Westburn Sugar Refineries
| Jurisdiction | Scotland |
| Judgment Date | 08 December 1950 |
| Docket Number | No. 22. |
| Date | 08 December 1950 |
| Court | Court of Session (Inner House - First Division) |
1ST DIVISION.
Company—Reduction of capital—Capital in excess of company's wants—Proposal to pay off excess capital by distribution of assets at book value—True value of these assets greater than their book value—Companies Act, 1948 (11 and 12 Geo. VI, cap. 38), sec. 66 (1).
A company, having capital in excess of its wants, sought confirmation of a resolution for reducing its share capital in terms of which the reduction would be effected, not by a cash payment, but by distributing among the shareholders certain assets, viz., shares of another company which, in the petitioning company's balance-sheet, had a book value equal to the amount of capital to be repaid. No shareholder opposed the proposal, and the interests of creditors were amply protected, but it appeared that the true value of the other company's shares was considerably in excess of their book value.
The Court (diss. Lord Russell) refused to confirm the reduction of capital.
Per Lord Carmont (who gave the leading opinion):—"I think confirmation of the proposed reduction of capital should be refused on the ground that a material fact is not made out, viz., that a specified amount of capital is not shown to be surplus to requirements. But I would further base my refusal on the ground of the interests of the public. … I think the Court should be astute to see that its procedure is not used to cover up what seems designed partly to eviscerate the company by parting with valuable assets."1
The Westburn Sugar Refineries, Limited, incorporated on 1st February 1897 under the Companies Acts, 1862 to 1890, with the principal object of carrying on the business of sugar manufacturers and refiners, and now having an authorised capital of £609,000 (all issued and all consisting of ordinary stock), and having power under their articles to reduce capital with the approval of the Court, presented a petition for confirmation of reduction of capital.
The petitioners (hereinafter referred to as Westburn) averred, inter alia, that for some years it had been becoming apparent that their assets were excessive for their wants; that certain of these assets were represented by outside investments which were not essential to the main business of sugar refining, and it was now considered desirable that such assets should be segregated from the main assets; that in these circumstances Westburn had formed an investment holding company (hereinafter referred to as Lynedoch), incorporated on 27th February 1950; that on 12th June 1950 Westburn had entered into a provisional agreement with Lynedoch in terms of which specified investments were to be sold to Lynedoch on specified terms and conditions; and that on 12th July 1950 Westburn had passed special resolutions whereby, inter alia, (1) the agreement with Lynedoch was approved and confirmed, (2) the ordinary stock of Westburn was converted into ordinary shares, and (3) the capital of Westburn
was reduced from £609,000 (divided into 609,000 ordinary shares of £1) to £548,100 (divided into 609,000 ordinary shares of 18s.), such reduction being effected by the return of 2s. per share on the basis that such return would be satisfied by the transfer or allotment to the holder of each share of one fully paid share of 2s. in Lynedoch.
On 22nd August 1950 the Vacation Judge (Carmont) remitted to Hugh B. Spens, writer, Glasgow, to inquire into the facts and to report on the regularity of the procedure.
It appeared from the report that, under the agreement with Lynedoch, Westburn sold to Lynedoch the following investments—the value placed on each investment being its value in Westburn's latest balance-sheet:—
| "The Glebe Sugar Refining Company, Limited 75,000 Shares of £1 each | £25,000 0 0 |
| The Sugar Association of Greenock £20 5 per cent Redeemable Stock | 20 0 0 |
| The Greenock Porterage Company, Limited £2250 5 per cent Debentures | 2,259 10 0 |
| 55 Ordinary Shares of £1 each | 55 0 0 |
| M'Intyre, Limited 13,000 Ordinary Shares of £1 each | 15,338 15 0 |
| Corn Products, Limited £8,582 4½ per cent Debentures | |
| Dundonald Investment Company, Limited £7582 3½ per cent Debentures 16,868 Ordinary Shares of 1s. each | 2,518 15 0 |
| Government Stock £16,003, 5s. 7d. 3 per cent Funding Stock 1959–1969 | 15,708 0 0 |
| £60,900 0 0" |
It also appeared that the capital of Lynedoch was £100, divided into 1000 shares of 2s. each for which Westburn had subscribed at par, and was to be increased to £60,900, divided into 609,000 shares of 2s.; that the price of the investments was to be settled as to £100 in cash, and as to the balance by the allotment to Westburn (or nominees) of 608,000 shares of 2s. each in Lynedoch, credited as fully paid; and that settlement of the sale and purchase was conditional on Westburn's reduction of capital becoming effective.
The report also stated:—"(10) I am of the opinion that the whole procedure has been in order, subject to what I have to say in paragraph 11 below. (11) I have inquired as to the value of the investments being transferred by Westburn to Lynedoch, as I anticipated their value was in fact greater than 2s. per share, i.e.,£60,900. I have received a letter and a statement from the auditors, which have now been produced in process. On the basis of that statement, the value of the investments is far in excess of £60,900, the total sum being £197,768. The basis is the proportion of the book values of the net assets of the companies as shown in their balance-sheets, which the shares to be acquired bear to the total share capital of the companies. It can be said that Lynedoch is acquiring shares in these companies—not assets of these companies—and that" judge=" being private companies, it is difficult to value such shares. The revenue however, from all the investments to be held by Lynedoch is £10,024 (subject to deduction of income tax), a return of approximately 16½ per cent on its capital. The expenses of management should be small. In all the circumstances, I am of the opinion that the shares of Lynedoch are clearly worth more than par. In these circumstances a question arises as to whether in a reduction of capital, where capital is being repaid to shareholders, there can be paid out more than the money value of the reduction by the transfer of shares or assets which have in fact a higher value in satisfaction of the payment. … (12) So far as the shareholders are concerned, who have by special resolution approved of the agreement, it does not matter whether the assets transferred to Lynedoch by Westburn are worth more than £60,900. If only assets to the value of £60,900 are transferred, each 18s. of stock in Westburn is worth more, and a 2s. share is worth 2s. If assets to a greater value than £60,900 are transferred, the 2s. share in Lynedoch is worth more than 2s., and each 18s. of stock is worth less by the equivalent amount. There are no preference shareholders to be considered. (13) As regards creditors, Westburn's position is a very strong one. … I...
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Westburn Sugar Refineries Ltd v Commissioners of Inland Revenue
...The other member of the Court, Lord Russell, was in favour of allowing the petition. The case in the Court of Session is reported in 1951 S.C. 190. The Company appealed to the House of Lords, and the House of Lords allowed the appeal and sanctioned the reduction of capital. The case in the ......
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Westburn Sugar Refineries, Ltd v Commissioners of Inland Revenue
...The other member of the Court, Lord Russell, was in favour of allowing the petition. The case in the Court of Session is reported in 1951 S.C. 190. The Company appealed to the House of Lords, and the House of Lords allowed the appeal and sanctioned the reduction of capital. The case in the ......
- Westburn Sugar Refineries