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Re Peruvian Railway Construction Company

The Law Reports Cited in 31 Precedent Map Related
Vincent
JurisdictionEngland & Wales
Year1915
Date1915
CourtChancery Division
[CHANCERY DIVISION] In re PERUVIAN RAILWAY CONSTRUCTION COMPANY, LIMITED. [0061 of 1915.] 1915 May 11, 12, 20. SARGANT J.

Company - Winding-up - Insolvent Shareholder indebted to Company - Executors' Right to share in Surplus Assets subject to setting off the Dividend only on the Debt.

A company incorporated under the Companies Acts, 1862 to 1900, and whose articles of association did not give it any lien on its fully-paid shares for the debt of the holder thereof, went into voluntary winding up on July 15, 1914. Fully-paid shares in the company formed part of the estate of A., who died in 1908, insolvent. A judgment for administration in an action by a creditor of the testator was made in 1909, and the Master by his certificate found the company to be a creditor for 2633l., in which A. had become a debtor to the company. In the winding-up there were surplus assets distributable among the fully-paid shareholders of the company. The liquidator conceded that there was no set-off within the language of the Statute of Set Off and that the case was not one of mutual dealings so as to raise any question of set-off under s. 38 of the Bankruptcy Act, 1883; but he contended that the case was within the broader principle — enunciated in Cherry v. Boultbee (1839) 4 My. & Cr. 442, and given effect to in In re Akerman [1891] 3 Ch. 212, and a series of subsequent cases — that where a person entitled to participate in a fund was also bound to make a contribution in aid of that fund, he could not be allowed to participate unless and until he had fulfilled his duty to contribute; and that the executors of A. were bound to pay the liquidator the full amount of the 2633l. as a term of receiving a share in the company's surplus assets:—

Held, that the facts were analogous to those in Cherry v. Boultbee, where it was held that a legacy to a bankrupt debtor of the testatrix could only be retained against his assignee to the extent of the dividends on his debt, the executors standing in the same position as the assignee of the bankrupt in that case, and the company in the same position as the executors of the testatrix; and, therefore, that the liquidator was not entitled to retain the testator's share in surplus assets against more than the proper dividend on the ascertained debt.

In re Leeds and Hanley Theatres of Varieties [1904] 2 Ch. 45; In re West Coast Gold Fields [1905] 1 Ch. 597; In re Auriferous Properties (No. 2) [1898] 2 Ch. 428; In re Akerman [1891] 3 Ch. 212; In re Goy & Co. [1900] 2 Ch. 149; In re Rhodesia Goldfields [1910] 1 Ch. 239; and In re Brown & Gregory [1904] 1 Ch. 627 distinguished.

Semble, that the principle of Cherry v. Boultbee, as developed in In re Akerman and In re Rhodesia Goldfields, would extend to prevent a person who was at the commencement of a winding-up both a debtor to and a shareholder of the company from participating in the surplus assets without contributing the amount of his debt.

THE Peruvian Railway Construction Company, Limited, was incorporated in the year 1906 under the Companies Acts, 1862 to 1900, and went into voluntary liquidation under a special resolution for that purpose passed on June 29, 1914, and confirmed on July 15, 1914. A large number of fully-paid shares in the company formed part of the estate of William John Alt, deceased (below called “the testator”), who died on November 9, 1908, insolvent and indebted to the company to a considerable amount. The articles of association of the company did not give any lien on its fully-paid shares for the debts of the member holding the same.

Shortly after the testator's death a creditors' action was brought for the administration of his estate, and a decree for administration was made on March 1, 1909. Further, by the Master's certificate, dated December 12, 1913, the company was found to be a creditor of the testator for a sum (including costs) of 2633l. 10s. 7d. (below referred to as “the ascertained debt”). Subsequently, however, to the liquidation of the company, and when there was reason to think that a considerable return might be made on the testator's share capital in the company, the liquidator applied for and obtained an order in the administration action to vary the Master's certificate by striking out his name as a creditor in respect of the ascertained debt, in order that he might be enabled to set up a claim to deduct the ascertained debt from the amount which would be coming to the estate of the testator from its holding in the share capital of the company.

An originating summons in the winding-up was taken out by the executors of the testator, seeking a declaration that the liquidator was not entitled to set off, against the share of the applicants in the surplus assets of the company, any sum due or claimed to be due from the testator or his estate to the company, other than a sum of 473l. which had been paid by the company to the applicants, and formed no part of the ascertained debt, and stood on an entirely different footing. The language of the summons was quite general, and the only sum to which it in fact applied was the ascertained debt.

The summons was adjourned into Court.

Hon. Frank Russell, K.C., and Percy F. Wheeler, for the applicants. By s. 10 of the Judicature Act, 1875, in the administration by the Court of the assets of a deceased person whose estate may prove to be insufficient for the payment in full of his debts and liabilities the same rules prevail as to the respective rights of secured and unsecured creditors, and as to debts and liabilities provable, as may be in force for the time being under the law of bankruptcy with respect to the estates of persons adjudged bankrupt. The provision of the bankruptcy law as to the set-off in respect of mutual credits, mutual debts, and mutual dealings is contained in s. 38 of the Bankruptcy Act, 1883; but it will scarcely be contended on behalf of the liquidator that there has been such a mutual dealing as to raise any question of set-off under that Act. No part of the money now distributable as surplus assets of the company ever became due to the testator in his lifetime, and the amount due in respect of his shares is held by the liquidator for his personal representatives and has never been held for him. There is therefore no right in the liquidator to set off the debt due from the testator against the share in the surplus assets due to the executors. The liquidator must prove in the administration and can only set off the dividend found due to him against the claim for a share in the surplus assets. Under the old statute relating to set-off of 1729, 2 Geo. 2, c. 22, s. 13, it was held in the Exchequer Chamber that, to an action by an administrator, who sued in his representative character for a debt due after the death of the intestate, the defendant could not set off a debt due to him from the intestate in his lifetime, and it was laid down that, where the intestate and the defendant never stood in the relation of mutual debtors to each other, there was no set-off between the one and the representative of the other: Rees v. Watts.F1 This is still the law, and there are useful illustrations of its being applied in Courts of Equity — for instance, Talbot v. FrereF2 (where Jessel M.R. held that where a mortgagor had died insolvent, the mortgagee after...

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21 cases
  • Pearson (in his capacity as Additional Liquidator of Herald Fund SPC (in Official Liquidation)) v Primeo Fund (in Official Liquidation)
    • United Kingdom
    • Privy Council
    • 27 January 2020
    ...to which he is bound to contribute. This principle applies to the distribution of surplus assets to contributories: see In re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144. Thus the liquidator can adjust the rights of contributories to take account of other indebtedness from the con......
  • Re SSSL Realisations (2002) Ltd ((in Liquidation)) and Another
    • United Kingdom
    • Court of Appeal (Civil Division)
    • 18 January 2006
    ...of Varieties, Ld [[1904] 2 Ch 45]; In re Ackerman [[1891] 3 Ch 212]; In re Rhodesia Goldfields Ld [[1910 1 Ch 239, 247]; and In re Peruvian Ry. Construction Co, Ld [1915] 2 Ch 144], applies to the present case. The principle is clearly stated by Sargant J in the last mentioned case as follo......
  • Re Kaupthing Singer & Friedlander Ltd (No 2)
    • United Kingdom
    • Supreme Court
    • 19 October 2011
    ...assignees was therefore deferred until the claim against him was resolved. 19 The rule was applied again by Sargant J in In re Peruvian Railway Construction Co Ltd [1915] 2 Ch 144 (upheld by the Court of Appeal in brief judgments [1915] 2 Ch 442). William Alt died insolvent in 1908. His es......
    • Request a trial to view additional results

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