Re Duff's Settlement; National Provincial Bank Ltd v Gregson
| Jurisdiction | England & Wales |
| Year | 1951 |
| Date | 1951 |
| Court | Chancery Division |
Company - Share premium account - Reduction - Payment to trustee - Whether capital or income -
The effect of s. 56 of the Companies Act, 1948, is that money paid out of a share premium account, being a repayment to shareholders made as a result of an order on a petition under that section, is to be treated as capital, and not income, as between the persons entitled to the income of a trust fund and the remainderman.
Since the coming into force of the Companies Act, 1948, the observations of Lord Russell of Killowen in Hill v. Permanent Trustee Company of New South Wales, Ld. [
ADJOURNED SUMMONS.
The plaintiff bank, as the trustees of several settlements, were the registered shareholders of 33,947 1l. shares in a company known as Highfields (Ceylon) Ld. From time to time the company allotted certain of its shares at a premium, and, in accordance with s. 56 of the Companies Act, 1948F1, the aggregate of the premiums was transferred to a share premium account, which in 1950 stood at 254,645l. 12s. 6d.
In 1950, the company passed a special resolution to pay out of the share premium account 2s. 6d. in respect of each of the fully paid shares. The reduction was sanctioned by the court on March 27, 1950. In pursuance of that resolution about 4,000l. was paid to the bank in respect of the trust share holding.
The bank took out this summons to have determined whether that sum should be treated as capital or as income as between the persons entitled to the income under the settlements and the remaindermen.
J. V. Nesbitt for the bank.
R. H. Walton, for the daughters and widow of the settlor, the persons entitled to the income of the fund. The sum paid to the trustees out of the share premium account is prima facie income of the fund, for the company is not in liquidation and capital can only be returned to the shareholders in pursuance of an authorized reduction of capital. The principles stated by Lord Russell of Killowen in Hill v. Permanent Trustee Company of New South Wales Ld.F2 are applicable. Before the Act of 1948, it was well settled that sums received by a company as a premium on the allotment of shares were not to be treated as capital paid up on the shares, but ranked as profits and were distributable to the shareholders as dividends. That is shown by Drown v. Gaumont-British Picture Corporation Ld.F3. It is submitted that the Act of 1948 has not made any essential difference in the character of share premiums but has merely provided a new procedure for distribution of moneys in a share premium account. The procedure is exactly the same as that provided for money returned on a reduction of capital. For purposes of distribution, the money is therefore to be treated as capital, but that does not mean that it is capital.
If, however, it is held that when s. 56 of the Act of 1948 came into force, the share premium account became capital in the hands of the company, it is submitted that it does not follow that it is capital in the hands of the trustees. The trustees still hold the shares representing the trust fund unimpaired. In Inland Revenue Commissioners v. Reid's TrusteesF4, Lord Simonds stated that the test in such cases was whether the shares remained intact. If they did, it could not be said that capital had been returned to them. [He referred also to In re DoughtyF5; In re SechiariF6; and In re Harrison's Will TrustsF7.]
Lightman for the persons interested as remaindermen. The money paid to the trustees is capital of the fund. With the leave of the court the company has reduced its capital on the ground that it is in excess of its wants. The sum so distributable is capital both in the hands of the company and the trustees. Before the Act of 1948, the share premium account was money which would have been available for distribution as a dividend; but it was not in fact a profit, and the Act of 1948 is intended to prevent companies from paying away as dividends, sums which are in the nature of capital. After the Act of 1948, shareholders have a right to insist that the share capital (including the share premium capital) be kept intact — except in so far as the Act expressly authorizes specified payments of a capital nature to be made out of the share premium fund.
If the money is capital in the...
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