Scottish Court of Session Decisions

The Judicial Factor on the Girvan and Portpatrick Junction Railway Company presented this minute in the note for special powers formerly lodged by him, reported ante, July 19, 1881, vol. xviii., p. 711. In the minute he stated—“That since this note was last before their Lordships he had advertised the undertaking of the Girvan and Portpatrick Junction Railway Company for sale, and had endeavoured to obtain a purchaser or purchasers therefor. That after various negotiations he received an offer from the Glasgow and South-Western Railway, who proposed to purchase the undertaking for £100,000. That the judicial factor declined this offer as being inadequate. That thereafter the judicial factor obtained an offer of £200,000 for the said undertaking, with whole rights and privileges and appurtenances thereof. The judicial factor considers it to be in the interest of all parties that this offer should be accepted, and he has accordingly accepted it, subject to the approval of their Lordships, and his being able to obtain the necessary Parliamentary sanction.”

He therefore craved the Court “to resume consideration of his note for special powers, to approve of the course which the judicial factor has taken, and authorise him to apply to Parliament for authority to promote a bill in Parliament for giving effect to the said sale.”

Messrs Rushton and Cross, creditors of the company, upon whose petition the factor had been appointed, lodged answers, in which they stated—“The cost of construction of the said railway was about £500,000, and since its construction it has been kept in good working order by the Glasgow and South-Western Railway out of the earnings of the line. The said price of £200,000 is altogether an inadequate price for the line. It will, moreover, prove insufficient to pay the debenture-holders and preferable creditors. The Glasgow and South-Western Railway Company has for some years been working the said line under a working agreement with the directors. A new agreement had been arranged with the said company, which was much more favourable to the Girvan Company; but the judicial factor refused his sanction thereto, and at present the line is being worked by the Glasgow and South-Western Company under the old agreement from month to month. The traffic on the said line has been gradually developing, and the receipts show a steady increase. The report by the directors for the half-year to 31st August 1881 shows that after paying all working expenses there was sufficient to meet the interest for the half-year payable to the Portpatrick Railway Company for joint use of the Stranraer section of their line, and leaving a balance at the credit of the company. The respondents understand that the directors of the Girvan and Portpatrick

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Railway Company are applying to Parliament for power to borrow a sum on debentures, preferable to the existing debentures, with a view to purchasing rolling-stock to work the said railway, and they observe that in the Parliamentary notice published by the judicial factor he has also asked similar powers with the same view. The respondents believe that on these powers being granted the money will be obtained, and that by working the line independently the traffic will be largely increased, and a better return obtained for all concerned than would be obtained by the carrying out of the proposed sale. The sale of the line by the judicial factor at the sum named would practically be confiscation of the interests of the ordinary and preference shareholders, while at the same time the debenture-holders would not be paid in full, and would be burdened with serious costs in carrying out such a transaction, including the discussion and adjustment of the rights of parties claiming an interest in the price. The interests of the creditors are not suffering by the delay, but, on the contrary, the line is becoming more valuable every day, and will, by careful and proper management, become still more valuable. The proposed sale of the line has not been sufficiently advertised, and a forced sale such as is proposed is contrary to the interests of all concerned. The terms of the said agreement are not known to the respondents, and have not been submitted to the directors of the company, nor sanctioned by them, nor have they been communicated to the debenture-holders, or shareholders, or creditors of the company, whose interests will be most injuriously affected by it.”

The respondents therefore submitted that the prayer of the minute should be refused.

Counsel for the judicial factor intimated at the bar, after the discussion had proceeded some length, that the proposed offer to purchase the line for £200,000 had been withdrawn, and that in consequence he should now ask the Court under the note for leave to apply to Parliament for general powers to sell the line to anyone who would purchase it.

Argued for the judicial factor—There had been two meetings of creditors—one in Glasgow and the other in Edinburgh—and in addition a circular had been sent out to enable those creditors to express an opinion who were not able to attend either meeting. At the Glasgow meeting there voted for delay £30,000 odd debenture and £1000 other creditors; to accept the offer to purchase the line £8000 of debenture creditors; to refuse, £25,000 debenture and £7000 other creditors. At Edinburgh there were only two motions before the meeting—to accept or to refuse—and the result was that £12,000 debenture and no other creditors were for accepting, and £5000 debenture and £1000 other creditors voted to refuse. Then of those who were not present at either of the meetings, but who by circular stated their opinion, £48,000 debenture and £4000 other creditors voted to accept, and £16,000 debenture and £18,000 other creditors voted to refuse. There was thus a majority of debenture-holders in favour of the judicial factor of about £22,000. Now, as to the merits of the proposal to sell the line, the position of matters was this—The debentures came altogether to £207,000; Lloyd's bonds to £41,977; outstanding claims, unpaid interest, and other expenses, to £70,509—making an indebtedness of £112,486, or a total indebtedness of £320,000, before coming to the share capital at all. To meet this debt there was nothing, but under the working management going on they had been, and still were, losing money, though the last half-year showed a surplus of £35, and the debenture interest alone was accumulating at the rate of over £10,000 per annum. The only way therefore to get anything for the creditors was to sell the line—at least if there was another way it was for the respondents to say what way that was, and not remain in their present negative attitude. The factor was acting in a ministerial capacity in the interest of all, and he was supported by a large body of creditors who ought not any longer to be kept out of their money, so far as it could be got now, because some creditors chose to take a different position.

Argued for the respondents — The judicial factor had somewhat overstated the amount of his support. Taking debenture-holders only, there were, in the first place, the present respondents, who held a debenture for £10,000, besides £35,000 of other debt, as well as ordinary and preference shares, and they had not voted at either meeting or replied to the circular. Then, some £2000 of those who had returned their circulars with a vote for accepting the offer did so under qualifications which really made their acceptance almost valueless. Thus, even of those debenture-holders who had expressed an opinion there was not a majority in favour of the factor's proposal, for those who at the Glasgow meeting voted for delay were not to be left out of account; and there certainly was not a majority of the whole £207,000 debenture creditors. But all this was on the assumption that the proposal which the factor was now pressing was the same as that which had been put before the creditors. It was not. The offer to purchase the line was what the creditors were asked to consider, and that offer had been withdrawn. [ Lord President—The new proposal is quite within the prayer of the note of 5th July.] That was no doubt the case. But on the question whether the debenture-holders approved or not, it was a new proposal. They were asked to consider a definite offer to purchase the line; it was now proposed to apply to Parliament to sell the line, if any purchaser should come forward. But assuming that the two proposals were substantially the same, what the factor wished to obtain was the authority of the Court to a proceeding for which he had not the sanction of a majority of those mainly interested—if, indeed, he was not subjected to an out and out opposition from them. Now, the proposal itself was an unprecedented one. No instance, either in England or Scotland, had been discovered in which a receiver or judicial factor had applied to the Court, whose officer he was, for authority to go to Parliament to obtain from Parliament powers which the law did not confer on the Court itself. Apart from legislation the factor had no power to sell the line, and apart from legislation the Court had no power to authorise the factor to sell the line. But coming to the factor's proposal on its merits, the respondents submitted that a sale of the line was unnecessary. It was said that they suggested no scheme of their own. That was a mistake. The

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concern had been slowly but steadily advancing, till last year the excess of expenditure over income had been converted into a small surplus the other way. [ Lord President—Of £35. And you require over £10,000 a-year to pay the interest on the preferable debt.] That was so, but the line seemed to have turned the corner, and might be made to pay. There might be a more economical mode of working the line than by agreement with the Glasgow and South-Western Company. One plan was to borrow a sum on debentures preferable to the existing debentures, and with that to purchase rolling-stock to enable the company to work its own line. The directors of the company were promoting a bill with that object, and the factor also seemed to approve of it, both from the Parliamentary notice he had published, and from the terms of his note of 5th July, in which the present minute was presented. At any rate, those who thought that a sale of the line was necessary ought themselves to take the risk of their plan being refused by Parliament. They ought not to be allowed to use the factor as a shield, for the expense of this bill by the factor, if it had the sanction of the Court, would form a charge on the company's estate. This was really to handicap the opposition of those who thought another course preferable to that promoted by the factor.

The directors of the company also appeared by counsel, and stated that they concurred in opposing the factor's application. At a meeting of the shareholders, at which £81,000 out of £250,000 stock was represented, a resolution to that effect was unanimously carried.

Counsel for the Portpatrick Railway Coy. likewise appeared, and stated that the Girvan and Portpatrick Coy. had a user over some 11 miles of his line, and he desired that his rights might be protected in any Bill which might be brought forward.