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R. lb of R. S. C. 1883, 0. LI. (Nov, 1893) provides that—" In debenture holders'
actions, where the debenture holders are entitled to a charge by vii'tue of the
debentures, or of a trust deed, or otherwise, and the plaintiff is suing on behalf
of himself and other debenture holders, and where the judge in person is of ojpinion
that there must eventually be a sale, he may in his discretion direct a sale before
judgment, and also after judgment, before all the persons interested are ascertained,
whether served or not." Tliis rule to some extent obviates the difficulty in Griffith
T. Found, 45 C. D. 553, where Stii-ling, J., held that on a foreclosure summons all
persons interested in the eqtiity of redemption must be served. And the decision in
Francis v. Harrison, 43 C. D. 183, that trustees do not represent cestuis que trustcnt for
this purpose, is met by R. S. C. 1883, 0. XVI., r. 8, which, as amended by r. 4 of
Nov. 1893, provides that trustees are to represent beneficiaries where the former
are " sued in proceedings to enforce a security by foreclosure or otherwise."



408



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

Where a debenture holder has been authorized to defend on behalf of a class
he is not entitled to consent to judgment, but he may submit to judgment. Ree$ v.
mchmond, 62 L. T. 427.

As to the costs of a representative plaintiff who obtains a benefit, though not for
himself, see Carrich v. Wigan Tramivays Co., W. N. (1893) 98.

Stamps in Debenture Actions.

All affidavits in actions by debenture holders which have been or shall be trans-
ferred to Mr. Justice Vaughan Williams are to be filed in this office (Room 66,
Bankruptcy Buildings). Judicature fee stamps are used for these affidavits.
(Practice Directions, October, 1892.)

Sale.

Trust deeds generally give power to sell, and debentures sometimes provide for
the appointment of a receiver, and give him power to sell, and such powers can be
exercised notwithstanding a winding-up. Where there is an action sect. 25 of the
Conveyancing Act, 1881, is applicable, and the Court can order a sale accordingly.
See note to Form 470.

The liquidator has no equity to restrain a sale ; his remedy is to redeem. Ee
Langdendale Co., 8 C. Div. 150.

Not bound to come in in Winding-up.

A debenture holder is in no way bound to come in and enforce his rights in a
winding-up. Gaudet Freres, 12 C. D. 882 ; Dry Docks Corporation, 39 C. Div.
315 ; JosJiua Stiibbs, Limtd., (1891) 1 Ch. 475 ; Lloyd v. David Lloyd &; Co., 6 C. D.
339.

Eights wheue Company Solvent.

If the company is solvent, the debenture holders can prove for principal and
interest, and are not bound to A'alue their security before proving. JTellock^s case,
3 Ch. 769. And they can hold their securities until redemption in full by pajonent
of principal and interest and costs, or they can reahse the same by virtue of any
power of sale, and can then go in and prove, or they can apply to the Court to
realise the security, or with the leave of the Court (sect. 87 of 1862) bring an action
to enforce their securities.

Eights vhere Company Insolvent.

If, however, the company is insolvent {and prwid facie a company in winding-up
is to be considered insolvent : Milan Tramways, 25 C. Div. 587), sect. 10 of the
Judicature Act, 1875, supra, p. 359, applies, and the holders of the secured deben-
tures or debenture stock have four alternatives, open to all secured creditors of an
insolvent company ; that is to say, they may rely on their securities and not prove,
or may give up their securities and prove for the whole debt, or they may value
their securities and prove for the balance, or they may reaUse their securities and
then prove for the balance, if any.

Inasmuch, however, as debentures and debenture stock usually cover all the
property and uncalled capital of the company, there are many cases in which
nothing can bo gained by proving.

But wlicrc the debentures or debenture stock only cover part of the assets, in
such case it may bo desirable to prove. N(^vorthelcHS, if i^ossiblc, it is expedient,
before proving, to realise the securities, for then proof can be made for the actual



DEBENTURES AND DEBENTUllE STOCK. 409

deficiency, ■w^licrcas if proof is macle before realisation, the securities have to be
valued, and this in many cases amounts to a leap in the dark.

Even in the case of an insolvent company debenture and debenture -stock holders
are entitled as against their security to take principal, interest, and costs {Cotterell
v. Stratton, 8 Ch. 302) ; and even if the liquidator realises this security ho can
only claim the costs of realisation. Me Marine Mansions Co., 4 Eq. 611 ; Regent's
Canal Iron WorJcs, 3 C. Div. 411. And trustees for debenture holders rank, as
regards indemnity, before the liquidator. Exhall Co., 35 Beav. 449.

As to proving for full amount of debenture when it is given to secure less than
its face value, see Rcgcnfs Canal Iron Works Co., 3 C. D. 43 ; Robinson v. Mont-
gomeryshire Brewery Co., (1896) 2 Ch. 841.

Liberty to proceed by Action.

Wlien the winding-up is compulsory, or under supervision, and it is desired to
bring an action to enforce the secui'ities of debentures and debenture- stock holders,
the leave of the Court is necessary, and if the action has been brought before the
winding-up leave to proceed is necessary, but in either case the Court will give
leave very much as of course. Iloyd v. David Lloyd ^ Co., 6 0. Div. 339 ; and see
Chap. XXXIV.

Acceleration of Remedy by WiNDiNa-up.

Where there is a winding-up, debenture holders are entitled to have their
securities realised and enforced, notwithstanding that the principal moneys and
interest have not yet become payable in accordance with the contract. Panama Co.,
5 Ch. 518 ; Hodgson v. Tea Co., 14 C. Div. 859 ; Wallace v. Universal, S;e. Co., (1894)
2 Ch. 547. On reconstruction. Hooper v. Western Counties Co., 41 "W. R. 84.

The Court may appoint a receiver and manager. Victoria Steamboats, (1897) 1 Ch.
158.

Enforcing in Winding-up.

When all the debenture or debenture-stock holders are willing to concur, they
can, if the winding-up is compulsory or under supervision, apply by summons in
the winding-up asking the Court to realise their security instead of proceeding by
action. This was the course adopted in General South American Co., 2 C. D. 337,
and Coh)iial Trusts Co., 15 C. D. 465. See the orders set out in the 6th ed. of this
volume. Forms 461, 462. And without any such application they can agree with
the liquidator that he shall realise and pay them out of the proceeds. But very
commonly all will not concur, or there may be subsequent incumbrancers or other
difiiculties, and in such cases an action may be necessary.

Receiver.

The right to have a receiver appointed is well settled. Perry v. Oriental Hotels Co., HJo-ht to
5 Ch. 420 ; McMahon v. North Kent Iron Works Co., (1891) 2 Ch. 148. appointment.

Debenture holders who have a charge are entitled to special protection. Wilmot
V. London Celluloid Co., 52 L. T. 642. In that case Bacon, V.-C, refused to appoint
a receiver at the instance of debenture holders, on the ground that the liquidator
would sufficiently protect the debentiire holders. On appeal, however, the liqui-
dator was appointed receiver. And where a receiver had been appointed at the
instance of debenture holders, and after the appointment of the official receiver
as liquidator, the judge had simply discharged the receiver, the Court of Appeal Notwith-
reversed the order, holding that the debenture holders were entitled to have a standing
receiver. Strong v. Carlisle Press, (1893) 1 Ch. 268. (As to which, however, see obser- winding-up.



410



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



Receiver and
manager.



Doubts as to
jurisdiction.



Subsequent
cases.



rations of Vaughan Williams, J., in British Linen Co. v. South American, SfC. Co.,
(1894) 1 Ch. 108).

Moreover, where tbe debentui-es are charged on a going concern, which it is
desii-able to keep going for the purposes of sale, the debenture holders have a right
to have a receiver and manager appointed, for a receiver cannot caiTy on the
business unless he is also the manager. Manchester and Milford Co., 14 C. D. 645 ;
Peek V. TrinsmaranCo., 2 C. D. 115.

In Makins v. Fercy Ibhotson and Sons, (1891) 1 Ch. 133, Kay, J., expressed some
doubt as to the propriety of appointing a receiver and manager in a debenture
holder's action ; and. Feek v. Trinsmaran Co., ubi supra, was treated as almost the
only authority then existing in support of such an appointment. This, however,
was not the fact, for during the last twenty years there have been great numbers
of cases in which such appointments have been made by the High Court. It would
not be difficult to produce hundreds of such cases both before and after the date
of the decision of Kay, J. It would be most disastrous if doubt were now
thrown on the jurisdiction to make such orders, for enormous sums have been
obtained on the assumption that the Court would, if necessary, appoint a receiver
and manager. In Gardners. London, Chatham and Dover Railway , 2 Ch. 201, nothing
really was said calculated to throw any doubt on the power of the Court to appoint
a manager of an ordinary business which the Court would have jurisdiction to sell.
Lord Cairns' objection to the appointment of a manager in that case was, that it
was a statutory undertaking, and that there was no power to sell the undertaking or
to delegate the management. "When the Court appoints a manager of a business
or undertaking, it in effect assumes the management into its own hands ; for the
manager is the servant or officer of the Court, and upon any question arising as
to the character or details of the management, it is the Court that must direct and
decide. The circumstance that in this xjarticular case the persons appointed were
previously the managers employed by the company is immaterial. When appointed
by the Court they are responsible to the Court, and no orders of the company or of
the directors can interfere with this responsibility. Now, I apprehend that nothing
is better settled than that this Court does not assume the management of a business
or undertaking, except with a vieiv to the ivindiny-up and sale of the business or under-
taking. The management is an interim management ; its necessity and its justffication
spring out of the jurisdiction to liquidate and to sell ; the business or undertaking
is managed and continued in order that it may be sold as a going concern, and with
the sale the management ends." Obviously, this reason does not apply where the
Court has jurisdiction to sell the undertaking.

In consequence of the doubts of Kay, J., above-mentioned. North, J., had some
hesitation in api)ointing a manager in Ldtcards v. Standard, ^-c. Syndicate, (1893)
1 Ch. 574 ; but he did make the appointment. The jurisdiction was recognised in
1887 by Fry, L.J., who said, " In the case of a single mortgagee he has the right
to enter in consequence of his legal title ; in the case of more than one, where there
arc no priorities, but all have a right to enter at the same time, there is a difficulty,
which is increased where the property mortgaged is a business. To meet this
difficulty, the Court of Chancery has increasingly of late years, at the instance of
mortgagees of this description, appointed not merely receivers but managers.
That was done in this case." Feid v. Explosives Co., 19 Q. B. D. 264, 269.

In the case even of a tramways company. North, J., appointed a receiver and
manager, distinguishing Gardner v. L. C. % D. Fail. Co., supra, on the ground that
the Court had no power to wind up the company in that case. Bartlett v. West
Metropolitan Tramxcays Co., (1893) 3 Ch. 437. This case was, however, disapproved
by the Court of Appeal in Marshall v. South Staffordshire Trams, (1895) 2 Ch. 36, on
the ground that Gardner v. L. C. S; B. Fail. Co. applied. A receiver and manager



DEBENTURES AND DEBENTURE STOCK. 411

was appointed in Securities, ^-c. Corporation v. Brvjhton Alhamhra, W. N. (1893) 15,
and in Marriage, Keavc % Co., (1896) M. 380, 17th Feb., 1896. Receivers and
managers were also appointed in Taterson v. Gaslight Co., (1896) 2 Ch. 476, and in
Strapp V. Bull, (1892) S. 1720 : see (189o) 2 Ch. 1. Victoria Steamboats, (1897) 1 Ch.
158.

The debenture holders, in fact, stand in the same position as other mortgagees,
and mortgagees, "when the business is expressly or impliedly included in the mort-
gage, may obtain the appointment of a receiver and manager. Whitleij v. Challis,
(1892) 1 Ch. 64; Coioitg of Gloucester Bank v. Rudry JHcrthyr, ^-c. Co., (1895) 1 Ch. 629,

Where the Court is asked to appoint a receiver, and at the time of the application Where there
there is an officer of the Court in possession as liquidator, the usual practice has iswinding-up.
been to appoint the liquidator to be receiver. Perry r. Oriental Hotels Co., 5 Ch.
420. And, further, when a receiver has been appointed in an action, and after-
wards a liqmdator has been appointed by the Court, it has been usual to discharge
the receiver and appoint the liquidator to be receiver in his place. And see Part I.,
p. 890 ; and see sect. 4 (6) of 1890, supra.

But Perry v. Oriental Hotels Co., 6 Ch. 420, did not establish any universal rule. When liqui-
The question whether the same person shall be both liquidator and receiver is a dator ap-
matter for the discretion of the judge, and the Court of Appeal will not, except in pomted.
special circumstances, interfere with that discretion.

" As a general rule, when a company is being wound up and application is made
by the plaintiffs in a debenture holder's action for the appointment of a receiver, the
Court will appoint the liquidator receiver unless there be some special circum-
stances rendering it undesirable that he should be appointed, e.g., if he has assumed
a position of hostility to the debenture holders ; and if the judge of first instance
has come to the conclusion that there are such circumstances, the Court of Appeal
will not overrule the exercise of his discretion." Per Cotton and Fry, L.JJ., Giles
V. Xuthall, In re House Improvement Supply Association, W. N. (1885) 51.

Where there is much unpaid capital to collect, the Court may be disposed to Uncalled
appoint the liquidator receiver {Bartlett v. N. A. Hotel, 53 L. T. 611); but capital,
when the unpaid capital is of small amount, the Court will not force the liquidator
on the debenture holders {Barney v. Joshua Stubbs ^- Co., (1891) 1 Ch. 482) ; and the
Court is not disposed to appoint as receiver a liquidator who desires to impeach the
validity of the debentures.

In one case the official receiver and liquidator was appointed receiver and manager, Appeal,
except in respect of certain assets of which the receiver and manager in the action
was appointed receiver. British Linen Co. v. South American, ^-c. Co., (1894) 1 Ch. 108.

But where the judge disregards the plain rights of the debentui-e holders the
Court of Appeal will overrule his decision. Thus, where a receiver had been
appointed in a debenture holder's action, and afterwards a winding-up order
was made, and the official receiver having become liquidator, the judge had
discharged the receiver, thus in effect placing the liquidator in possession, the
Court of Appeal reversed the order on the ground that it disregarded the
debenture holders' rights, more especially as the amoimt owing on the debentures
exceeded the value of the assets charged thereby, and as the liquidator admitted
that he wanted the assets in order to see whether he might not question the validity
of the debentures. Strong v. Carlyle Press, (1893) 1 Ch. 268. (As to which, however,
see the observations in British Linen Co. v. South American, i^c. Co., (1894) 1 Ch. 108.)

When the winding-up is voluntary, the liquidator, not being an officer of the Voluntary
Court, has no locics standi to displace the receiver appointed in a debentui-e holders' liquidation,
action. Boyle v. Bettivs Llantwit Co., 2 C. D. 726.

And the liqmdator has no title to displace a receiver appointed by the debenture Receiver ap-
holders, or their trustees. In such case, unless the security is impeached, the Court pointed under
wiU not attempt to interfere with that security, or to force the liquidator on parties *"® security.



412



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



Public under-
taking.



Appointment
before default
made.



Possession of
eeceivee.



Personal
liability of
receivers.
Right to
indemnity.



Discharge of

Bcrvants.



Directions.



Borrowing
•with prior
lien.



who prefer to employ a stranger ; and further, even if the assets are in the hands
of a liquidator appointed by the Court, the Court will, on proper application, order
him to give up possession to the receiver. Henry Found, Son ^- Hidehins, 42 C. Div.
402.

Where the undertaking charged in favour of the debentures is in the nature of a
public undertaking, e.g., waterworks, gasworks, piers, or harbours, and there is no
power to sell such undertaking, the principles of the decision in Gardner v. L. C. S;
D. Rail. Co. (2 Ch. 201), apply, and the Court has no jurisdiction to appoint a
receiver and manager, though it may appoint a receiver. Blaker v. Herts and
Essex Waterworks Co., 41 C. D. 399; Marshall v. South Staffordshire Tram-
ways Co., (1895) 2 Ch. 36. But if the company is in liquidation, the Court can
authorize the liquidator to carry on the business, or a special manager can be
appointed.

The Court occasionally appoints a receiver, or receiver and manager, at the
instance of a debenture holder, although neither principal nor interest is in arrear,
e.ff., where the security is in danger. Wildet/ v. Mid-Hants Rail. Co., 16 W. R.
409 ; 18 L. T. 73 ; Hubhick v. Helms, 56 L. T. 232 ; Thorn v. Nine Reefs, 67 L. T.
93; M'Mahon v. North Kent Co., (1892) 2 Ch. 148; Earl of Lath om v. Greenwich
Ferry Co., 36 S. J. 189; Edivards v. Standard Rolling Stock, (1893) 1 Ch. 574;
Victoria Steamboats, (1897) 1 Ch. 158.

A receiver appointed unconditionally is at once deemed to be in possession
as against execution creditors. Morrison v. Skerne Ironworks Co., 60 L. T. 588.
Not so where he is appointed upon giving security. Edwards v. Edwards, 2
Ch. 291.

A receiver appointed by the Court is an officer of the Court, and any interference
with his possession, even by a person claiming under title paramount, is a contempt
of Court. Ames v. Birkenhead Eocks, 20 Beav. 332 ; Russell v. East Anglian Rail.
Co., 3 Mac. & G. 117; Helmore v. Smith (2), 35 C. D. 449; E.v parte Cochrane, 20
Eq. 282 ; Searlc v. Choat, 25 C. D. 723 ; Oswald on Contempt, 66. Those who claim
a right to interfere should apply to the Court for liberty. Richards v. Mayor of
Kidderminster, (1896) 2 Ch. 212 ; Marriage, Ncare cj- Co., (1896) 2 Ch. 663 ; Kerr on
Receivers, 129 ; Seton, 656.

When the receiver and manager is appointed by the Court he "accepts the
appointment on the terms that he will be personally responsible to the creditors of
the business, whilst he will be indemnified OTit of the estate." Per Rigby, L.J.,
E. Owen ^- Co. v. Cronk, supra ; Burt v. Bull, (1895) 1 Q. B. 276 ; compare this with
Gaskell v. Gosling, (1896) 1 Q. B. 669, where receiver appointed by trustees of
debenture trust deed.

See, further, as to receiver's personal liability and right to indemnity, Strapp
V. Bull, (1895) 2 Ch. 1 ; Hay v. Swedish, ^-c. Co., 36 S. J. 712.

As to servants being discharged by the Court appointing a receiver and manager,
see Reidy. Explosives Co., 19 Q. B. D. 2G4.

As to a distress for rates where a receiver has been appointed, see Richards v.
Mayor of Kidderminster, (1896) 2 Ch. 212 ; Marriage, Neave ^- Co., (1896) 2 Ch. 663;
Paterson v. Gas Light Co., (1896) 2 Ch. 476.

As a general rule tho receiver or receiver and manager should not apply to the
Court for directions but should get tho plaintiff or a defendant to apply. Parker v.
Dunn, 8 Boav. 497 ; Seton, 676. Borrowing by receiver upon prior lien securities
is frequently authorized by the Court, see Form 469a, infra. It is well settled
that the Court has jui-i.sdiction to authorize this. Greenwood v. Algcsiras Co., (1894)
2 Ch. 205. Where a receiver and manager is appointed, it is the usual practice
now to limit his appointment as nianagcr. Cliitty, J., first established this practice
many years ago, and the other judges, including Vaughan Williams, J., follow
that practice.



DEBENTUEES AND DEBENTURE STOCK. 413

As to priority of receiver's remuneration expenses over costs, see Batten v. Wedg- Priorities.
wood Co., 28 C. D. 317 ; Brahourne v. Anrjlo-Austrian Co., (1895) 2 Ch. 891.

As to priority of expenses over securities given by the receiver and manager, see
Strapp V. Bull, (1895) 2 Ch. 1.

Liquidator's Investigation Duties.
The liquidator should carefully investigate the position of the security, inasmuch
as any defect in it would enure for the benefit of the unsecured creditors of the
company. Accordingly he should look into the following matters : —

1. "Was the issue of the debentures or debenture stock within the power of the

company ?

2. Was the issue within the j)ower of the directors, and was that power regularly

exercised ?

3. Were the debentures issued at a discount, and was there power thus to issue

them ?

4. Were the debentures or debenture stock or any of them issued within three

calendar months before the commencement of the winding-up, and if so did
their issue constitute a fraudulent or undue preference ?

5. What is the value of the property charged? Is there any margin for the

unsecured creditors ; if there be, is it an assured margin or only a speculative
margin ?

6. In the interest of the unsecured creditors, is it advisable to pay off the deben-

tures or to pay the interest on the debentures or debenture stock, and to
obtain time to realize, or to procure from other sources an advance sufficient
to pay them off, or is it wiser to leave the seciu'ity holders to realize their
security as best they can ?

7. If the debentures include uncalled capital, was there power to charge that

in the articles, and has it been effectually charged ?

8. Would it be expedient to formulate a scheme of arrangement under the Joint

Stock Companies Aj.Tangement Act? (See Section IV., p. G99.)
The liquidator in considering these questions should act in an impartial manner
(supra, p. 204), and unless he believes that there is reasonable ground for impeach-
ing the securities, he should facilitate in every reasonable way the exercise of the
rights incident thereto. See further, s;</;ra., p. 411.

Release of Liquidator's Eights.
Where the debenture covers the whole of the assets, and the assets are shown to
be insufficient to pay the debt, the Court has power, on the application of the deben-
ture holders, to direct the liquidator to release the equity of redemption.

Power of Majority.
Debentures and trust deeds sometimes contain provisions enabling majorities to
bind minorities in regard to compromises and otherwise. See Part I., p. 651 ;
FoUit V. Eddystone Co., (1892) 3 Ch. 75 ; Sncath v. VaUeij Gold Co., (1893) 1 Ch.
477 ; Mercantile, ^-c. Co. v. English Bank of River Plate, (1894) 1 Ch. 578 ; Collingham
V. Slopcr, (1894) 3 Ch. 710. And such provisions may sometimes be utilised in
winding-up.

Title.

Practice Rule, 29 Nov., 1895. — Every writ of summons in a debenture-holder's

action shall be intituled : "In the matter of the company," and in cases where the

company is in pi-ocess 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.



414



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



Form 453.

Writ of
summons in
debenture
foreclosiu'e
action.



[Plaintiff A. (on behalf of himself and all other holders of mortgage
debentures in the defendant coy) ; defendant, the coy.]

The j)laintiif claims as a debenture holder of the defendant coy: —

1 . A declaration that the mortgage debentures issued by the defen-
dant CO}', and now outstanding, constitute a first charge upon all the
ppty of the coy.

2. To have an account taken of what is due and owing to the
plaintiff and to the other holders of the sd debentures, for ppal,
interest, and costs.

3. To have the sd debentures enforced by foreclosure or sale.

4. To have a recr and manager of the coy's ppty appointed.



Form 454.

Another
■where trust
deed.



[Plaintiff A. (on behalf of himself a«.d all other the holders of



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