Law Reports.

Company Law.

VACATION COURT.

October 1 and 10.

(Before BARGRAVE DEANE, J.)

Goldfields of Matabeleland, Lim.; Lindley,

Petitioner.

of these companies, and the petition set forth in detail the different transactions impugned. In consequence of these transactions there had been great fluctuations in the value of the company's shares, and it was alleged in the petition that Mr. Seear had taken advantage of such fluctuations to speculate in the shares. On the ground that questions of considerable difficulty would arise in the winding-up, requiring the assistance of the Court, and also in con

Cause.

Petition to wind up the above company. The learned Judge sat by special arrangement to hear the case on the 1st October, for which reason it was adjourned from Wednesday, the 26th September. The petition alleged that the company was incorporated on the 19th April 1895 with a nominal capital of £500,000, divided into 500,000 shares of £1 each, of which £404,789 was paid up or credited as paid up. Its objects were (inter alia) to acquire and to work mines in Africa and elsewhere, and to issue, acquire, and deal in shares, bonds, debentures, and securities of all kinds. At an extraordinary general meeting held on the 9th August 1906 it was resolved that it was desirable that the company should be wound up voluntarily, and eventually a resolution to that effect was carried. It was alleged that this was in furtherance of a scheme under which another company had been incorporated to buy all the assets of the old company by way of reconstruction of the old company, the shareholders to receive in exchange for each fully-paid 1 share a 10s. share in the new company, of which 7s. was credited as paid up. Under the memorandum of association John Oakley Maund and John Seear were the first managing directors, the former of whom died in 1902. The petition alleged that no other managing director was appointed in his place, and that Mr. Seear now had the sole control of the company, that he had been the promoter of the company, and had sold his business to it in May 1895 for £20,000, of which £15,000 was in cash and £5,000 in fully-paid shares of the company. The petition alleged that the other directors were nominees of Mr. Seear; and that the company was insolvent. The above resolution was opposed by the independent shareholders present at the meeting, but owing to the number of shares held by the directors and their nominees the resolution was carried. It was further alleged that there were a large number of other companies, some of which had their offices at the same place as that of the company, in all of which companies some director of the company, either Mr. Seear or another, was also a director, and had large financial interests therein; and it was alleged that between the company and these companies very large financial transactions had taken place, and that a large part of the company's capital had been employed in imprudent and unauthorised speculations in the shares

concluded that it was just and equitable that the company should be wound up.

Langdon, K.C., and Greenwood, for the petitioner: The facts set out in the petition showed that this was a case in which the directors ought to be subjected to crossexamination to answer the prima facie case which was made out against them. As to the legal aspect of the case, in Re Haycraft Gold Reduction and Mining Company (83 L.T. Rep. 166; (1900) 2 Ch. 230) it was said: "The exist"ence of a voluntary winding-up is a strong reason why the Court should decline to interfere, but circumstances “may justify interference." Again, in Re General Phosphate Corporation (1893, W.N. 142), it was held that under section 8 of the Winding-up Act, 1890, the shareholders had a statutory right to an investigation. And in National Company for the Distribution of Electricity, Lim. (87 L.T. Rep. 6; (1902) 2 Ch. 34), it was pointed out that it was not necessary actually to establish fraud, but the Court would order a winding-up where the circumstances justified an investigation, and where it was clear that the company was really under the control of one person. In the present instance a very substantial minority of the shareholders supported the petition. When the resolution to wind-up voluntarily was adopted, there was a very incomplete knowledge of what had really been done, or what it was proposed to do in the future. The company was clearly insolvent. But, if the assets were realised by some person who was independent of the present directors, sufficient funds would be found to meet all the liabilities, and it was undoubted that there would exist a surplus for distribution amongst the shareholders. The liquidator under the voluntary winding-up, Mr. Simpson, was not such an independent person, because he was the secretary of many of the companies which were under the control of Mr. Seear, and however capable and honourable he might be, and however anxious to do everything in his power to serve the shareholders, it was impossible to imagine that he could act independently in any case in which Mr. Secar was involved. In the notice convening the meeting the terms of the underwriting agreement were not stated, nor did it disclose the fact that the new company was to be registered in Rhodesia, and that, therefore, the shareholders would be deprived of the protection afforded by the stringent regulations of the Companies Act, 1900. One

of the articles of the new company gave the directors power not to disclose information. There was, at least, a case of grave suspicion made out, and the matters in issue could be properly tested by cross-examination only. If the directors had nothing to conceal, an investigation would do them good. Though no case of fraud had been suggested, many cases of suspicion had been shown, and this case was like the bundle of faggots, which could easily be broken one by one, but in a bundle were unbreakable. Mulligan, K.C., and Hunt, for shareholders supporting the petition: This was not a proper reconstruction or reorganisation of a company. There had been no dis

closure to the shareholders of the fact that Mr. Seear was to be an irremovable director. This was a special benefit to a director, and ought most certainly to have been disclosed. They referred to Hooper v. Western Counties Telephones (68 L.T. Rep. 78), Re Gold Company (40 L.T. Rep. 5; 11 Ch.D. 719), Kaye v. Croydon Tramways Company (78 L.T. Rep. 239; (1898) 1 Ch. 358), Tiessen v. Henderson (80 L.T. Rep. 483; (1899) 1 Ch. 861); Buckley, Company Law, p. 449.

Macnaghten, K.C., and Draper, for the voluntary liquidator and the creditors opposing the petition: The petitioner would have to show that by a winding-up a benefit would be conferred upon him or upon the shareholders. The petition was only supported by shareholders whose holdings were between £28,000 and £30,000, whilst it was opposed by shareholders to the extent of £166,000. It was asserted that £40,000 of these shares were under the control of Mr. Seear, but, even when these were deducted, there was an enormous preponderance in favour of the voluntary winding-up, and therefore opposed to the petitioner. But the main point of the case was this, that by an agreement dated the 1st August 1906 the company had sold the whole of its assets to the new company, and these assets would include all claims for misfeasance, if there were any, against Mr. Seear. They referred to Re Parkgate Wagon Works Company (44 L.T. Rep. 901; 17 Ch.D. 234) and Wood v. Woodhouse, Lim. (1896, W.N. 4). Even assuming, therefore, that there was any substance in the charges made, the benefit of any claim made would go, not to the petitioner or to the shareholders of the old company, but to the new company, and, consequently, it was impossible for the petitioner to show, as he must do in order to succeed, that the winding-up would confer a benefit upon him. In the case of National Company for the Distribution of Electricity (ubi sup), to which attention had been called, although the Court was satisfied that some of the allegations made had been proved and things had been done which it considered improper, yet it said that it would be slow to exercise its discretionary jurisdiction unless it could be clearly shown that some benefit would accrue to the petitioner. The judgment in that case

had been followed in an unreported case of Re Ibo Investment, Lim. They submitted that there was not any case of real suspicion made out by the petitioner.

Bramwell Davis, K.C., and Wells, for shareholders opposing the petition: They pointed out that the fact that the shareholders were resident in all parts of the country rendered it impossible for them to be controlled by Mr. Seear.

Langdon, K.C., in reply: Assuming that there had been fraud on the part of the directors, the proposition of those who opposed the petition amounted to this—that Mr. Seear and the directors of the new company would have to bring an action for damages against Mr. Seear as a director of the old company. The situation was most ludicrous. He cited, further, Re Gutta Percha Corporation (83 L.T. Rep. 401; (1900) 2 Ch. 665). Cur. adv. vult.

JUDGMENT.

Bargrave Deane, J.: Although I had practically made up my mind upon this case at the hearing, I thought it better to give my judgment later, and so have more time to consider the various points raised. This is a petition on the part of Mr. Lindley asking that the Goldfields of Matabeleland, Lim., shall be wound up by the Court. The company was incorporated on the 19th April 1895, with a capital of £500,000, divided into 500,000 shares of £1 each. Of these shares, 404,789 were fully paid up. By the memorandum of association of the company the registered office was to be situated in England. It is, then, most important to consider what were the objects of the company. By clause 3 (a) of the memorandum these are stated to be "To purchase, take on lease, or otherwise acquire "freehold and other farms, properties, mines and mineral "properties, and also grants, concessions, leases, claims, "licences, or authorities of or over mines, land, mineral "properties, water and other rights in Africa or elsewhere, 'either absolutely, optionally, or conditionally, and either "solely or jointly with others," and by clause 3 (/) the company was empowered "To buy or otherwise acquire, "issue, place, or sell, or otherwise deal in stocks, shares "bonds, debentures, and securities of all kinds, and to give "any guarantee or security in relation thereto, or other"wise." I have not myself had very great experience of these kinds of companies, but it is difficult for me to conceive of powers conferred in wider terms than by this memorandum. The company continued to carry on its work until August of the present year. Then the trouble began, and, as a result, one of the shareholders, the petitioner in this case, being dissatisfied with the conduct of the directors of the company, presented this winding-up petition. At the time of the formation of the company there were two managing directors, Mr. Maund and Mr. Seear. The former died some time ago, and Mr. Seear

became the sole managing director. There is one matter, first of all, to clear away. It is raised in the petition, but there was very little reference made to it in the argument by the petitioner's counsel. It is alleged that the directors distributed amongst themselves a larger amount out of the assets of the company than they were entitled to. I do not think that there is any substantial foundation for such an allegation. Another matter which seems to have had considerable effect upon Mr. Lindley and his judgment is the fact that he found that a large number of mining companies had offices in the same building as that in which the registered office of this company was situated. Although, as I have said, I do not know much about mining companies, I suppose that the majority of people have some knowledge of this, that these mining companies do congregate together, and in some cases actually share the same office. It is further stated that the directors of the company owned shares in and were actually directors of these other companies. I do not imagine that that is a state of things altogether unknown in the mining world. As I have said, the company carried on business up to August last, but I have only been supplied with annual reports for 1904 and 1905. On an examination of the report for 1904, I find that the auditors announced that there had been a considerable loss, and it is evident that the shares of the company had considerably depreciated in value. From the report of 1905 it appears that there was still a loss, though this loss was less heavy than in the preceding year. Therefore for two years the shareholders were informed that their property had seriously fallen in value. Of course, everyone is aware that during the last two years there has been a heavy fall in all South African securities. On the 1st August 1906 a notice was sent out convening a meeting for the 9th August. A resolution for the voluntary winding-up of the company was submitted to the meeting. A poll was demanded, but the resolution was carried by an overwhelming majority, and was confirmed at a subsequent meeting. Mr. Lindley was dissatisfied with the proceedings, and on the 29th August the present petition to wind up the company by the Court was presented. Now, the onus is laid upon the petitioner to satisfy me as to two things before he can expect me to make a winding-up order. In the first place, he must show me that it will be an advantage to him to have the company wound up by the Court; and, secondly, he must satisfy me that, although there is no direct allegation of fraud, at least there is grave suspicion of it under the circumstances. Now, what does he allege? In paragraph 29 it is stated: "In 1903 the company held more than 22,000 shares in the "Scottish Mashonaland Gold Mining Company, Lim., "which owned certain mineral deposits known as Banket "Reefs in Rhodesia. The said John Seear and the "Rhodesia Exploration and Development Company, Lim.,

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"discovered that, contrary to the then prevailing general “opiniɔn, these reefs were extremely valuable, and shortly "after such discovery, and without disclosing the same to "the company, the said John Seear and his co-directors "sold 18,500 of the company's shares to the Scottish "Mashonaland Gold Mining Company, Lim., at a gross “undervalue, to the Rhodesia Exploration and Develop"ment Company, Lim., or to some other company or "person in a fiduciary relationship to the company. The company has lost a very large sum by this transaction, "and proceedings ought to be taken in respect thereof. "About the same time a number of similar shares belong"ing to another company of which the said John Seear had "recently been a director were sold under similar circum“stances, and such other company has enforced payment "of £30,000 or thereabouts by way of damages or com“pensation for such transaction." In reply to this, Mr. Seear has stated in his affidavit that no information had been received by him, or, as far as he knows, by any other person, that any engineer considered that these deposits existed until 1904, and that at the time of the sale of the shares of the Scottish Company he had no knowledge that these cla were of any particular value. He denies that the company's shares have been sold at a gross undervalue. The average price received for the whole of the shares was 19s. 61⁄2d. Since the sale they have been as low as 10s., and at the present moment they stand at 12s. 6d. At the time of the sale there was, in fact, no market in them. There is an allegation and also an answer each good until contradicted. I can only say that I am of opinion that Mr. Lindley is certainly under a misapprehension as to matters referred to as having taken place in 1903, and that what did, in fact, take place happened at a later period. I will not waste time by going through all the statements. They are all statements of fact, and the whole are denied by Mr. Seear on oath. There is one other matter alleged in the petition as amended. It is stated that a Mr. Simpson has been appointed as liquidator of the company in the voluntary winding-up, and that this gentleman is the secretary of the company, and also that he is, or has been, the secretary of, or a substantial shareholder in, some of the other companies controlled by Mr. Seear. Mr. Simpson himself has dealt with this allegation in his affidavit. He says that he is not, and never has been, a substantial shareholder in his own right in any company of which Mr. Seear is a director, and that his total holding of shares in any company in any way connected with the offices in which the offices of the Goldfields Company are located is less than 550, and that these are held in companies other than those in which Mr. Seear is a director. He goes on to say that he has never been concerned personally as a shareholder in the Exploration Company, although it is possible that some shares may have been registered in his name. I merely quote this particular matter as an instance that, although Mr. Lindley is most probably thoroughly honest in all the statements he has made, he is manifestly wrongly informed

as to certain of the things which he alleges. The petition does not raise any allegation of fraud, but there is a charge of grave suspicion. I can only say that the petitioner has altogether failed to convince me that there is any ground for such suspicion. How, then, am I to arrive at a conclusion as to whether a compulsory winding-up will be of benefit to the petitioner? It is said that a better opportunity will be afforded of realising the assets. What is the best test that I can apply? Surely it is the expressed opinion of the overwhelming majority of the shareholders and the creditors, and they are in favour of voluntary liquidation. It is very clear that they have never had any suspicion that the affairs of the company were in an unsatisfactory state, and that they have believed the directors have been doing their best for the benefit of all concerned. One knows that when a company is unsuccessful there are always a certain number of people who raise a cry of fraud, but in the present instance the vast majority are perfectly satisfied that no kind of fraud exists. Of course, the opinion of the shareholders is not binding upon me, but it is very valuable in assisting me to arrive at a decision. The petitioner has failed, as I have already said, to satisfy me that there is any ground for suspicion, and I am clearly of opinion that it is in the best interests of all concerned that the company should be wound up voluntarily. The petition, therefore, will be dismissed with costs.

(L.T. 546.)

VACATION COURT.

October 17.

(Before BARGRAVE DEANE, J.)

Re J. H. Selkirk, Lim. (Petition of Associated Newspapers, Lim.).

Company-Winding-up—Voluntary Winding-up Pending—Benefit

to Creditors.

Petition by creditors to wind up the respondent company. It appeared from the petition and affidavits that the company was registered on the 30th September 1905, with a capital of £4,000 in shares of L1 each. Of these 3,300 had been issued, 2,294 being held by a Mr. Selkirk, who was the promoter and vendor and also the sole director and manager of the company. Mr. Selkirk's business, sold to the company and carried on by them, was that of advertising agents, and the debt of the petitioning creditors, Associated Newspapers, Lim., which amounted to £603, was the amount of a judgment with costs obtained by them against the respondent company in respect of advertisements inserted in their newspapers by them and not paid for. On the 24th of September last the respondents' registered office was closed, and a notice affixed thereto referred inquirers to a certain gentleman whose name and address was given, but who at the time was abroad. On the 27th of September a resolution was passed to wind up the company voluntarily, the above gentleman being made liquidator. On the 31st of July previous a mortgage of all its property, including the uncalled capital, was granted by the company to Mr. Selkirk to secure a sum of £5,188

alleged to be due from it to him. The company was insolvent. It was contended on behalf of the petitioners that the granting of the mortgage amounted to a fraudulent preference of Mr. Selkirk to other creditors, and was therefore void, and that the resolution to wind up voluntarily was not passed bonâ fide, but in order to defeat the company's creditors, and that as the control of the winding-up would in effect be in the hands of Mr. Selkirk, the creditors would be injured. This petition was supported by creditors for £2,000. The following passage from the judgment of Lindley, L.J., in Re National Debenture and Assets Corporation (1891, 2 Ch., at p. 518), was read: "It comes, "therefore, now to the simple question of whether it is necessary and proper for the protection of the creditors "to make a compulsory winding-up order instead of continuing the supervision order. . . . The company is a "curious company, there is a great deal to be found out, "and the powers of the Court, especially now since the " modifications which have been made by last year's Act "(the Companies (Winding-up) Act, 1890), to inquire into "tricks or malpractices under a compulsory order, are very considerably larger than they are under a voluntary winding-up. Under the circumstances the creditors are "entitled, in my opinion, to have a compulsory order." The voluntary winding-up was no bar to the order asked for if the general body of creditors desired it, although no one of them could prove that the voluntary winding-up prejudiced him (Re Bishop & Sons, Lim., 1900, 2 Ch. 255), and here the great bulk of the creditors supported the petition. On behalf of the respondents it was contended that the petition was opposed by ordinary trade creditors to the amount of £800, and that consequently this was merely a question as between two sets of creditors as to the way in which the winding-up should be conducted. Nothing could be obtained under a compulsory windingup that could not be obtained in the voluntary windingup. It was admitted that the granting of the mortgage constituted a fraudulent preference, but any money improperly taken could be recovered in the pending winding-up. The case of Re Bishop & Sons, Lim., was a different case from the present one, for there go per cent. of the creditors supported the petition, while a much smaller proportion did so in this case. Under section 145 of the Companies Act, 1862, a petitioner had to show that his rights would be prejudiced by a voluntary winding-up, but no evidence to that effect was given in this case.

JUDGMENT.

Bargrave Deane, J., said he would not call on the petitioner for a reply. The present case seemed to him one of those cases in which there should be a compulsory crder. When he found that the company started with a capital of £4,000; that Mr. Selkirk, the promoter, held the majority of the shares which had been issued, and that the whole of the assets of the company, including the uncalled capital, had been granted to him, it seemed to him that it was a case of the greatest suspicion. There must be the usual order to wind up.

(50 S.J. 802.)

Law Reports.

Administrations.

COURT OF APPEAL.

October 29.

(Before VAUGHAN WILLIAMS, MOULTON, and
BUCKLEY, L.JJ.)

In re Samson; Robbins v. Alexander.
Executor-Right of Preference-Specialty Creditors-Simple
Contract Creditors—Administration of Estates Act, 1869
(Hinde Palmer's Act) (32 & 33 Vict. c. 46), s, I.
Appeal from decision of Joyce, J.

The plaintiffs were specialty creditors of the testator under an indenture of mortgage. The testator's estate was insolvent. The defendants, who were the executors of the testator, had paid simple contract creditors of the testator in full before the commencement of the present administration action, and the assets remaining were insufficient to pay the amount due to the plaintiffs under their specialty debt.

The plaintiffs claimed that the defendants were not

entitled to prefer simple contract debts to the plaintiffs' specialty debt, and relied on In re Hankey; Cunliffe Smith v. Hankey (68 L.J. Rep. Ch. 242; L.R. (1899) 1 Ch. 541). Joyce, J., followed that case and refused to follow In re Orsmond; Drury v. Orsmond (58 L.T. 24), and made a declaration accordingly.

The defendants appealed.

JUDGMENT.

Their Lordships allowed the appeal, holding that the effect of Hinde Palmer's Act was to place specialty and simple contract creditors on an equal footing, and that

and served on the tenants notices of dilapidations. The tenants thereupon did the repairs. The trustees called upon the tenant-for-life to pay the expenses incurred by the trustees in compelling the tenants to repair, which amounted to about £200. This the tenant-for-life refused to do; and this summons was taken out to determine how these costs were to be paid as between the tenant-for-life and remaindermen.

JUDGMENT.

Kekewich, J., said the question was how the costs incurred in compelling the tenants to repair were to be borne as between the tenant-for-life and remaindermen. The tenant-for-life was under no obligation to repair, nor were the remaindermen; but these expenses must be borne by either or both. It was argued that they ought to be paid out of income, because the tenant-for-life was only to receive the net rents and profits after payment of outgoings, and that these expenses were "outgoings." If the trustees had done the repairs, that might be so. But they did not do the repairs, they only compelled the tenants to do them, and they now asked how the costs were to be borne. The principle was stated in In re Hotchkys; Freke

Calmady (1886, 55 L.J. Rep. Ch. 546; L.R. 32 Ch. D. 408) that the burthen is not to be thrown wholly upon either, but that a fair proportion is to be borne by both. These costs were not "outgoings," but were expenses incurred for the benefit of the property. A fair proportion ought to be borne both by the tenant-for-life and remaindermen, and that could be effected by a mortgage of the property to raise the amount.

(I..J. 717.)

Appeal allowed.

(L.J. 700.)

CHANCERY DIVISION.

November 6.

(Before KEKEWICH, J.)

In re M'Clure's Trusts; Carr v. The Commercial
Union Assurance Company.

Tenant-for-Life and Remaindermen-Capital or Income-
Leasehold Houses-" Outgoings"-Expenses of Compelling
Tenants to Repair-Notice of Dilapidations.
Adjourned summons.

The trustees of a marriage settlement of 1874 found it necessary to compel the tenants of the trust premises, who were under covenant to repair, to fulfil their obligations. With this object the trustees had the property surveyed

KING'S BENCH DIVISION. October 29.

(Before BIGHAM, J.)

Re Lazarus; ex parte Trustee v. Kadish. Section 48, Bankruptcy Act, 1883-Fraudulent Preference. Motion by trustee of estate against L. Kadish, father-inlaw of the bankrupt, for a declaration that four payments made by the bankrupt to him within three months of the bankruptcy constituted a fraudulent preference.

The material date-i.e., the presentation of the petition -was the 31st of August 1905, and the payments sought to be set aside were made in the preceding months of June, July, and August.

From the evidence adduced on behalf of the trustee, it appeared that in 1904 the debtor executed an ante nuptial settlement, under which he covenanted to pay £1,000 on demand. The trustees thereunder, of whom one was L. Kadish, issued a writ for that sum on the 4th August 1905,