Jessel Securities Ltd and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE BUCKLEY,LORD JUSTICE GOFF,LORD JUSTICE EVELEIGH |
| Judgment Date | 21 December 1978 |
| Judgment citation (vLex) | [1978] EWCA Civ J1221-9 |
| Date | 21 December 1978 |
| Court | Court of Appeal (Civil Division) |
[1978] EWCA Civ J1221-9
In The Supreme Court of Judicature
Court of Appeal
(Civil Division)
On Appeal From The High Court Of Justice
Chancery Division
Companies Court
(Mr. Justice Templeman)
Lord Justice Buckley
Lord Justice Goff
and
Lord Justice Eveleigh
MR. J.M. CHADWICK (instructed by Messrs. Coward Chance, Solicitors, London EC27 LD) appeared on behalf of Phoenix Assurance Co. Ltd., Trustee (Appellants).
MR. J.R. SYKES (instructed by Messrs. Slaughter & May, Solicitors, London EC2V 5DB) appeared on behalf of Mr. P.M.F. Shewell, Liquidator (Respondent).
I will ask Lord Justice Goff to read the first judgment in this case.
This is an appeal from an order dated 21st October 1977 of Mr. Justice Templeman (as he then was) made in proceedings commenced by an Originating Summons in the matter of Jessel Securities Ltd. The applicants were the Phoenix Assurance Co. Ltd. trustees of the company's 9½ per cent Unsecured Loan Stock 1995/2000.
The company is now in creditor's voluntary liquidation pursuant to a resolution passed on 14th January 1976. The summons raises questions concerning the applicants' proof in the winding up, in respect of such stock and interest thereon.
The case concerns two trenches of stock, first an issue in August 1972 of £6 million at a discount of 7 per cent, to which I shall refer as "the Original Stock", and secondly a further issue of £6,310,725 at par in December 1972, to which I shall refer as "the New Stock".
The company from time to time purchased some of the stock in the open market at various prices and extinguished the same, so that the principal outstanding at the commencement of the winding up in respect of both Original and New Stock together, was £9,665,725.
Interest was paid in full on all the stock at the contractual rate of 9½ per cent up to 6th December 1974, but no interest at all has been paid since then. The amount of interest calculated at the contractual rate from 6th December 1974 to the commencement of the winding up (that is to say 14th January 1976) amounts to £1,043,105.84, bringing the total claim for which the applicants proved to £10,708.828.84.
Section 66 (1) of the Bankruptcy Act 1914 provides that "Where a debt has been proved, and the debt includes interest, or any pecuniary consideration in lieu of interest, such interest or consideration shall, for the purpose of dividend, be calculated at a rate not exceeding 5 per cent per annum, without prejudice to the right of a creditor to receive out of the estate any higher rate of interest to which he may be entitled after all the debts proved in the bankruptcy have been paid in full".
Section 317 of the Companies Act 1948 provides inter alia that in the winding up of an insolvent company the same rules shall prevail and be observed with regard to the respective rights of secured and unsecured creditors and to debts provable… as are in force for the time being under the Law of Bankruptcy.
The amount of Interest paid exceeds interest calculated at 5 per cent per annum on the amounts of stock from time to time outstanding from the respective dates of issue averaged out over the whole period from the date of issue of the Original Stock and the New Stock respectively down to the commencement of the winding up.
The Liquidator, relying on the combined effect of section 66 of the Bankruptcy Act and section 317 of the Companies Act, rejected the claim for interest in toto and reduced the claim in respect of principal by an amount to be ascertained representing 7 per cent of the outstanding Original Stock on the ground that the discount was a pecuniary consideration in lieu of interest and he required the applicant to identify such stock.
By the Originating Summons the applicants sought first an order that the Liquidator should allow the claim for unpaid interest in respect of the period from 7th December 1974 to 14th January 1976 either (i) at the contractual rate of 9½ per cent perannum, or in the alternative, (ii) at the rate of 5 per cent per annum allowable under the provisions of section 66 (1) of the Bankruptcy Act 1914.
Secondly an order that the Liquidator should allow the claim for principal at the full nominal amount outstanding at the commencement of the winding up, or in the alternative that he be restrained from reducing it by an amount referable to the discount of 7 per cent allowed on the issue of the Original Stock.
There had been an earlier issue of 9½ per cent Unsecured Loan Stock 1995/2000 in 1970, to which I shall refer as "the Falks Stock" as part of the consideration for the acquisition by the company of Ordinary Shares in a company called gal kg Ltd, and at the date of issue of the Original Stock £6, 310, 725 of this earlier stock was outstanding.
The Original Stock was constituted by a Trust Deed dated 14th August 1972 and made between the company of the one part and the Phoenix Assurance Co. Ltd. of the other part, to which I shall refer as "the Principal Deed".
The New Stock, which was to rank pari passu in all respects (save for the first payment of interest thereon) and to form a single series with the Original Stock, was constituted by a Supplemental Trust Deed dated 7th December 1972 and made between the same parties, to which I shall refer as "the Supplemental Deed".
The New Stock was issued to holders of the Falks Stock in place of their respective holdings of Falks Stock.
I must now refer to certain of the terms of the Principal Deed, which is to be found at page 30 of the bundle of documents, but I need not, I think, read from it extensively.
Clause 1 defines the Original Stock as follows: "The 9½ per cent New Unsecured Loan Stock 1995/2000 of the company hereby constituted and for the time being issued and outstanding or as the context may require a specific portion thereof". It was in the Principal Deed called New Stock not, as I have defined it, Original Stock, because there was the Falks Stock in existence at that time.
Clause 2 (A) reads: "The Company will on 30th June, 2000 or on such earlier date as the Stock shall become payable under any provision hereof pay to the Trustees at the registered office of the Company or at such other place as may be agreed between the Company and the Trustees the principal moneys owing on the Stock and will in the meantime and until the whole of the Stock shall have been repaid pay to the Trustees interest on the principal amount for the time being paid up on the Stock at the rate of 9½ per cent, per annum by equal half-yearly instalments on 6th June and 6th December in every year the first payment of interest to be made on 6th December, 1972 in respect of the period from 14th August, 1972 and to amount to £2.48 (less tax) per £100 nominal of Stock, Every payment to the Stockholders in respect of principal or interest on the Stock held by them respectively shall be in satisfaction pro tanto of the covenant by the Company in this sub-Clause contained".
Clause 4 reads: "The Stock is limited initially to £6,000,000 and the whole of the Stock shall rank pari passu equally and rate-ably without discrimination or preference as an unsecured obligation of the Company, and the proceeds of issue thereof shall be received by the Company and be applied in such manner as the Company in its discretion shall determine. The Stock may beissued to such persons and at such' times and on such terms and either at par or at a premium or at a discount as the Company may think fit, The Company however reserves to itself the power (subject always to the provisions hereinafter contained) at any time and from time to time to create and issue further Unsecured Loan Stock ('Further Stock') either so as to form a single series with the Stock or carrying such rights as to interest conversion redemption and otherwise as the Company may determine. Any such Further Stock may he created by a Deed supplemental hereto incorporating by reference to the terms of this Deed all or any. of the terms hereof".
By Clause 7 the Original Stock was made repayable in a number of events including "(A) If the Company makes default in the payment of any principal moneys or makes default for a period of 14 days in the payment of any interest upon the Stock".
Clause 16 reads as follows: "The Company shall at all times keep at its registered office or at such other place as the Trustees may agree an accurate register showing the amount of the Stock and the date of issue and all subsequent transfers and changes of ownership thereof and the names and addresses of the Stockholders and the persons deriving title under them".
By Clause 27 the company covenanted with the trustees that it would duly perform and observe the obligations imposed upon it.
Clause 28 authorised the exchange later to be made of the Hew Stock for the Falks Stock and was as follows: "In the event that an Extraordinary Resolution is duly passed by the holders of the 9½ per cent Unsecured Loan Stock 1995/2000 of the Company for the time being issued and outstanding" - which was, I interpolate, the Falks Stock - "approving proposals for the exchange of their respectiveholdings of such Stock for holdings of a like nominal amount of the Stock the word 'New' shall he omitted from the title of the Stock".
Following upon that exchange the word "New" was in fact omitted when referring to the Original Stock issued under the Principal Heed and that it should be so was repeated in the Supplemental Deed.
The Supplemental Deed (Bundle page 55) recited that the whole of the Original Stock had been issued and was outstanding.
Recital (B) reads as follows: "In pursuance of the power reserved to it by Clause 4 of the Principal Deed the Company...
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