Re Dynamics Corporation of America

JurisdictionEngland & Wales
Date1972
Year1972
CourtChancery Division
[CHANCERY DIVISION] In re DYNAMICS CORPORATION OF AMERICA (IN LIQUIDATION) [No. 001 753 of 1972] 1975 Dec. 17, 18 Oliver J.

Company - Winding up - Foreign corporation - Foreign and English debts - Liquidation abroad - Subsequent compulsory winding up in England - Scheme of arrangement with foreign creditors abroad entitling them to dividends in English liquidation - Date for conversion of claims into sterling

The company which was incorporated in New York on March 31, 1924, carried on business both in the U.S.A. and the U.K. and had creditors in both countries. In August 1972 a petition for its winding up was presented in the courts of New York. On October 2, 1972, a creditor of the company presented a petition in this country, under section 399 of the Companies Act 1948, for its compulsory winding up. An order was made on that petition on May 23, 1973. Under the Federal Bankruptcy Code, which contained a provision broadly similar to section 206 of the Act of 1948, a scheme of arrangement was entered into with creditors and on November 29, 1974, was approved in New York. The scheme provided for each creditor to be paid 28.5 per cent. of his debt, to receive two shares of the common stock of the company, and, in addition, such dividend as might be paid in the English liquidation.

On a summons by the English liquidator to determine, before any arrangements were made with the dollar creditors, the date or dates on which the company's debts and other liabilities should be converted into sterling: —

Held, that in a winding up the court sought to ascertain the liabilities of the company at a particular date and to distribute the available assets as at that date pro rata according to the amounts of those liabilities; that in practice the process could not be immediate but notionally it was, although subsequent events could be taken into account in quantifying the liabilities at the relevant date; that, in the context of a liquidation the relevant date to ascertain the amount of liability was the notional date of discharge of that liability and that date had to be the same for all creditors and was “the date of payment” for the purposes of any judgment which had been entered for the sterling equivalent at the date of payment of a sum expressed in foreign currency (post, pp. 774G–775A), and that, accordingly, the date of the winding up order, namely, May 23, 1973, was the date at which the conversion should be made (post, p. 775E).

Dicta of Lord Wilberforce and Lord Cross of Chelsea in Miliangos v. George Frank (Textiles) Ltd [1976] A.C. 443, 467, 497, H.L.(E.) not applied.

The following cases are referred to in the judgment:

British American Continental Bank Ltd., In re [1922] 2 Ch. 575, P. O. Lawrence J. and C.A.

British Eagle International Airlines Ltd. v. Compagnie Nationale Air France [1975] 1 W.L.R. 758; [1975] 2 All E.R. 390, H.L.(E.).

City Equitable Fire Insurance Co. Ltd. (No. 2), In re [1930] 2 Ch. 293, C.A.

City Life Assurance Co. Ltd., In re [1926] Ch. 191, C.A.

Daintrey, In re [1900] 1 Q.B. 546, C.A.

Davidson (Charles R.) and Co. v. M'Robb [1918] A.C. 304, H.L.(Sc.).

Dodds, In re (1890) 25 Q.B.D. 529.

Ellis and Co.'s Trustee v. Dixon-Johnson [1924] 1 Ch. 342.

European Assurance Society Arbitration, In re (Wallberg's case) (1872) 17 S.J. 69.

Holloway v. York (1877) 25 W.R. 627.

Humber Ironwork and Shipbuilding Co., In re (1869) L.R. 4 Ch.App. 643.

Institute of Patent Agents v. Lockwood [1894] A.C. 347, H.L.(Sc.).

Law Car and General Insurance Corporation, In re [1913] 2 Ch. 103, C.A.

Miliangos v. George Frank (Textiles) Ltd. [1976] A.C. 443; [1975] 3 W.L.R. 758; [1975] 3 All E.R. 801, H.L.(E.).

National Benefit Assurance Co. Ltd., In re [1924] 2 Ch. 339.

Northern Counties of England Fire Insurance Co., In re (1880) 17 Ch.D. 337.

Parana Plantations Ltd., In re [1946] 2 All E.R. 214, C.A.

Russian Commercial and Industrial Bank, In re [1955] Ch. 148; [1955] 2 W.L.R. 62; [1955] 1 All E.R. 75.

Savin, In re (1872) L.R. 7 Ch.App. 760.

Schorsch Meier G.m.b.H. v. Hennin [1975] Q.B. 416; [1974] 3 W.L.R. 823; [1975] 1 All E.R. 152, C.A.

United Railways of Havana and Regla Warehouses Ltd., In re [1961] A.C. 1007; [1960] 2 W.L.R. 969; [1960] 2 All E.R. 332, H.L.(E.).

The following additional cases were cited in argument:

Bates, Ex parte (1879) 11 Ch.D. 914, C.A.

Browne (A Bankrupt), In re [1960] 1 W.L.R. 692; [1960] 2 All E.R. 625.

Cummings v. London Bullion Co. Ltd. [1952] 1 K.B. 327; [1952] 1 All E.R. 383, C.A.

Dawson, In re (1966) 84 W.N.(N.S.W.) 339.

Hawkins, decd., In re [1972] Ch. 714; [1972] 3 W.L.R. 265; [1972] 3 All E.R. 386.

Montreal Trust Co. v. Abitibi Power & Paper Co. [1944] 3 D.L.R. 505.

Parana Plantations Ltd., In re [1948] 1 All E.R. 742.

Ruffle, Ex parte (1873) L.R. 8 Ch.App. 997.

Searle, Hoare and Co., In re [1924] 2 Ch. 325.

SUMMONS

On September 9, 1975, the liquidator in England of the company, Dynamics Corporation of America, issued a summons against the respondents, Westinghouse Electric Corporation, of Park Avenue, New York City, U.S.A., a creditor of the company in respect of whose debt the monetary unit of account was the U.S. dollar, and Electronic Visuals Ltd., of High Road, Byfleet, Surrey, a creditor of the company in respect of whose debt the monetary unit of account was the pound sterling. The summons, as amended, sought to determine whether the liquidator should convert into sterling (a) debts arising from contracts, (b) liabilities for damages for breach of contract, and (c) any other liabilities which were provable and were payable in a monetary unit of account other than the pound sterling, at the rate of exchange prevailing on (i) the date such debt became due, such breach occurred or such other liability accrued due, or (ii) the date of the commencement of the winding up of the company, or (iii) the date of the order to wind up the company, or (iv) the date on which the proof for each such debt or liability was admitted, or (v) the date or dates on which distributions were to be made to creditors.

The facts are stated in the judgment.

Andrew Morritt for the liquidator.

S. D. Graham for the first respondents.

Robin Potts for the second respondents.

OLIVER J. The Dynamics Corporation of America is a company which was incorporated in the State of New York on March 31, 1924, and has at all material times carried on business both in the U.S.A. and in the U.K. Up to 1969 it conducted its business in the United Kingdom through a subsidiary company, Dynamco Ltd., but in that year that company ceased to trade and thereafter the company itself traded here, through its United Kingdom division. It thus acquired dollar creditors in the United States and sterling creditors in this country. The company got into difficulties and in August 1972 a petition was issued in the courts of New York under which a scheme of arrangement was proposed with creditors pursuant to the Federal Bankruptcy Code which contains a provision broadly similar to section 206 of the Companies Act 1948. On October 2, 1972, a creditor of the company issued a petition in this court under section 399 of that Act, for the compulsory winding up of the company as an unregistered company, and an order was duly made on that petition on May 23, 1973.

The arrangement proposed was approved in New York on November 29, 1974. It is, I think, unnecessary for present purposes to consider its detailed provisions, but, in broad outline, each creditor was to be paid 28.5 per cent. of his debt, to receive two shares of the common stock of the company, and to receive in addition such dividend as might be paid in the English liquidation. The contemplation then was that there would also be a scheme of arrangement in the liquidation here, but that has not yet been formulated — and, indeed, cannot yet be formulated — because certain questions have arisen, and, in particular, the question which I am called upon to answer on the present summons which relates to the date at which the sterling value of claims in the liquidation is to be ascertained. Creditors of the company outside the United Kingdom, in respect of whose debts the monetary unit of account is the U.S. dollar, amount to $48, 875,855, and, for convenience, I will refer to those creditors by the shorthand description of “dollar creditors.” Creditors in respect of whose debts the monetary unit of account is the pound sterling amount to approximately £8.9 m. The amount of the available assets in the United Kingdom is not capable of being ascertained with complete accuracy at the moment. It depends, I am told, upon the outcome of certain litigation at present in progress, but it is thought to be between £400,000 and £900,000.

At the date when the petition was presented in this country the rate of exchange was $2.42 to the pound; at the date of the winding up order it was $2.56 to the pound. It has since fluctuated widely. For instance, in February 1974 it was $2.27; in September 1974 it was $2.31; in March this year it was $2.43, and at the beginning of last month it was $2.07. It thus makes a critical difference, not only to the different classes of creditors (dollar or United Kingdom) but also, on one view, to the individual dollar creditors, what date is selected as that upon which, for the purposes of distribution of the United Kingdom assets, the dollar creditors' claims are to be treated as converted into sterling, the money of the forum. For instance, on the basis of the rule thought to represent the law, until the decision of the Court of Appeal in Schorsch Meier G.m.b.H. v. Hennin [1975] Q.B. 416 namely, that the relevant date for conversion was the date when payment fell due — often referred to as “the breach date” — and on the assumption of a divisible fund of £900,000, the dollar creditors would receive 67.67 per cent. of the fund and the United Kingdom creditors 32.22 per cent. If, on the other hand, the relevant date is the date of winding up order, the...

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    • Singapore Academy of Law Journal No. 2008, December 2008
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