations as circumstances may require.

It may be that the petitioner will fail to prove the facts alleged, but, at any rate,
the di'aftsman should take care that the petition is not demurrable.

Where a proper case is not stated on the petition, the petition is termed demur-
rable, and is liable to be dismissed with costs ; and, although the Court can give
leave to amend where a case, though not duly alleged on the petition, is made out
in evidence, it is not desirable to encounter the risk of refusal. Demurrable
petitions are by no means uncommon.

It is usual not to confine a petition to the allegations necessary to show the case,
but to state any other circumstances tending to support the case made.

Thus, where the case made is inability to pay debts, it is usual to allege any
other facts which go to show such inability, e.g., that other creditors are pressing ;
that executions have been levied ; that the company has no money in hand ; that it
has bills falling due and no funds to pay, and so forth. One reason why this
course is adopted is the fact that Rule 36 of 1890 makes the statutory affidavit
[Form 49, infra'\ sufficient ^riwi« /ffci'e evidence of the statements in the petition,
and, accordingly, by stating the case made fully in the petition, the company is
compelled to meet it in detail, or else be taken to admit it.



44r WINDING-UP BY THE COURT. [ChAP. III.

Wishes of Creditors and Contributories.

As to ascertaining the wishes of creditors and contributories, see sects. 91 and
149, ajidpost, Chap. VIII.

Prior to 1890, when a petition was ponding, petitioners or their opponents often
applied, by circular letter or otherwise, to shareholders and creditors, requesting
them to sign and return documents expressing their approval or disapproval of an
order, and sometimes the documents authorized the applicants to oppose or support
the petitions without expense to the signatory. But now the proper practice ia to
give notice of intention to appear. See R. 20 of April, 1892, and post, Form 57,
p, 76. Occasionally, affidavits are made by shareholders or creditors verifying
their position, and expressing their wishes ; and without any affidavit or signed
document the wishes of any person or class of persons interested may be expressed
at the hearing by counsel {West Hartlepool Co., 10 Ch. 618) if special leave is then
given by the Court. R. 20 of April, 1892.

An explanatory circular, issued by a petitioning shareholder to his fellow
shareholders, is prima facie privileged, and not a contempt of Court. London Flour
Co., 16 W. R. 474 ; 17 L. T. 636. As to restraining a libel, see Quartz Hill Co. v.
Beall, 20 C. D. 502. As to contempt by newspaper comments in relation to
winding-up petition, see Croivn Banlc, 44 C. D. 649.



Presentation and Answering.

R. 15 of April, 1892. — A petition to the High Court in a winding-up matter to
which these rules apply shall be presented at the office of the registrar, who shall
appoint the time and place at which the petition is to be heard. Notice of the time
and place appointed for hearing the petition shall be written on the petition and
sealed copies thereof, and the registrar may from time to time alter the time
appointed and fix another time.

E. 179 of 1890.— The provisions of rule 2 of the Rules of the Supreme Covirt, 1887,
relating to petitions in the district registries of Livei-pool and Manchester, shall
apply to petitions presented in those registries imder the Acts and these rides.

The rule referred to provides that "Petitions presented in the district registries
of Liverpool and Manchester respectively, and requiring answer, shall be answered
in the name of one of the district registrars of the same respective registries ; and
the Rules of the Supreme Court, and in particular O. LXII., r. 18, shall, as
regards such petitions, be construed as if the district registrars of Liverpool and
Manchester respectively were mentioned in place of the registrars of the Chancery
Division." And see r. 35 (1) of April, 1892.



Presenting Petition.

Three copies of the petition, written breadthwise, and so as to leave a stitching
margin (see Practice Direction in Appendix) on paper which, strictly speaking,
should be 13 inches by 8 inches, in accordance with rule 7 of April, 1892, must be
taken to Room 66, Bankruptcy Buildings, Carey Street, viz. : —

(1) Impressed witli a 21. Companies Winding-up Stamp;

(2) Copy for the judge ;

(3) Copy to be scaled for sei-vicc.

The stamped copy is answered and handed back to the petitioner's solicitor with
tho following memorandum (Form 17).



WINDING-UP PETITIONS. 46

The above stamp of 21. includes the fee on the winding-up order ; but a stamp of
2s. 6d. is required when the i^etition is subsequently placed on the file.

The instructions for filling up the memorandum are contained therein.

The stamped coj)y is exhibited to the aifidavit of verification and to the affidavit
of service (where one is reqmrcd), and is brought back to Room 60 (with the memo-
randum and newspapers and affidavits or affidavit therein refen-ed to) not later than
two clear days before the hearing, when it is filed.



Memorandum to be given out wlien any peton for winding-up, Form 17.
whether compulsorily or under supervision, is presented. Memorandum

Jie . to be obtained

Peton presented on the day of , 189—, and appointed to petftion.''*"'^

Tbe heard before Mr. Justice Vaughan AVilliams, on the day of

, 189—.

The memdum at foot, when filled up and signed by the petr or
his solor, is to be produced, together with the original peton, the news-
paj)ers and affts or afft referred to in it, to the registrar, at the Com-
panies AVinding-up Office, Bankruptcy Buildings, Carey Street, "W.C,

not later than the day of , 189 — , two clear days before the

day of hearing.

The registered office of the above-named coy is situate at , which

is or is not within ten miles of the princij)al entrance to the Eoyal
Courts of Justice.

The peton was advertised in the London Gazette on the day of

\_seven clear days before the day for hearing~\, and in the of

the day of , {if not a London daily newspaper add), such last-
mentioned newsx^aper being a newspaper circidating in the district
where such registered office is situate.

The afft of , verifying the sd peton, was sworn on the day



Online LibraryFrancis Beaufort PalmerCompany precedents for use in relation to companies subject to the Companies acts, 1862 to 1890 ... (Volume 2) → online text (page 13 of 134)