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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that no income taxable under such schedule has been made, forego all claim to pay-
ment of the tax, whether the same is payable in full under sect. 1 (la) of the
Preferential Payments ki Bankruptcy Act, 1888, or otherwise, but the waiver of
claim imder this regulation shall not embrace rents, royalties, interest of money, or
annuities or fees, or salaries from which deductions have been made on account of
income tax.

6. In cases where an affidavit by the secretary or other officer of the company
cannot be obtained, the certificate of the official receiver or liquidator may be
accepted as sufficient evidence.

The following form is appended to the above regulations : —

Tlie Preferential Payments in Bankruptcy Act, 1888, and tlie
Companies Acts, 1862 to 1890,

In the matter of , Limtd.

I, , of , of the above-named coy, do hby make oath, and

say as follows : —

1. That {the ivords in brackets to he left out in claims under Schedule
B. or E.) [by virtue of an Act of Parliament, 5 & 6 Vict. c. 35, s. 134]
the sd coy is justly and truly entitled to be relieved of the payment of

the sum of 1., being the amount of income tax charged to the sd

coy under schedule — , from the 6th April, 189 — , to the 5th April,
189 — , the ground of exemption being that no income taxable under
the sd schedule has been made by the sd coy {the ivords '■'■hy the sd
coy,^^ to he left out in cases of Schedule E., assessmeiit of fees, salaries, Sfc,
pd to directors, Sfc.) during the afsd period.

Sworn at , in the county of

this day of , 189—.

Before me .

I hby testify that from an examination of the secretary \_or other
officer'] of the above-named coy (which coy is now being wound up

under an order made on the day of , 189 — ), and of such of the

books of accounts produced to me as show the trading or farming opera-
tions or income from other sources of the sd coy, during the period
referred to in the above afft, it does not appear that any income, or any
income liable to taxation under Schedules B., D. or E., was made \_see
ahove] by the sd coy during such period, and therefore the assets of

the sd coy should be relieved from the payment of 1., being the

amount of income tax claimed under schedule .

Dated this day of , 189 — .

A. B., off recr or liqr.

Address .






[Note. — This cliapter only deals with mortgage debentures and debenture stock, Unsecured
that is, debentures and debenture stock secured by mortgage or charge upon the ® ^^ ures.
property of the company or some part thereof. The holders of debentures and
debenture stock not so secured stand in the position of unsecured creditors. See
Chapter XXXVII.]

Where there is a winding-up compulsory or under supervision, leave to com- Leave to
mence or continue a debenture holders' action should be applied for and will be
easily obtained. David ZIo)/d # Co., 6 C. D. 339. Form 377.

Practice Master's Rule, 26th Nov., 1895. — Every writ of summons in a debentm-e Title and

holders' action shall be intituled, " In the matter of the Company," and in assignment

cases where the company is in process of being compulsorily wound up in the High
Court, the action is to be assigned to the judge having jurisdiction in the matter of
the winding-up.

The object of the rule is that the winding-up judge shall have control of all
debenture holders' actions. This object has to some extent been attained already
by transferring actions, but where there was a trust deed delay was often obtained
by making the trustees the first defendants on the record.

Sect. 4 (6) of 1890. — Where an application is made to the Court to appoint a Appointing
receiver on behalf of the debenture holders or other creditors of the company, the official
official receiver may be appointed. [But this is merely permissive.] . '

R. 14 of April, 1892 (1), [empowers the winding-up judge to transfer causes
pending in any other Court or Division brought or continued by or against the -rr^^/iiQtT-.ur)
company]. judge. °

(3) Provided always, that nothing in this rule or in Ord. XLIX. r. 5 of the Rules
of the Supreme Court, 1883, shall authorize the transfer of any action by a mort-
gagee or debenture holder for the piu-pose of realising his security ....

[Debenture holders' actions are, however, now constantly transferred by the Lord
Chancellor to the winding-up judge, in which case the following rules ap^jly.]

Rr. 1 to 3 of Aug., 1892, are as follows : —

1. Wliere any action is transferred to the judge who for the time being exercises Registrar a
the jurisdiction of the High Court to wind up companies, the registrar under the po^'^^s.
Companies Winding-up Rules may, subject to the general or special directions of

the judge, hear, determine, and deal with any application, matter, or proceeding
which, if the action had not been transferred, would have been determined in

2. In every cause or matter within the jurisdiction of the judge, whether by A'U'tue
of the Act or by transfer or otherwise, the registrar shall, in addition to his powers
and duties under the Companies Winding-up Rules, 1890 and 1892, have all the
powers and duties of a master, registrar, chief clerk, or taxing master.

P. D D



Action in

*' winding-up


3. In the Companies Winding-up Rules, 1890 and 1892, and tliese rules, the
■words " winding-up matter " shall, in relation to the High Court, where the
winding-up of a company is proceeding before the judge, include any action
brought by or against that company which has been or shall be transferred to the

When a company goes into liquidation, it is generally found to have issued
debentures or debenture stock, or both.

Debentures and debenture stock are in most cases secured by mortgage or charge
upon the whole undertaking of the company and its uncalled capital. The extent
of the security must be ascertained from the instruments constituting it.

See further. Part I., p. 640.

It may be useful here to refer to some of the principal matters which arise.

Agreed to be issued, p. 404.
Bearer debentures, p. 404.
Bills of Sale Acts, p. 405.
Books, charging, p. 404.
Borrowing powers, p. 402.
Compromises, p. 413.
Deposit, p. 406.
Discount, p. 405.
Enforcing, pp. 407, 409.
Floating security, p. 403.
Fraudulent preference, p. 405.
General charge, p. 403.
Liberty to proceed, p. 409.
Liquidator's duties, p. 413.
" One man" companies, p. 405.
Order and disposition, p. 405.

Pari passu clause, p. 406.

Petition by, pp. 50, 51.

Possession, p. 412.

Priorities, p. 406.

Provisional certificates, p. 406.

Rates, p. 412.

Receivers, p. 409.

Registered, p. 404.

Registration, p. 405.

Release by liquidator, p. 413.

Rights where company solvent, p. 408.

Rights where insolvent, p. 408.

Sale, p. 408.

Set-ofP, p. 406.

Trust deed, p. 407.

Uncalled capital, p. 403.

BoRKowiNG Powers.

General In order to justify the raising of money by the issue of debentures, it must appear

power. ^j^j^|. ^-^Q company has power to borrow. Companies under the Act of 18.62 generally

have express power to borrow, but where there is no express power there is gene-
rally an implied power, for it is considered that a trading company has an implied
power to borrow. General Auction Estate v. Smith, (1891) 3 Ch. 432 ; Bryon v.
Metropolitan Omnibus Co., 3 De G. & J. 123 ; Australian Co. v. Mounsey, 4 K. & J.

Limit. There is no statutory limit to the borrowing powers of a company under the Act

of 1802. But very commonly the articles of association contain a limit, and where
there is such a limit a person dealing with the company is bound to ascertain that
the limit is not exceeded {C/iaplcov. Brunswick Building Society, 6 Q. B. D. 715);
but a lender is not bound to examine into the internal affairs of a company, and if
the contract made with him is apparently regular, having regard to the limit and
articles, he need go no further. Royal British Bank v. Turquand, 6 E. & B. 332 ;
Mahoncy v. East Uohjford, L. R. 7 H. L. 869 ; Irvine v. Union Bank of Australia, 2
App. Cas. 3G0; and see Davies v. JR. Bolton ^ Co., (1894) 3 Ch. 678; County of
Gloucester Bank v. Eudry, ^-c. Co., (1895) 1 Ch. 629, and Part I., p. 301 ; Hampshire
Land Co., (1896) 2 Ch. 743. Agent exceeding. Eohinson v. Monty ornery shire Brewery
Co., (1896) 2 Ch. 841 ; Bigycrstaffv. Eoivatfs Wharf, (1896) 2 Ch. 93.

Overdrawing. Overdrawing the company's banking account is borrowing. Cunliffe, Brooks ^ Co,
V. Blackburn Benefit Socie/y, 9 App. Cus. 8G5 ; Eyle Works (No. 2), (1891) 1 Ch.


General Charge .

A general charge on the undertaking and property, present and future, of a com-
pany is valid, and ranks before the unsecured creditors. Fanama Co., 5 Ch. 318;
Florence Land Co., 10 C. D. 630 ; Colonial Trust Corp., 15 C. D. 4G5. But this will
not cover uncalled capital. Strcatham and General Estates Co., (1897) 1 Ch. la.

Floating Charge.

Unless otherwise expressed, a general charge is construed as a floating charge, Does not _
that is to say, as a charge on the property for the time being of the company, so Q^rv dealiues
that the company may carry on its business and deal with its property by way of
sale, mortgage, lease, exchange, or otherwise, in the ordinary course of its business.
See the above cases, and Wheatley v. Silkstone Coal Co., 29 C. D. 715 ; Uithhuck v.
Helms, 56 L. T. 233 ; White v. Roijal Exchange Shipping Co., 58 L. T. 174 ; Willmott
V. London Celluloid, 34 C. D. 150; EngelY. South Metropolitan Co., (1892)1 Ch. 442;
BruntoH v. Electrical Engineering Corporation, (1892) 1 Ch. 434 ; Government Stock, ^c.
Co. v. Manila R. Co., (1897) A. C. 81.

But not uncommonly this liberty is qualified to some extent by the terms of the Prohibition
security, e. g., it may prohibit mortgages or charges iu priority to the debentures. ^^ dealings.
Part I., p. 632, and Brunton v. Electrical Corp. supra; English and Scottish Co. v.
Brunton, (1892) 2 Q. B. 700.

Such prohibition does not affect a mortgagee or purchaser who takes the legal Legal mort-
estate without notice of the prohibition. See English and Scottish Co. v. Brunton, ° °
(1892) 2 Q. B. 700 ; Bower v. Foreign Gas Co., W. N. (1877) 222 ; Old Bushmills Co.,
(1896) 1 Ir. 301 ; affirmed on appeal. Mew's Dig., 1896, 52.

As to effect of charge against judgment creditors and garnishors, see Taunton v.
Sheriff of Wanvickshire, (1895) 2 Ch. 319 ; Eobson v. Smith, (1895) 2 Ch. 118.

As to effect on right of set-off, see Biggerstaffv. Eoivatfs Wharf, (1896) 2 Ch. 93.
Subsequent floating charge. Smith v. English, ^-c. Investment Trust, W. N. (1890)

Mortgage op Uncalled Capital.

A mortgage or charge upon uncalled capital has been held to be valid if the What words
articles permit it and the memorandum does not prohibit it. Be Fyle Works, 44 ^^^^^^^ •
C. Div. 6Z^ ;■ Phmnix Bessemer Co., 32 L. T. 854; 44 L. J. Ch. 683; Neivton v.
Anglo- Australian Co., (1895) A. C. 244. But directors cannot mortgage or charge
uncalled capital where they only have power to mortgage the "property " of the
company. Stanley's case, 4 De G-. J. & S. 407 ; Sankey Brook Co., 10 Eq. 381 ; Bank
of South Australia v. Abrahams, L. R. 6 P. C. 265. Nevertheless power to mort-
gage the uncalled capital is included in a power to mortgage the property and
rights of the company: Howard v. Patent Ivory Co., 38 C. D. 156 ; or its i^roperty,
assets and revenue : Page y. International, 6;c. Co., W. N. (1893) 32 ; and in a power
to give any security of any description for money. Newton v. Anglo- Australian Co.,
tibi supra; and see Jackson v. Maitford Coal Co., (1896) 2 Ch. 340.

A doubt has been suggested whether reserve capital under the Companies Act,
1879, can be mortgaged. Be Fyle Works, 44 C. Div. 534 ; but see (1895) A. C. 250.

Debentures charging the "undertaking and all the property whatsoever and
wheresoever, both present and future," will not include uncalled capital. Strcatham
and General Estates Co., (1897) 1 Ch. 15.

The charge may be enforced by foreclosure. Sadler v. Wurlcy, (1894) 2 Ch. 170 ;
Welch V. National Cycle Co., W. N. (1886) 97, 196 ; Part I., p. 909 ; but see Elias v.
Continental Oxygen Co., (1897) 1 Ch. 511 ; 13 T. L. R. 224.

D D 2




Debentures and Debenture Stock to Bearer.

There is now, it i.s believed, a general custom or usage to treat such instruments
as negotiable. Part I., p. 620. But whether this is so or not, they are now
generally framed so as to secure as far as possible the characteristics of negotiabihty.
Ibid. pp. 620—629.

And accordingly, where a debenture is expressed to be payable to bearer, the
bearer can, as a general rule, sue in respect of it, petition for the winding-up of the
company, and, if necessary, prove in his own name.

Stock certificates to bearer are very commonly issued under the provisions of the
trust deed constituting the stock, and a ti'ust for the bearer thereof is effective in
equity. Blaheley Ordnance Co., 3 Ch. 154 ; Imperial land Co., 11 Eq. 487; Olathe
Co., 27 C. D. 278. Sainpshire land Co., (1896) 2 Ch. 743. See further, Part I.,
pp. 620—629.

Eeqistered Debentures and Debenture Stock.

Debentures are very commonly made payable to the registered holders, and
debenture stock is generally inscribed in a register and represented by certificates
of title issued to the registered holders. See further. Part I., pp. 615 — 619.

Debentures Agreed to be Issued.

Debentures Where money is advanced to a company upon the terms that debentures charged

in blank. upon the undertaking or upon any specified property, shall be issued by way of

security, the lender at once obtains a charge in equity, for equity treats that as
done which ought to be done. Levy v. Abercorris Slate Co., 37 C. D. 260 ; Ee New
Durham Salt Co., 7 T. L. E.. 13 ; Boss v. Army and Navy Co., 34 C. D. 43 ; Tailby
v. Official Receiver, 13 Ap. Cas. 523. And the deposit, by way of security, of
debentures containing a blank for the payee's name, affords evidence of an agree-
ment to give security. Ee Strand Music Hall, 3 De G. J. & S. 147. Even if the
debentures are themselves void as such. Queensland Land and Coal Co., (1894)
3 Ch. 181 ; Hampshire Land Co., (1896) 2 Ch. 743.


It has been held that securities purporting to charge aU the property of a com-
pany are not to be construed as extending to its books. Clyne Tin Plate Co., 47
L. T. 439 ; General Assets Fire Co. v. Chesterton Co., 32 S. J. 645 ; and Engel v.
South Metropolitan Co., (1892) 1 Ch. 442.
Registers. Quare, how far these cases are consistent with Capital Fire Insurance Association,

24 C. D. 408. Clearly, however, a company cannot charge the register of members
and register of mortgages.

Foreign Property.

Local laws. Land situate abroad, but belongiDg to a company registered in England, can, in

most cases, be charged in favour of debenture and debenture -stock holders, without
regard to the formahties required by the local law in relation to transfers and
mortgages, for tlio company being there the equity jurisdiction in possession is
available to enforce the equitable rights. Penn v. Lord Baltimore, W. &T. L. C. Eq.,
Gth ed. 1047; Ex parte Bollard, 4 Dcac. 27 ; Ex parte Holthausen, 9 Ch. 722 ; Cootc
V. Jecks, 13 Eq. 697; Mercantile, %c. Co. v. Eiver Plate, ^-c. Co., (1892) 2 Ch. 303.
And see Part I., p. 635. But priority may be obtained by adverse claimants under
the local law. Ee Florence Land Co., 10 C. Div. 530; Ee Queensland Co., (1891) 1 Ch.


Bills of Sale.

According to the decision in Standard Manufacturing Co., (1891) 1 Ch. G'27, the Bills
of Sale Acts, 1878 to 1882, do not apply to companies under the Act of 1862. The
ground of the decision is that bills of sale by such companies cannot be regarded as
secret, seeing that such companies are, by sect. 43 of the Act of 1862, bound to keep
a register of mortgages and charges. This seems a singular conclusion, seeing that
the register, under sect. 43, is not open to the public, and that the omission to re-
gister does not affect the validity of this mortgage or charge. Wriglit v. Morton, 12
Ap. Cas. 371. However, the decision has been largely acted on. See also Re Opera,
(1891) 3 Ch. 260 ; Marine Mansions Co., 4 Eq. 601 ; and AspJialtic Wood Co., 49 L. T.
159 ; in which it was held that debentures charging chattels are valid as against a
liquidator. And see Taunton v. Sheriff of TFarwickshire, (1895) 2 Ch. 319 ; Robson v.
Smith, (1895) 2 Ch. 118 ; Richards v. Maijor of Kidderminster, (1896) 2 Ch. 212. And
see post, "Debextuee3 seciteed by Trust Deed."

'* One Man " Companies.

As to debentures given by these companies, see Salomon v. Salomon, (1897) A. C.
22 ; Seligman v. Prince S; Co., (1895) 2 Ch. 617, and Part I., pp. 460—462.

Order and Disposition.

Sect. 10 of the Judicature Act has not rendered the bankruptcy rules as to order and
disposition applicable. Crumlin Viaduct Works Co., 11 C. D. 755 ; Gorringey. Irwell
Indiaruhher Works, 34 C. D. 128.


Debentures and debenture stock are not invalidated by non-registration in the
register of mortgages of a company required to be kept by sect. 33 of the Act of
1862 {General South American Co., 2 C. D. 337), and even where the mortgagee is
director or other officer of the company, it is now settled that non-registration does
not affect the validity of the mortgage or charge. Wright v. Horton, 12 Ap. Cas.

Fraudulent Preference.

The issue of debentures or debenture stock may be invalidated as a fraudulent or
tmdue preference, under sect. 164 of 1862, and sect. 48 of the Bankruptcy Act, 1883
[Gaslight Co. v. Terrell, 10 Eq. 168), provided the issue is within three months
before the commencement of the winding-up. Re Liverpool Co., 30 W. R. 378. But
real bond fide pressiu-e excludes fraud. Ex parte Hall, 19 C. Div. 580.

And debentures issued bond fide to prevent a winding-up are not avoided. Inns
of Court Hotel, 6 Eq. 90.

Debenture and debenture -stock holders are not as such entitled to impeach in a
winding-up an undue or fraudulent preference, inasmuch as sect. 164 is intended for
the protection of the unsecured creditors. Wilmot v. London Celluloid Co., 34 C. D. 147.


Debentures may be issued at a discount where the directors have the general
powers of the company, and the company itself has power to issue such securities.
Anglo- Banubian Co., 20 Equity, 339; Regent's Canal Iron Works Co., 3 C. D. 43;
Campbell's Case, 4 C. D. 470 ; Webb v. Shropshire Railways Co., (1893) 3 Ch. 307.



As a general rule there is no objection to directors who have power to issue
debentures raising money thereon, and depositing the same as security for the
loan, with power for the depositee to sell. Regenfs Canal Iron Works Co., 3 C. D.
43 ; Be S(ra?ul Music Hall, 3 De G. & S. 147 ; 13 L. T. 177 ; Hampshire Land Co.,
(1896) 2 Ch. 743.

Provisional Scrip Certificates.

Where debentures or debenture stock are offered for subscription by prospectus
or otherwise, it is very common to issue certificates to the subscribers, exchangeable
for debentures or definitive certificates when the payments to be made by such sub-
scribers are complete, and a provision for forfeiture on default. If a winding-up
takes place before the payments are complete, the subscribers are not bound to
complete their payments. Ellerhfs Claims, 20 W. R. 855.

Pari Passu Clause.

Debentures very commonly contain a clause providing that all the debentures of
the series are to rank pari passu, without any preference, one over another. The
object of this clause is to place all the debenture holders on a level, although they
may have been issued at different times. In the absence of such a declaration, it
might be held that the general maxim qiii prior est in tempore potior est injure applies,
and the debentures would then rank in the order in which they were issued or
agreed to be taken. See Neiv Clydach, 6 Equity, 514 ; Florence Land Co., 10 C. D.
530 ; Lister v. Henrij Lister ^ Son, W. N. (1893) 33.


Where mortgage debentures of a specific series are to rank pari passti, the com-
pany cannot issue debentures of some further series to rank pari passu with the
original series, unless the terms of the last-mentioned series reserved such a power
to the company, either expressly or impliedly. Gartside v. Silkstone and Boddsworth
Co., 21 C. D. 762 ; James v. Boydthorpe Co., W. N. (1890) 28. And see Lister v.
Henry Lister ^ Son, supra; Fowler v. Broad, (1893) 1 Ch. 777. See further. Part I.,
p. 670.

As to priorities where two floating charges created, see Smith v. English, ^-c.
Investment Trust, W. N. (1896) 86.


Primd facie, debentures and debenture stock being choses in action, are only
transferable siibject to equities between the company and the original subscribers
{Mangles v. Dixon, 3 H. L. C. 702 ; Re Hotel Investment Co., 3 Ch. 355) ; but usually
by the contract the company waives this right. See Part I. of this work,
pages 620 — 629. And the validity of such a waiver is beyond question. Agra and
Masterman^s Hank, 2 Ch. 397. But even where there is such a waiver if when a wind-
ing-up takes place the company has a cross-claim against a debenture or debenture-
stock holder at the commencement of the winding-up ; such cross-claim may be
Bet off pro tan to against the debenture, and in the result the debenture may, if the
cross-claim is equal or more than the amount thereof, be satisfied. Fx parte
Barnctl, 9 Ch. 293.

As to set-off in respect of calls, see Taunton, Bclmard, Lane ^- Co., (1893) 2 Ch. 175.

Ah to the effect of debciituros on other jiersons' right of set-off, see Biggcrstaffx.
MoicatCs Wharf, (1896) 2 Ch. 93.


Debentures without Trust Deed.

Such deteniures are very common. They generally contain a charge on the
undertaking by way of floating secui'ity with a pari passu clause. An action to
enforce such debentures should bo brought by one of the debenture holders on
behalf of himself and the others of the series, and the company should be made a
defendant, as also any subsequent incumbrancers. The same form of action should
be adopted where debenture stock has been issued without any trust deed to
support it.

Debentures Secured by Trust Deed.

Such debentures are very common. The trust deed generally includes only part
of the property of the company, but sometimes it includes the whole midertaking.
See further, Part I., p. 633.

Action on Behalf.

Foreclosure may be ordered in an action commenced by originating summons.
Ohh-cy V. Union Works, W. N. (1895) 77. Part I., pp. 909, 910.

Foreclosure is generally available in the case of mortgage debentures not secured
by trust deed. Sadler y. Worlcy, (1894) 2 Ch. 170. But in the case of debentures
and debenture stock secured by trust deed the remedy of foreclosure is not generally
available. Schweitzer v. Mayhew, 31 Beav. 37; Seton, 1583; Locking v. Parker,
8 Ch. 30 ; lie Alison, 11 C. Div. 28'1. And foreclosure may be impracticable where
some of the class on whose behalf plaintiflp sues are out of the jurisdiction. Elias v.
Continental, ^-c. Co., (1897) 1 Ch. 511 ; 13 T. L. E,. 224.

A declaration of right to f oreclosiu-e can only be made in Court. Halifax Banking
Co. V. Radcliffe [Ld.), W. N. (1895) 63.

Until judgment the plaintiff in a debenture holder's action, suing on behalf, &c.,
is domi)iHs litis, and can, if he thinks fit, compromise or abandon the action. Feni-
berton v. Topham, 1 Beav. 316. But he loses this control after judgment, and if he
declines to proceed the conduct of the action may be given to another debenture

Where a debenture holder sues on behalf of himself and others, it may be that
some of the others whom he purports to represent dissent from the proceedings.
In such cases the dissenting debenture holders can apply to have one of their
number added as a defendant. Watson v. Cave, 17 C. Div. 19 ; R. S. C,
Order III. r. 4. See Form 461. Care must be taken that the plaintiff has a good
title to sue, for if the company has a good defence as against the plaintiff, whether
by way of set off or otherwise, the action may fail. Burt v. British Nation Associa-
tion, 4 De G. & J. 158 ; Suggons v. Tweed, 10 C. Div. 359.

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