Balmenach-Glenlivet Distillery, Ltd, v Croall
| Jurisdiction | Scotland |
| Judgment Date | 20 July 1906 |
| Docket Number | No. 170. |
| Date | 20 July 1906 |
| Court | Court of Session |
Lord President, Lord M'Laren, Lord Kinnear, Lord Pearson.
Company—Reduction of Capital—Confirmation by the Court—Memorandum of Association—Alteration of provisions of Memorandum—Diminution of Preference Shareholders' rights—Ultra vires—Just and equitable scheme.—
The memorandum of association of a company, incorporated under the Companies Acts, provided that the capital should consist of 6000 preference shares of £10 each, and 6000 ordinary shares of £10 each, the preference shares to be entitled to a cumulative preferential 5 per cent per annum dividend, and to priority of repayment of capital in the event of a winding-up. By the articles of association it was provided that the voting power should be one vote for each share, whether preference or ordinary. The whole of the ordinary shares were held by the vendors, or the representatives of the vendors, who were also the managers of the company.
The company's business having greatly depreciated, a resolution was passed by large majorities of both classes of shareholders approving of a scheme for reduction of capital, whereby the preference shares were to be reduced from £10 to £5, 10s., and the ordinary shares from £10 to £1. The voting power remained one vote for each share, whether preference or ordinary. A petition to the Court for confirmation of this resolution was opposed by certain preference shareholders, who contended that it was ultra vires of the Court to confirm a scheme which violated the provisions of the memorandum of association as to the shareholders' rights inter se, and, further, that the scheme proposed was not just and equitable.
The Court confirmed the resolution, holding that they had power to confirm the scheme proposed, and that the scheme was a just and equitable scheme.
British and American Trustee and Finance Corporation v. CouperELR, L. R., [1894] A. C. 399, followed, the Lord President observing—‘I cannot read that case without coming to the conclusion that it really has settled in a way that we must certainly follow, that, so far as the question of intra vires is concerned, there really is no limit to what the Court can do. It may confirm any resolution, however much against any provision of the company it may be, provided always, of course, that that resolution is really for a reduction of capital, and subject also to this very great safeguard, that the Court is not to do so unless it thinks that on the whole the new arrangement is a just and equitable arrangement.’
The Balmenach-Glenlivet Distillery, Limited, incorporated under the Companies Acts, 1862 to 1893, was formed in February 1897 to acquire the old established Balmenach-Glenlivet Distillery as a going concern. By clause 5 of the memorandum of association* it was provided, that the capital should consist of £120,000, divided into 6000 5 per cent cumulative preference shares of £10 each, and 6000 ordinary shares of £10 each, fully paid. By that clause it was further provided that, in the event of a winding-up, the surplus assets should be applied, first, in repaying to the preference shareholders the amount of their shares and any arrears of dividend thereon, and that the residue should be distributed among the ordinary shareholders. In the articles of association effect was given to the provisions of clause 5 of the memorandum, and it was further provided, by article 14,† that the Company might, from time to time, by special resolution, reduce its capital, and by article 70, that ‘on a shew of hands every member shall have one vote only. In case of a poll, he shall have one vote for every share, whether preference or ordinary, held by him.’
The price at which the distillery was to be taken over was £115,000, to be paid to the vendors as to £55,000 in cash, and as to the remaining £60,000, by the vendors accepting the whole of the ordinary shares in lieu of this payment. In arriving at the figure of £115,000 the goodwill of the business was estimated at £68,799, 0s. 7d.
The preference shares issued at a premium of £1 were fully subscribed for by the public, and the Company went to allotment. The vendors continued to act as managers, and the profits earned by the Company since its formation, as shewn by the balance-sheets, were as follows:—
| ‘For the period from 1st February 1897 to 31st August 1898, . . . . | £11,754 | 1 | 4 |
| ‘For the year to 31st August 1899, . . | 7,111 | 0 | 1 |
| ‘For the year to 31st August 1900, . . | 8,185 | 16 | 2 |
| ‘For the year to 31st August 1901, . . | 6,680 | 18 | 9 |
| ‘For the year to 31st August 1902, . . | 5,685 | 6 | 5 |
| ‘For the year to 31st August 1903, . . | 2,299 | 9 | 0 |
| ‘For the year to 31st August 1904, . . | 2,150 | 16 | 4 |
| £43,867 | 8 | 1’ |
Out of these profits the dividend on the preference shares, amounting to £3000 per annum was paid down to 31st August 1903, and dividends of varying amount were paid on the ordinary shares down to 31st August 1902. After these dates no further dividends were paid.
In view of the diminishing profits of the business, of the depressed condition of the distillery industry throughout the country, and of local difficulties in disposing of the distillery effluents, the directors came to be of opinion that a large portion of the capital value of the concern had disappeared. They thereupon obtained a valuation from Mr James Maitland, distillery architect and valuator, Tain, the result of which was to shew that, in his opinion, the capital value of the Company had diminished to the extent of £81,084, 7s. l0d. An extraordinary general meeting of the Company was convened on 16th June 1905, when the following resolution was carried by 8653 votes to 274:—‘That the capital of the Company be reduced from £120,000, divided into 6000 preference shares of £10 each, and 6000 ordinary shares of £10 each, to £39,000, divided into 6000 preference shares of £5, 10s. each, and 6000 ordinary shares of £1 each; and that such reduction be effected as follows:—(1) by cancelling capital which has been lost or is unrepresented by available assets to the extent of £4, 10s. per share on each of the said 6000 preference shares, and of £9 per share on each of the said 6000 ordinary shares; and (2) by reducing (a) the nominal amount of each of the said 6000 preference shares from £10 to £5, 10s.; and (b) the nominal amount of each of the said 6000 ordinary shares from £10 to £1.’
At the same meeting certain special resolutions were also submitted, giving effect to the foresaid general resolution, and providing for the necessary alterations in the articles of association; and by these special resolutions it was further provided that, on the reduction of capital being confirmed by the Court, the directors should be authorised to pay to the preference shareholders the full dividend of 5 per cent on the original value of their shares, viz. £10, for the period from 31st August 1903 to 31st August 1904, but that all right to dividend from 31st August 1904 to...
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