Edinburgh Railway Access and Property Company v Scottish Metropolitan Assurance Company
| Jurisdiction | Scotland |
| Judgment Date | 29 October 1931 |
| Docket Number | No. 2. |
| Date | 29 October 1931 |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION
CompanyScheme of arrangementAlteration of memorandumAlteration in rights of preference shareholdersRemoval of doubts as to rights under existing memorandumCompanies Act, 1929 (19 and 20 Geo. V. cap. 23), sec. 153 (2).
ExpensesCompanyCompany proceedingsPetition for sanction of scheme of arrangementDissentient shareholder opposing petition unsuccessfullyClaim for expenses on ground of useful criticism.
The Companies Act, 1929, by sec. 153 (2), enacts, with regard to arrangements between a company and its members or any class of them, that, if the statutory majority of the members or class of members, as the case may be, agree to any arrangement, the arrangement shall, "if sanctioned by the Court," be binding on the members or class of members, as the case may be, and also on the company.
Held that the existence of reasonable doubts as to the rights of shareholders under the memorandum of association of a company is a ground warranting the Court in sanctioning a scheme of arrangement the effect of which is to remove those doubts.
A limited company consisted of three classes of shareholders, viz., A, B, and C, whose respective rights were determined by clause 5 of the memorandum of association. Questions having arisen as to the rights of the A shareholders under clause 5, the company proposed a scheme of arrangement by which clause 5 was to be replaced by a new clause, the effect of which was to determine exactly the rights of the A shareholders. In petitioning the Court for sanction of the scheme, the company averred that the intention of clause 5 had been to entitle the A shareholders, upon a winding-up, to repayment of the amount paid up on their shares in priority to other shareholders, but not to participate with the other shareholders in any surplus assets; that it was not clear whether clause 5 effected this intention; and that the new clause embodied in the scheme would remove the existing doubts. A dissentient A shareholder, who had failed to carry his objections to the scheme in the appropriate shareholders' meetings, lodged a note in the process, in which he maintained that clause 5 entitled the A shareholders, upon a winding-up, not only to prior repayment of the amount paid up on their shares, but also to participate in surplus assets; that the effect of the scheme would be to deprive them of the latter right without giving them anything in return; and, accordingly, that the scheme, being unjust and inequitable, should not receive the sanction of the Court.
Held, on a consideration of the terms of the company's memorandum, that reasonable doubts existed as to the exact rights of the A shareholders under clause 5 which the proposed scheme would have the effect of removing; that, in these circumstances, as the proposed scheme was one which would commend itself to a reasonable business man, it should receive the sanction of the Court; and schemesanctioned.
The unsuccessful objector then moved that the company should be found liable for his expenses, on the ground that dissentient shareholders should not be discouraged from bringing to the notice of the Court considerations which might reasonably influence the Court in arriving at a right decision.
The Court refused this motion, but, of consent of the petitioners, found no expenses due to or by either party in connexion with the discussion on the objector's note.
The Edinburgh Railway Access And Property Company, Limited,having for its principal object the acquisition, management, and sale of heritage, presented a petition for, inter alia, sanction of a scheme of arrangement designed to remove doubts existing as to the rights, under its memorandum of association, of certain of its shareholders.1 The petitioners also craved the Court to confirm an alteration of the memorandum with respect to the objects of the Company, with a view to enabling the Company to carry on business as an investment company, but with this part of the petition the present report is not concerned.
The respective rights of the various classes of shareholders of the Company, were defined by clause 5 of its memorandum of association, which was in the following terms:"5. The capital of the Company is 300,000, divided into 30,000 shares of 10 each, and consisting of the following three classes, viz.:2931 to be called A Shares, 3069 to be called B Shares, and 24,000 to be called C Shares, having the following rights and privileges respectively, that is to say:(1) The A Shares shall be fully paid up, and shall be entitled to a dividend at the rate of 4 per cent per annum, payable half-yearly at the Whitsunday and Martinmas of each year, which shall form a first charge on the capital and profit of the Company. (2) The B Shares shall be fully paid up, and shall be entitled out of the profits of each year to a dividend at the rate of 8 per cent per annum, prior, and in preference, to the C Shares. (3) The C Shares shall be entitled out of the profits of each year to a dividend at the rate of 8 per cent per annum on the amount paid up, or to such lesser dividend as the profits of the year admit of, after satisfying the dividends provided for to the A and B Shares. (4) If the profit of the year, after paying the dividends payable to the A Shares above provided for, is sufficient to pay a larger dividend than 8 per cent to the B and C shareholders, and if the Company shall at a General Meeting determine that such larger dividend shall be declared, then the shareholders in classes B and C shall participate rateably, according to the amount paid up, in the sum set apart for dividend
as aforesaid, but any deficiency in the dividends of one year shall not be made good out of the profits of succeeding years. In the event of the Company being wound up, the two classes of shares Access and B and C shall rank pari passu on the property of the Company."The petitioners averred, inter alia:"With regard to the respective rights of the A and B shareholders in the profits and assets of the Company, it is believed that the intention was (1) that the preferential dividend of 4 per cent per annum on the A shares should be cumulative; (2) that...
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