Quayle Munro Ltd, Petitioners
| Jurisdiction | Scotland |
| Judgment Date | 27 September 1991 |
| Date | 27 September 1991 |
| Docket Number | No. 3. |
| Court | Court of Session (Inner House - First Division) |
FIRST DIVISION.
CompanyApplication for confirmation of cancellation of share premium account and transfer to special reserveWhether special reserve could be used to write off future lossesWhether special reserve could be used to redeem redeemable sharesCompanies Act 1985 (cap. 6), secs. 160 (1) (a) and 263 (2) and (3).1
A company applied to the court for confirmation of cancellation of its share premium account. It undertook inter alia that the balance of funds would be transferred to a special reserve which would not be treated as realised profit or applied in making a distribution to any company members as long as there remained any outstanding debts or claims without the prior consent of all creditors and claimants. The court appointed a reporter who raised two questions: (1) whether the company was entitled to use the special reserve to write off future losses on its profit and loss account; (2) whether the company was entitled to use the special reserve to redeem redeemable shares.
Held (1) that there was no objection in principle to the use of the special reserve to write off future losses; and (2) that once the statutory requirements for cancellation of the share premium account had been satisfied, the special reserve could be used for all purposes to which distributable profits might be applied, subject to the terms of the undertaking; and confirmation granted and Registrar of Companies directed to register the undertaking and the court's order.
Quayle Munro Limited presented a petition to the Court of Session, seeking confirmation of the cancellation of its share premium account effected by special resolution of the company at an extraordinary general meeting held on 17th September 1991. The petitioners offered the following undertaking:"We, Quayle Munro Ltd., having our registered office at 42 Charlotte Square, Edinburgh EH2
4HQ (the company) do hereby undertake that, in the event that the cancellation of the company's share premium account effected by the special resolution passed by the shareholders of the company at the extraordinary general meeting held on 17th September 1991 is confirmed by the court, the credit arising in the books of account of the company will be carried to a special reserve (the special reserve); We further undertake that so long as there shall remain outstanding any debt or claim which would have been admissible in proof against the company had it been wound up on the date when the proposed cancellation shall take effect, the special reserve shall not be treated as realised profit of the company or applied in making any distribution (other than a capital issue of further shares) by way of dividend, return of capital or otherwise to any of the members of the company except with the prior consent of all persons to whom any such debts or claims for the time being outstanding are due and owing; provided that notwithstanding the foregoing nothing in this undertaking shall prevent the company transferring all or part of the special reserve to profit and loss account from time to time to the extent only of any accrued losses on profit and loss account but subject always to the further undertaking hereinafter contained; We further undertake that in any event there shall be retained within the special reserve a sum sufficient to repay at par the 210,000 6 per cent preference shares of 1 each and the 300,000 escalating rate redeemable preference shares of 1 each presently in issue until the said shares have been redeemed whether out of the special reserve or from other available sources."The petition called in single bills before the First Division...
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