Re Regent's Canal Ironworks Company. ex parte Grissell
| Jurisdiction | England & Wales |
| Date | 1875 |
| Court | Court of Appeal |
Debentures - Creditors - Vendor - Priority - Liquidator's Charges - Costs of Realization - Costs of Preservation - Leaseholds.
Under agreements made between a company and G., from whom the company had previously bought its works, G. was to advance money to the company, and all moneys due to the company were to be received by G., who was to apply these moneys and also the money to be advanced by him in paying wages and salaries and other outgoings for the business of the company, and subject thereto was to repay himself. An order was made for winding, up the company, under which G. and the liquidators, with the sanction of the Vice-Chancellor, made an agreement for an advance by G. of further sums on similar terms. G. advanced money for the payment of rent, rates, wages, and outgoings: a large balance remained due to him. The leasehold property, machinery, and plant of the company were sold by the liquidators:—
Held, varying the order of Malins, V.C., that the costs of carrying on the business were not payable out of the mortgaged property in priority to debentures as costs of preservation, and that (subject to the costs of realizing the property) the fund belonged to the debenture holders in priority to the claims of G. or the liquidators for the costs so incurred.
HENRY GRISSELL, previously to 1864, carried on the business of an iron manufacturer, and in that year a company was formed for the purchase of his business. The company was called the Regent's Canal Ironworks Company, Limited. The capital was to be £250,000 in £20 shares, and by the articles of association the directors might borrow any sum or sums of money on mortgage, or on bonds, debentures, or any other security whatsoever, at such rate of interest and upon such terms and with such provisions in favour of the lenders as the directors might think proper. Under an agreement dated the 4th of July, 1864, the company agreed to purchase the works, stock-in-trade, and goodwill of the business for £70,000, partly in cash, partly in shares, of which all but £15,000 was paid.
At a meeting of the directors held on the 21st of March, 1865, it was resolved that mortgage debentures of the company to the extent of £25,000 should be issued, and accordingly debentures to the amount of £15,000 were issued to six persons, and debentures to the amount of £10,000 were issued to trustees for the company, and were afterwards by them assigned to the International Financial Society as security for money advanced. Each debenture was in the form of a deed-poll, by which the company declared itself bound to pay to the person therein named the sum of £250 and interest; and for the due payment thereof the company charged all the funds, property, and effects of what nature or kind soever which the company held or possessed, or should hold or be possessed of; and the company agreed to hold 1250 unissued shares for further security.
By articles of agreement dated the 1st of June, 1866, and made between the company and Grissell, it was agreed that Grissell should advance for the use of the company £4000 for a period of four calendar months, he deducting thereout £100 for interest. If the money was not repaid at the end of the four months it was to bear interest at £10 per cent. During the four months, unless Grissell should give the notice thereinafter mentioned, the business should be carried on under his direction. “All moneys due or to become due in respect of works executed by the company, whether already completed or now in progress, of new works to be undertaken by the company during the continuance of this security, shall be received by the said H. Grissell, his executors or administrators, and be paid to the credit of the manager's account with the company's bankers, and no one but the said H. Grissell, his executors or administrators, shall be entitled to draw on such account.” The security was to be subject to the application of certain payments to meet certain acceptances, but subject thereto, Grissell was to apply the sums to be so received by him, and also the sums to be advanced by him as aforesaid, in taking up acceptances of the company and in paying the wages and salaries of the servants of the company, and in making such other payments as might from time to time become due from the company in carrying on the business. When all the moneys had been so paid, Grissell was, out of the moneys so to be received, to pay himself the sums advanced by him as aforesaid, and interest as aforesaid. The company might at any time, on payment to Grissell of what wag due or secured to him, put an end to this agreement.
Similar agreements, dated the 3rd of July, 1866, and the 5th of September, 1866, as to further advances, were made between the company and Grissell. Grissell made the advances, and there was a balance due to him on them. He had also acted as managing director.
On the 17th Or December, 1866, the company resolved to wind up voluntarily, and on the 21st of December, 1866, the voluntary winding-up was directed to be continued under the supervision of the Court.
On the 22nd of December, 1866, Grissell and Mr. Judkins, one of the liquidators, were summoned to attend before the Vice-Chancellor Malins in Chambers, and by the direction of the Judge, which was given for the purpose of obviating the serious loss and inconvenience which would result from the sudden and complete stoppage of the works, which was otherwise inevitable, an agreement was made between the company and Grissell, by which Grissell was requested to advance the money for payment of wages and other outgoings due that day. The works were to be kept open by Grissell, and continued so long as in the liquidators' discretion should appear desirable, it being, understood that the workmen and the necessary outgoing up to the time of any stoppage of the works should be paid by funds to be provided by Grissell, in respect of which he should have the same security as for the advances made under the former agreements. He was also to make advances for the purchase of materials, with corresponding rights. He should be undisturbed in the collection of debts due to the company to an extent adequate to his complete reimbursement in respect of the above-mentioned advances, he undertaking to pay all moneys collected by him to a separate account, and only to draw upon that account sufficiently for his reimbursement. The advances were to bear 5 per cent. interest.
In pursuance of this agreement Grissell found all the money (beyond the amounts from time to time received by him) to pay the wages and prevent the closing of the works; he also paid rent, taxes, insurance, and other outgoings, in default of payment of which the leases would be liable to forfeiture.
Several orders were made in the winding-up expressed to be without prejudice to the claims of Grissell or the debenture holders; and on the 28th of January, 1871, an order was made for an account, 1, of what was due to Grissell as unpaid vendor; 2, of the payments made by him for rent, rates, and taxes. And it was ordered that the liquidators should sell and realize the assets of the company, and, after payment of the costs of all parties appearing, the liquidators were out of the proceeds of such sales to pay to Grissell the amount found due to him as unpaid vendor, and the residue was to be paid into a bank; the order being without prejudice to the question whether anything was due to him on the second account, and how and in what priority, and without prejudice to the claims of the liquidators for costs and remuneration. This order was varied on appeal, and was made without prejudice to any claim of the liquidators in respect of costs or services rendered in or about the preservation or realization of the property included in the securities of the debenture holders of the company.
The property was accordingly sold, and out of it the balance of the purchase-money had been paid to Grissell.
The money now in dispute represented exclusively the proceeds of the sale of the leaseholds and machinery and plant (all of which were comprised in the security of the debenture holders), and no part had arisen from the proceeds of carrying on the business.
In order to ascertain the principles on which the accounts were to be taken, a statement was made and settled stating, as above mentioned; also that the points of contention were: 1. Grissell claimed first any costs due to him as unpaid vendor or mortgagee, and then the sums expended by him in and about the protection and preservation of the company's property in priority to all other claims. 2. That he was entitled to receive and retain all moneys earned by the company before the 22nd of December, 1866, in reduction of the amounts due to him under his several agreements, in priority to any claims except as to No. 1. 3. That he was entitled to receive the moneys earned by carrying on the business after the 22nd of December, 1866, and to apply them in reduction of the amount due to him for money expended for the purpose of the said business. 4. That he was entitled to be paid out of the general assets of the company in priority to any other claims.
The International Financial Society contended...
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