Charles Mac Naughten Sir Francis Beaufort Palmer.

Company precedents for use in relation to companies: subject to ..., Volume 2 online

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equity, by assignment or otherwise, in a sum exceeding fifty pounds
then due, has served on the company, by leaving the same at the
principal place of business of the company, or by delivering to the
secretary or some director or principal officer of the company, or by
otherwise serving the same in such manner as the Court may approve
or direct, a demand under his hand requiring the company to pay the
sum so due, and the company has for the space of three weeks
succeeding the service of such demand neglected to pay such sum,
cr to secure or compound for the same to the satisfaction of the
creditor:

(h) Whenever any action, suit, or other proceeding has been instituted
against any member of the company for any debt or demand due, or
claimed to be due from the company, or from him in his character of
member of the company, and notice in writing of the institution of
such action, suit, or other legal proceeding having been served upon
the company by leaving the same at the principal place of business of
the company, or by delivering it to the secretary, or some director,
manager, or principal officer of the company, or by otherwise serving
the same in such manner as the Court may approve or direct, the
company has not within ton days after service of such notice paid,
secured, or compounded for such debt or demand, or procured such
action, suit, or other leg^ proceeding to be stayed, or indemnified the
defendant to his reasonable satisfaction against such action, suit or
other legal proceeding, and against all costs, damages and expenses
to be incurred by him by reason of the same :

{e) Whenever, in England or Ireland, execution or other process issued on a
judgment, decree, or order obtained in any Court in favour of any
creditor in any proceeding at law or in equity instituted by such
creditor against the company or any member thereof as such, or
against any person authorised to be sued as nominal defendant on
behalf of the company, is returned unsatisfied :

(d) Whenever^ in the case of an unregiattred company engaged in tcorking minei
within and tuhject to the juriedietion of the Stannariee, a customary decree
or order absolute for the sale of tht machinery, materials, and effects of
such mine has been made in a creditor's suit in the Court of the vieewarden.
See Stannaries Court Abolition Act, 1896 :



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

(e) Whoneyer, in Scotland, tho indaciaB of a charge for payment on an
extract decree, or an extract registered bond, or an extract registered
protest, have expired without payment being made :

(/) Whenever it is otherwise proved to the satisfaction of the Court that
the company is unable to pay its debts.

The position of the registered office is important, as it determinee,
generaUy, which Court has jurisdiction to wind up. See Companies
(Winding-up) Act, 1890, s. L

Having regard to North of England Assoc, (1900) 1 Ch. 481, the
High Court at any rate has, apparently, jurisdiction to wind up
an imregistered company, although it has no share capital or no
paid-up share capital.

The wording of sub-sect. 3 (b) and (c) is similar to sub-sects. (4)
and (5) of sect. 79. See supra, p. 47,



Who may Petition for Winding-up of any Company.

Application Section 82 of 1802.— Any application to the Court for the winding-up of a oom-

♦ nf "'^il P*^y under this Act shall he by petition ; it may be presented by the company, or

by petition ^^ ^^^^ **"® ^^ more creditor or creditors, contributory or contributoriee of the
company, or by all or any of the above parties, together or separately ; and every
order which may be made on any such petition shall operate in favour of all the
creditors and all the oontributories of the company in the same manner as if it had
been made upon the joint petition of a creditor and a contributory.

This section must be read subject to the following obsenrations : —
That a petition under sect. 14 of the Companies (Winding-up) Act,
1890, can only be presented by the official receiver ; and that a petition
under sect. 12 (8) of the Companies Act, 1900, can only be presented
by a shareholder.

The right given by this section to a contributory cannot be excluded
or limited by the articles of association. Peveril Gold Mines, (1898)

I Ch. 122.

Lifeassuranoe See sect. 14 of 1890, as to a petition by the official receiver; and
companies. g^^^ 21 of the Life Assurance Companies Act, 1870, as to a petition

by a current policy holder.
Abuse of Proceedings on a petition presented with an illegitimate object — e.g.,

process. ^ p^^. pi^ggui^ on the company — will be stayed as an abuse of process.

Re A Company, (1894) 2 Ch. 349 ; Gold Hill Mines, 23 C. D. 210.

Supra, p. 61. As to obtaining an injunction, see Billing^ s Burner

Syndicate, *' Times," April 29, 1899.

As to action for damages, see Quartz Hill Gold Mining Co. v. Eyre,

II 0. B. D. 674; Wyatt v. Palmer, (1899) 2 Q. B. 106.



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WINDING-UP PETITIONS. 63

As to ike Company^ B Petition.

Where the company gets into great difficulties, the directors, acting Company's
on the company's behalf, occasionally present a petition for winding- ^ ^°*
up; but such petitions are comparatively rare. Usually, where a
winding-up seems expedient, the directors take steps to obtain a volun-
tary winding-up, to be followed, if expedient, by a supervision order.

Directors generally dislike petitioning for a compulsory order, as the
shareholders may complain, and may object, and, if the petition is
dismissed, the directors may be saddled with the costs and imable to
pay them out of the company's assets. See Smith v. Duke of Man-
chester, 24C. D. 611.

Sometimes they get a friendly creditor to present a petition, and
thus obtain time to pass a resolution for winding-up, 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, c.y., 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 Creditor's
presently due, he is emphatically a creditor within the section. petition.

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

A creditor by assignment in writing of a legal debt can petition.
Sect. 25 (6), Judicature Act, 1873.

An equitable creditor and an equitable assignee who can give a
good receipt can petition, for no doubt the term *' creditor" in sect. 82
includes an equitable creditor. In common parlance the term extends
both to legal and equitable creditors, and, considering that the Act of
1862 vested the winding-up jurisdiction in the Court of Chancery, it
would indeed have been a strange anomaly if that Court could not
recognize an equitable creditor.

Besides, pcuragraph (1) of sect. 80 shows that the Legislature uses
the term '* creditor" in a sense which includes equitable creditor, and
primd facte it should be taken to use the same word in the same sense
in sect. 82.

To hold otherwise would involve the absurdity that non-payment
of an equitable creditor for 50/. would, under paragraph (1) of sect. 80,
be evidence of the company's inability to pay its debts, and yet that
the same creditor could not petition. And Byrne, J., has now held that
an equitable creditor is entitled to a winding-up order. Montgomery
Moore Ship Collision-Doore Syndicate, W. N. (1903) 121.



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

When, however, the petitioner has an equitable interest of such a
character that he cannot give a good receipt to the company for the
debt, he may not be entitled to petition, and when A. has mortgaged
his debt to B., it would seem that A. cannot without B.'s consent
petition. Pentalta Co., W. N. (1898) 55. See also European Banking
Co,, 2 Eq. 621.

A secured creditor may petition {Moor v, Anglo- Italian Bank, 10
C. D. 681) ; even after obtaining the appointment of a receiver in an
action. Borough of Portsmouth Tramways 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 as ground for
making a compulsory winding-up order. Bank of South Australia (2),
(1895) 1 Ch. 578. But apparently it is not enough for a supervision
order. See Bank of South Australia (1), (1894) 3 Ch. 722.

A garnishee order against a company does not make the garnishor
a creditor of the company. Combined Weighing, Sfc. Machine Co,, 43
C. D. 99. But an action can be brought on the order with a view to
presenting a petition. Pritchett v. English and Colonial Syndicate^
(1899) 2 0. B. 428.

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

Nor can a person who has guaranteed the payment of a debt due
from the company, 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 future
rent. United Club Co,, 60 L. T. 665. Nor is a vendor whose title has
not been made out. Milford Docks Co., 23 C. D. 292.
Ab to debt And it has been held that the holder of a bill of exchange not yet

^vftb^fi'^^* payable cannot petition {W, Powell 8f Sons, W. N. (1892) 94) ; but
in a subsequent case it was held that a creditor whose debt was pay-
able at a future date was entitled to petition, and an order was made
by Yaughan Williams, J., on his petition. Australian Joint Stock
Bank, W. N. (1897) 48. But see as to that case, Melbourne Brewery
and Distillery, (1901) 1 Ch. 453, where Wright, J., held that a deben-
ture stock holder of a company who has no present right to payment
of his principal or interest is not a creditor in such a sense as to be
entitled to petition for a winding-up order.

The question turns on the meaning of the word "creditor" in
sect. 82 of the Act of 1862. Does it mean exclusively a creditor whose



payable.



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WINDING-UP PETTnONSL 65

debt is preeentlj 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
trnderetood 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 sum exceeding 50/. then due.^* Why,
it may be said, were not these words repeated in sect. 82 if " creditor"
there was intended to refer exdusively 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 dear.
Primd/aeie, the change of language imports change of intention, and
goes to show that the Legislature did noi 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
nnable 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 debis 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 & 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, and the company is prosecuting ultra vires objects, 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 thdt if this is the true construction of
sect. 82, what need was there for sect. 21 of the Life Assurance Com-
panies 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 debitum in prasenti
tokendum in futuro {Ex parte Pricey 10 Oh. 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 insured must

P. F



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66



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



Ex debito
j'ustitia rule.



happen whilst the policy is so kept up.*' (Lindlej on Oompanies^
6th ed., p. 370.)

A creditor whose debt is presently due, and who cannot get paid, is
entitled, ex debito jusiitia, as between himself and the company, to a
winding-up order. Bowes v. Hope Soc, 11 H. L. C. 389 ; Western of
Canada Oil Co., 17 Eq. 1. The words of sect. 86 of the Act of 1862
(see Chap. YIII.) are in form permissive, but it is not a mere matter
of discretion whether the Court 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 0. 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 imder sects. 91 and 149 of 1862. West Hartle*
pool Co., 10 Ch. 618; Western of Canada, ^c. Co.^ 17 Eq. 1 ; Chapel
House Colliery Co., 24 C. Div. 259 ; Uruguay, Sfe. Co., 11 0. D. 372.
And see infra, p. 71.

And the ex debito justitite rule does not apply when the opposing
creditors or the company show that the petitioner can get no benefit
by a winding-up order {Chapel House Colliery Co., ubi supra), or,
according to Eidley and Bigham, JJ., if the order will not benefit the
creditors generally {Greenwood and Co. (1900), 2 Q. B. 306)— but the
decision cannot be supported on this ground, and it was disregarded
by Wright, J., in Ilfracombe, Sfc. Soc. (1901), 1 Ch. 102.
Investigation But Yaughan Williams, J., held that those who opposed on this
ground must prove their case, and that, if the circumstances appearing
by affidavit showed primd facie ihsi an investigation into the formation
or promotion of the company, or the issuing of the debentures or shares,
was required, that alone was an advantage to the unsecured creditors.
Krasnapolsky, Sfc. Co., (1892) 3 Ch. 174. And in the case of a private
company the same judge made some inquiry before accepting this
defence. London Health Electrical Institute, W. N. (1896) 170; on
app. W. N. (1897) 16. Assuming that these cases are now good law,
it is conceived 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 Engine Works, 10 Ch. 19L

As has already been pointed out in previous editions of this work,
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 the affairs of a company either privately
or publicly (at any rate by consent, 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



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WINDINO-UP PETITIONS. 67

trust, whether the winding-up is compulsory, under supervision, or
voluntary. And it had been previously held that a creditor could
not make out that he was prejudiced by a supervision order, merely
because such order would not involve the public examination of the
directors and promoters. *' The only advantage of a compulsory order
would be that which would be gained by the public [viz. under sect. 8
of 1890] if these matters were [publicly] investigated. 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. 146 of the Act of 1862."
Per Kekewich, J., Electrical Engineering Co,, 64 L. T. 658 ; and see
per North, J,, Russell, Cordner ^ Co,, (1891) 3 Ch. 175.

But recently the judges have shown a tendency to give weight to the
fact that an investigation into the company's affairs is called for, and
the Companies (Winding-up) Act, 1900, especially sect. 8, seems to
have been framed with a view to exposing frauds, even where pecuniary
results cannot be obtained.

And now by B. 5 (2) of 1903 examination in the High Court under
sect. 115 " shall be held in Oourt or in Chambers as the Court shall
direct."



As to Cofitributoryh Petition,

Sset. 40 of 18d7. — ^No contributory of a company under the principal Act shall be Contributoty
capable of presenting a petition for winding-up such company unless the members petitioning.
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 reg^istered 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 marriage, or by or in the name of any trustee or trustees for
such wife or for the contributory, such share shall, for the purposes of this section,
be deemed to have been held by and registered in the name of the contributory.

As to the meaning of the word '* contributory," see sects. 74 and 196
(6) of 1862.

'' Held," in sect. 40 of 1867, generally means standing in the name
of the oontributory. Wala Wynaad, Sfc. Co,, 21 0. D. 849 ; but see
Patent Steam Engine Co,, 8 C. D. 464. The petition should, but need
not, show that, under the section, the petitioner is entitled to petition.
aty and County Bank, 10 Ch. 470 j Glendower Steamship Co., W. N.
(1899) 114.

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

p2



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68 WINDING-UP BY THE COURT. [ChAP. Ill,

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 Co,, 6 C. D. 669; Dori Gallery, W. N.
(1891) 98.

But where a resolution has been passed, but not confirmed as a special
resolution, for voluntary winding-up, and this is brought forward as
evidence of the wishes of contributories against a compulsory order,
the Court will not refrain from making such an order if the resolution
is procured by the preponderating influence of a single shareholder.
West Surrey Tanning Co,, 2 Eq. 737; and see Varieties, Ltd,, (1898)
2 Ch. 235.
-A^^®"* 0* A shareholder who is in arrear 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 Court, or to give an imdertaking fot
payment thereof, and if he gives such an imdertaking, 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 th^ compatiy 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) of sect. 79 of 1862. ** The Court should not, unless a very
strong case is made, take upon itself to interfere with the domestic
forum which has been established for the management of the affairs
of a company.'' Per Tames, L. J., Langham Skating Rink Co., 5
C. Div. 685.

A shareholder who complains that he has been induced to take his
shares by misrepresentation should bring an action, not petition, for
winding-up. Union Hill Silver Co., 22 L. T. 402.
Ultra vires. 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. Pioneers of Mashonaland Syndicate,
(1893) 1 Ch. 731.
When voltin- The fact that there is a voluntary winding-up in progress is primd
*?'7 ^^^^*" facie a bar to a winding-up order on a shareholder's petition. Bank of
Gibraltar and Malta, 1 Ch. 69, 74 ; Imperial Bank of China, 1 Ch. 389 ;
London and Mercantile Discount Co., 1 Eq. 277. But it is not an
absolute leg^l bar to the jurisdiction of the Court to make acompulsory^
order. Fire Annihilator Co,, 32 Beav. 661 ; Gold Co., 11 Ch. D. 701 ;
Haycraft Gold, 8fc, Co., (1900) 2 Ch. 230.

Exceptions to the rule are where the resolution has been passed
fraudulently or where creditors appear and support the petition. Gold
Co., 11 C. D. 701. Or where there has been great delay, and practi-
cally nothing done, in the voluntary winding-up. Fire Annihilator
Co,, 32 Beav. 561 ; but these exceptions are not exhaustive. Haycraft



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WINDING-UP PETITIONS^ ^9

-Goldi Sfe, Co,, supra. As to when a shareholder may obtain a euper-
vision order, see post , p. 113.

For instance, a voluntary winding-up passed with a yiew to a
reconstruction of the company which has proved to be abortive will
not be allowed to stand in the way of a compulsory order. Guita
Percha Corporation, (1900) 2 Oh. 665.

- It is for the petitioning shareholder to show the Court that he will
derive from a compulsory order some real benefit. Re Dor6 Gallery,
W. N. (1892) 98.

' It has been suggested that the Court does not require such a strong
ease as before 1890. See Anglo-Austrian Co*, 35 8. J. 469. But the
reasons against making a compulsory order on a creditor's petition
after a voluntary winding-up apply with at least equal force in the
case of a shareholder's petition.

It will be borne in mind that, by virtue of Bule 29 of 1903 (following Evidence on
Eule 36 of 1890), the statutory affidavit furnishes />r«m4/acic evidence of Petition.
the statements contained in the petition. Accordingly, 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. 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 his evidence.

And see Chap. V.

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

It was formerly not uncommon, where a company alleged itself to Provisional
be solvent, to make a winding-up order, with a direction that it should ^^'der.
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 discon-
tinued. Baher, Tuckers ^ Co., W. N. (1894) 33.

A% to Drafting the Petition.



Online LibraryCharles Mac Naughten Sir Francis Beaufort PalmerCompany precedents for use in relation to companies: subject to ..., Volume 2 → online text (page 16 of 152)