Scottish Insurance Corporation v Wilsons and Clyde Coal Company
| Jurisdiction | Scotland |
| Judgment Date | 17 February 1948 |
| Docket Number | No. 35. |
| Date | 17 February 1948 |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
CompanyReduction of capitalConfirmation by the CourtConsiderations governing confirmationImpending liquidationCoal companyColliery assets transferred to National Coal BoardCompensation not yet assessedProposal to extinguish preference stock by repayment at parPreference stockholders alleging right under articles to participate in surplus assets in a winding-upProbability of substantial surplusWhether scheme fair and equitableCoal Industry Nationalisation Act, 1946 (9 and 10 Geo. VI, cap. 59), sec. 25Companies Act, 1929 (19 and 20 Geo. V, cap. 23), sec. 55 (1).
The Coal Industry Nationalisation Act, 1946, by sec. 25 (1), enacts, with reference to companies having assets transferred under the Act and the compensation payable in respect thereof, that provision shall be made by regulations for due regard being had, as between classes of members, to what their relative expectations of income yield from their respective interests in the company would have been if the Act had not been passed, and that "for that purpose the regulations shall provide facilities for adjusting the respective interests of such classes in the company's assets as affected by the substitution of the compensation under this Act for the transferred interests of the company so as to give effect, so far as may be, on the one hand to the said expectations and on the other hand to the rights of priority conferred on such classes respectively by thememorandum and articles of association of the company."
In terms of the Coal Industry Nationalisation Act, 1946, the colliery assets of a coal company had been transferred to, and vested in, the National Coal Board, and in consequence it would ultimately be necessary to liquidate the company. No compensation had yet been assessed and no regulations under sec. 25 (1) of the Act had yet been made. The capital of the company being in excess of its requirements, the company presented a petition for confirmation of a proposed reduction of capital to be effected by returning to the holders of the preference stocks their capital in full, thereby extinguishing these stocks, and by returning to the holders of the ordinary stock capital to the extent of ten shillings in respect of each 1.
The petition was opposed by the holders of 45 per cent of the preference stocks on the ground that the proposed reduction was unfair and inequitable in respect that the proposed extinction of the preference stocks (1) deprived the preference stockholders prematurely of a high-yielding, well-secured investment, thus adversely affecting their interests but benefiting the ordinary stockholders; (2) deprived the preference stockholders ab ante of their right to participate, in the approaching liquidation, in the distribution of any surplus funds remaining after repayment to all stockholders of their paid-up capital; and (3) deprived them of the benefit conferred by sec. 25 of the Act.
Held (diss. the Lord President) that the objections stated were irrelevant in respect that (1) the proposed reduction of capital did not infringe the rights of the preference stockholders as set forth in the memorandum and articles of association, which contained the terms of their contract with the company; (2) the rights of the preference stockholders in a winding-up were prospective and not present rights; and (3), no regulations having been made under sec. 25 of the Act, no rights had accrued to the preference stockholders under that section.
Wilsons And Clyde Coal Company, Limited, presented a petition for confirmation of a reduction of capital resolved on by special resolution passed on 26th September 1947. It was provided by the articles of association of the company, inter alia, that the company might from time to time by special resolution reduce its capital.
The petition set forth that the present share capital of the company was 850,000, divided into (a) 40,000 7 per cent preference shares (first issue) of 1 each, all of which had been issued and were fully paid and converted into 40,000 first preference stock, (b) 10,000 7 per cent preference shares (second issue) of 1 each, all of which had been issued and were fully paid and converted into 10,000 second preference stock, and (c)800,000 ordinary shares of 1 each, of which 675,000 had been issued and were fully paid and converted into 675,000 ordinary stock, and 125,000 were unissued. Since the date of its incorporation the company had carried on the business of coalmasters and ancillary businesses. On 1st January 1947, however, the colliery assets of the company had, in terms of the Coal Industry Nationalisation Act, 1946, been transferred to and vested in the National Coal Board constituted by that Act, and it would ultimately be necessary to liquidate the company. The adoption of procedure for that purpose was of necessity being postponed until settlement of questions affecting the interests of the company under the Act was further advanced. In particular, it was expected that a considerable time would elapse before the compensation in respect of the transfer of colliery assets would have been assessed and, in the meantime, the capital of the company was in excess of the wants of the company owing to the sums held in investments and in bank. From the company's balance sheets for the three preceding years it was apparent that the assets of the company in the events which had happened could not be employed in prosecuting the objects for which the company had been formed.
It was therefore proposed to reduce the capital of the company (first) by returning to the holders of the 40,000 first preference stock and 10,000 second preference stock capital to the full extent of 1 in respect of each 1 unit of such stocks held by them respectively and extinguishing the first preference stock and second preference stock accordingly, and (second) by returning to the holders of the 675,000 ordinary stock capital to the extent of 10s. in respect of each 1 unit of such stock held by them.
The relative special resolution was passed at an extraordinary general meeting of the company on 26th September 1947.
Answers to the petition, opposing confirmation of the reduction, were lodged by the Scottish Insurance Corporation, Limited, and others, being 71 preference stockholders holding collectively approximately 45 per cent of the preference stock.
The answers set forth, inter alia:(Ans. 5) " Explained that, for the reason hereinafter set forth, the respondents maintain that the proposal for reduction of capital is unfair and inequitable." (Ans. 7) " Explained that, after receiving the motion calling the extraordinary general meeting, the chairman of the first-named respondents by letter to the company's secretary, dated 17th September 1947, intimated that the first-named respondents proposed to oppose the said special resolution. The secretary of the company acknowledged the said letter by letter, dated 20th September 1947, in the course of which he said: In view of the passing of the Coal Industry Nationalisation Act, 1946, the liquidation of this company sooner or later is inevitable. The proposed reduction of capital is only the first step in that directionthe directors being unwilling to proceed with formal liquidation until further progress has been made with the adjustment of the company's claims against the National Coal Board under the 1946 Act. The said letters are produced, referred to for their terms and founded upon. At the said extraordinary general meeting the chairman stated (before the said special resolution was passed) that, as the object of the company had been removed and they were not empowered to pursue other objects, they were advised that it was inevitable that the company should be wound up. Explained further that the said special resolution was opposed at the said meeting by a representative of the first-named respondents, duly authorised and acting on their behalf. On a show of hands the said special resolution was declared to have been passed by, it is believed, 38 votes to 3. Those voting in favour of the resolution were holders of ordinary stock of the company or proxies acting on their behalf. Explained further that the preference stock of the company carries a right to a 7 per cent cumulative dividend which in terms of article 128 of the articles of association ranks for payment before any dividend on the ordinary stock. In view of the company's strong financial position and capital structure the dividend on the preference stock is and has for long been extremely well secured. It has all along been well covered by the earnings and has been regularly paid without a break. The value of the preference stock has for many years been above par. But for the passing of the Coal Industry Nationalisation Act, 1946, the said dividend would have remained secured and covered as aforesaid and would have been paid for many years to come. If the preference stock is extinguished, as is proposed in the said special resolution, the preference stockholders will be unfairly and illegally deprived of their rights to an adjustment under section 25 of the Coal Nationalisation Act, 1946.1 The said section is referred to for its terms and founded upon. The respondents believe and aver that in
view, inter alia, of the high expectation of a well-secured income yield and of the rights of priority of the preference stockholders if the said Act had not been passed an adjustment in terms of the said section will secure to the preference stockholders interests in the company's assets as affected by the substitution of compensation under the said Act considerably greater than the par value of the preference stock. The present proposal for reduction of the company's capital and for the repayment of the whole of the preference stock is therefore unfair and inequitable. It is designed to deprive, or in any event does...To continue reading
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Scottish Insurance Corporation v Wilsons and Clyde Coal Company
...[1933] Ch. 142,overruled. In re Bridgewater Navigation Co., [1891] 2 Ch. 317, approved. (In the Court of Session, 17th February 1948—1948 S. C. 360.) Wilsons and Clyde Coal Company, Limited, presented a petition for confirmation of a reduction of capital resolved on by a special resolution ......
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...Collieries Ltd.ELR [1949] A.C. 512). A similar question arose inWilsons and Clyde Coal Co. Ltd. v. Scottish Insurance Corporation Ltd.SC 1948 S.C. 360. In that case a company proposed reduction of capital to be effected by returning to the holders of the preference stocks their capital in f......