Re De Jong (F.) & Company Ltd
| Jurisdiction | England & Wales |
| Date | 1946 |
| Year | 1946 |
| Court | Court of Appeal |
Company - Winding up - Preference dividends in arrears - Distribution of assets after payment of debts and repayment of preference capital.
A company with a capital of 25,000l., divided into 10,000 preference and 15,000 ordinary shares of 1l. each, of which 5,006 preference shares and all the ordinary shares had been issued, passed a resolution for a voluntary winding-up. Article 15 of the company's articles of association provided: “the …. preference shares shall carry the right to a fixed cumulative preferential dividend at the rate of six per cent. per annum on the capital for the time being paid up thereon respectively, and shall have priority as to dividend and capital over the other shares in the capital for the time being.” At the date of the winding-up resolution the preference dividends were in arrears. The debts having been paid and the preference capital repaid:—
Held, that the preference shares had priority over the ordinary shares in respect of the arrears of the preference dividends.
APPEAL from Cohen J.
F. de Jong & Co., Ld., was incorporated on December 6, 1905, with the object of carrying on the business of manufacturers and modellers of and dealers in ornamental fibrous plaster and other artistic ceilings, and as wall decorators and designers. The capital of the company was 25,000l. divided into 10,000 preference shares of 1l. each and 15,000 ordinary shares of 1l. each. 5,006 preference shares and all the ordinary shares had been issued and were credited as fully paid. In 1908 the company was converted into a private company. Article 15 of the company's articles of association, after providing as to the division of the capital into ordinary and preference shares, continued “the said preference shares shall carry the right to a fixed cumulative preferential dividend at the rate of six per cent. per annum on the capital for the time being paid up thereon respectively, and shall have priority as to dividend and capital over the other shares in the capital for the time being, but shall not carry any further right to participate in the profits or assets ….” The dividends on the preference shares were paid up to June 30, 1940, only. By a special resolution passed on March 30, 1944, it was resolved that the company should be wound up voluntarily and a liquidator was appointed. All the creditors of the company had been paid in full and the capital repaid on the preference shares leaving a balance in hand of 3,370l. 0s. 5d. In these circumstances the liquidator took out a summons to have it determined whether on the true construction of the articles of association of the company the holders of the preference shares were entitled to receive out of the net surplus assets of the company the amount of the arrears of the cumulative preference dividend.
Cohen J. held on the true construction of art. 15 that the holders of the preference shares were entitled to receive out of the surplus assets the arrears of the preference dividends.
One of the ordinary shareholders of the company, William Velloni, appealed. In the course of the argument articles other than art. 15 were referred to but were treated as immaterial.
Maurice Berkeley for the appellant, an ordinary shareholder. It is submitted that the question is purely one of the construction of the articles of association, and that the authorities do not help much. Arrears of dividend are not payable out of assets in a winding up unless the articles or memorandum of association so provide. The word “priority as to dividend” refer to the period when the company is a going concern. on that construction the word “dividend” is given its natural meaning. Dividends are only payable while a company is a going concern and not after a winding up has started: per Stirling L.J., in In re Crichton's Oil Co.F1. The word “dividend” should be given its natural meaning unless the court is forced by the context to give it an artificial one: In re Walter Symons, Ld.F2. In that case the dividend rights had already been set out in extenso, and the court considered itself forced by the context to read “dividend” in a later phrase as “arrears of dividend.” There are no words...
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