Scottish Court of Session Decisions

The Tharsis Sulphur and Copper Company (Limited) was registered as a company in 1866, with an original capital of £300,000, which was in 1868 increased to £1,000,000, and in 1878 to £1,236,660.

The Companies Act 1867 (30 and 31 Vict. c. 131), enacts, section 9, that “Any company limited by shares may by special resolution so far modify the conditions contained in its memorandum of association, if authorised so to do by its regulations as originally framed, or as altered by special resolution, as to reduce its capital; but no such resolution for reducing the capital of any company shall come into operation until an order of the Court is registered by the Registrar of Joint-Stock Companies as is hereinafter mentioned.”

By section 10 of the said Act it is provided that “The company shall, after the date of the passing of any special resolution for reducing its capital, add to its name, until such date as the Court may fix, the words ‘and reduced’ as the last words in its name, and those words shall until such date be deemed to be part of the name of the company within the meaning of the principal Act.”

By section 11 of the said Act it is provided that “A company which has passed a special resolution for reducing its capital may apply to the Court by petition for an order confirming the reduction, and on the hearing of the petition the Court, if satisfied that with respect to every creditor of the company who under the provisions of this Act is entitled to object to the reduction, either his consent to the reduction has been obtained, or his debt or claim has been discharged, or has determined or has been secured as hereinafter provided, may make an order confirming the reduction on such terms and subject to such conditions as it deems fit.”

By section 13 of the said Act it is enacted “That where a company proposes to reduce its capital, every creditor of the company who at the date fixed by the Court is entitled to any debt or claim which, if that date were the commencement of the winding-up of the company, would be admissible in proof against the company, shall be entitled to object to the proposed reduction, and to be entered in the list of creditors who are so entitled to object;” and that “the Court shall settle a list of such creditors, and for that purpose shall ascertain as far as possible, without requiring an application from any creditor, the names of such creditors, and the nature and amount of their debts or claims, and may publish notices fixing a certain day or days within which creditors of the company who are not entered on the list are to claim to be so entered or to be excluded from the right of objecting to the proposed reduction.”

On the 24th November 1881, at an Extraordinary General Meeting of the company, certain special resolutions were passed, which were subsequently confirmed on 9th and registered on 14th December, with the view, inter alia, of reducing their capital, and of subsequently increasing it by the creation of certain new shares.

With a view to have the said resolution to reduce their capital confirmed by the Court the company presented a petition under the Companies Acts 1862 and 1867 praying the Court “to fix the date at which every person who is then entitled to any debt or claim against the company within the meaning of section 13 of the Companies Act 1867, shall be entitled to object to the proposed reduction of capital, to settle a list of the creditors of the said company who shall at the date to be fixed by your Lordships be entitled to any debt or claim which, if that date were the commencement of the winding-up of the company, would be admissible in proof against the

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company; and if your Lordships shall think proper, to order publication of notices fixing a certain day or days within which any creditors of the company not entered in the said list are to claim to be so entered or to be excluded from the right of objecting to the proposed reduction; and thereafter to make an order confirming the reduction of the capital of the said company” … “in terms of the said resolution” … “and afterwards to approve of a minute showing, with respect to the capital of the company as altered by the said order, the amount of such capital, the number of shares into which it is to be divided, and the amount of each share; and to direct such notice of the registration of the said special resolutions, confirmed by the said order, as your Lordships shall think fit; and also to fix the date up to which the company shall add to its name the words ‘and reduced.’”

The following interlocutors were pronounced by the First Division in this petition:—“ 22d December 1881.—The Lords, on the motion of the petitioners, fix the 31st day of December current as the date at which every person who is then entitled to any debt or claim against the company within the meaning of section 13 of the Companies Act 1867 shall be entitled to object to the proposed reduction of capital.” “11 th January 1882.—The Lords having resumed consideration of the petition, with the note for the petitioners, and list of creditors, fix Saturday the 28th day of January current as the day before or on which the creditors of the company who are not entered on the said list are to claim to be so entered or are to be excluded from the right of objecting to the reduction of capital proposed in the petition;”—and certain intimation by advertisement of the petition was then ordered.

Thereafter, on 27th January 1882, a minute of compearance was lodged for Andrew Hoggan junior, a shareholder of the company. The minute contained, inter alia, the following averments:—“That on 9th December 1871 the compearer, along with others, protested against the special resolutions confirmed at the extraordinary general meeting of the petitioners' company held on that date as being illegal and ultra vires. That the compearer maintains that the resolution of 9th December 1881 authorising dividends to be paid on the amount paid up on each share is beyond the powers of the company, inasmuch as the shareholders have right to an equal division of the dividends according to the amount of nominal capital held by each, which right being a fundamental condition of the contract cannot be taken away by any resolution. The compearer further maintains that the resolutions adopted by the petitioners relating to the reduction of capital are not authorised by the Companies Act of 1867, and are therefore illegal.”

The compearer further stated that he was in course of raising an action against the company for reduction of the said resolutions, and he prayed the Court to sist procedure in the petition until that action should be disposed of.

The petition and minute having been sent to the summar roll, the compearer argued—He had a good title to object to the granting in the meantime of the prayer of the petition. Though the sections of the Act above-quoted applied verbally only to “creditors” of the company, it was obvious that a shareholder was entitled to object to the confirmation of resolutions which he averred to be illegal and ultra vires of the company, and prejudicial to his interests as a shareholder. Procedure in the petition should be sisted until the merits of the question should be settled in the action of reduction which he was in course of raising against the company.

Replied for the company—The compearer had no title to object to the granting of this order. The petition was brought under the Companies Acts 1862 and 1867, under the provisions of which none but creditors of the company could take up such a position. The granting of the confirmation order could not prejudice the compearer's right to challenge by other proceedings the legality of the resolutions—which was his proper remedy—whereas the company, on the other hand, were desirous of obtaining the order at once with a view to the issue of the new shares in a favourable market, and to enable them to remove the words “and reduced” from their designation as a company.

At advising—