Chap. XVI. Delinquent directors, officers, and promoters. Official receiver. Defunct companies. Joint Stock Unregistered company. The Court can, under this Act, order the public examination on oath of any person who has taken part in the formation or promotion of the company, or any past or present director, manager, liquidator, or other officer1 of the company, who appears to have misapplied or retained, or become liable or accountable for, any moneys or property of the company, or been guilty of any misfeasance or breach of trust in relation to the company; and the Court may compel such person to re-pay or restore any such moneys or property, or to pay damages. The official receiver is ex officio provisional liquidator, and is permanent liquidator unless the creditors and contributories determine to apply to the Court to appoint some other person as liquidator and the Court makes such appointment. He may petition the Court for a compulsory order where the company is being wound up voluntarily or under supervision." The names of companies which are defunct or have been fully wound up may be struck off the register and the companies will be dissolved.7 Under the Joint Stock Companies Arrangement Act, 1870, where a compromise or arrangement is proposed between a company which is in course of being wound up voluntarily or under the supervision of the Court, and its creditors, or any class of its creditors, the Court may order a meeting of such creditors to be summoned, and, if a majority in number representing three-fourths in value of such creditors, present in person or by proxy at the meeting agree to the arrangement or compromise, it becomes binding, if sanctioned by the Court, on all such creditors and on the liquidator and contributories." An unregistered company may not be wound up voluntarily or under the supervision of the Court, but only by the Court.10 6 Ib. s. 14. Re 1897 Jubilee Synd., [1899] 2 Ch. 204. 7 Act of 1862, ss. 142, 143. Act of 1880, s. 7. Act of 1900, s. 26. 8 33 & 34 Vict. c. 104; amended by 63 & 64 Vict. c. 48, s. 24. 9 See Re Alabama R. Co., [1891]1 Ch. 213; Re Midland Coal Co., [1895] 1 Ch. 267; Lindley on Companies, Bk. IV., Ch. 1, s. 11. 10 Act of 1862, s. 199. Where the capital of a company paid up or credited as paid up Chap. XVI does not exceed 10,000l., and the registered office of the company County Court. is situate within the jurisdiction of a County Court having jurisdiction under the Companies (Winding-up) Act, 1890, a petition to wind up the company, or to continue the winding-up under the supervision of the Court, must be presented to that County Court.1 Debentures and Debenture Stock. The word "debenture," though often used by lawyers, bears no Meaning of. definite legal meaning. It generally signifies a document under the seal of a company given to secure the repayment of money (or money's worth) to a creditor of the company. The debenture may be only a certificate of indebtedness, but it generally contains or imports a covenant to pay, which is usually at the present day accompanied by some charge or security on the property of the company, so that some debentures are secured and some are not secured.2 Although as a general rule debentures are issued in series to different persons whose debentures rank pari passu, there is nothing to prevent all the debentures, or one debenture for the total amount intended to be raised, being issued to one person.3 There is a great difference between corporations established by Royal Charter and companies incorporated by or under the general provisions of an Act of Parliament. A corporation of the former class has power to deal with its property and to bind itself by contract in the same manner as if it was an ordinary person, unless indeed the charter restricts it from so doing. On the other hand, where a corporation is created by statute, the statute must be looked at to see what the corporation is intended to do, and therefore to see what are the limits of its powers.* company. It follows that, where a company is incorporated by a special Borrowing Act, or under the provisions of a general Act, that Act must be power of looked at; thus, where it is incorporated under the Companies Acts, its memorandum and articles of association must be looked at for Chap. XVI. the purpose of seeing whether its power to borrow money on debentures is limited. But, in the absence of restriction," a company limited by shares may borrow as much money as it can get. A company under the Companies Clauses Acts has only limited powers of borrowing." Debentures irregular but intra vires, -issued ultra vires. Charge on uncalled capital. Power of directors to borrow. Where debentures are improperly issued, there are two possible cases, first, where the issue was within the powers of the company, though it was irregular in the particular circumstances; in which case the debentures are invalid in the hands of a person knowing of the irregularity, and also in the hands of his assigns, unless they are negotiable, or create a legal charge, or the company is estopped from disputing their validity as against a bonâ fide purchaser for value without notice of the irregularity. On the other hand, if the debentures are ultra vires, which may happen either because all borrowing is prohibited or because there is a limit to the amount which may be borrowed and that amount has already been raised, they are invalid even in the hands of bonâ fide holders for value, except so far as the money which they represent has been applied for the lawful purposes of the company.3 4 A company limited by shares can create a charge upon its uncalled capital, unless prohibited by the memorandum or articles of association, or unless the case is within sect. 5 of the Companies Act, 1879.5 A charge upon "future property" is not a charge upon uncalled capital." It should also be observed that, even if the company has power to borrow, its liability for the money borrowed in its name by the directors depends upon whether the directors had authority, express or implied, to borrow the money, or in cases where they had no such authority, upon whether the company has ratified the transaction. In the absence of express provision as to borrowing, the directors of trading companies have, but the directors of other 1 Per Ld. Macnaghten, Ooregum Co. v. Roper, [1892] A. C. 147; General Auction Co. v. Smith, [1891] 3 Ch. 432. 2 Howard v. Patent Ivory Co., 38 Ch. D. 156; Davies v. Bolton, [1894] 3 Ch. 678. 3 Lindley on Companies, Bk. II., Ch. 2, s. 5. Athenæum Co. v. Pooley, 1 Giff. 102; 3 De G. & J. 294; Wenlock v. River Dee Co., 10 App. Cas. 354; Land owners' Inclosure Co. v. Ashford, 16 Ch. D. 434. Re Pyle Works, 44 Ch. D. 534; Newton v. Anglo-Australian Co., [1895] A. C. 244. 5 Re Mayfair Co., [1898] 2 Ch. 28. 6 Re Streatham Co., [1897] 1 Ch. 15 ; Re Russian Spratts Co., [1898] 2 Ch. 149. 7 Irvine v. Union Bank of Australia, 2 App. Cas. 374. companies have not, an implied power to borrow money for the Chap. XVI. purposes of the company.1 charges. Debentures issued by companies are sometimes secured by a "Floating legal mortgage of a specific part of the property of the company, usually effected by means of a trust deed; sometimes they are merely charged on the property of the company for the time being, or on the "undertaking," so as to constitute a floating equitable security, but not so as to prevent the company from dealing with its property in the ordinary course of business. If any of the property covered by such debentures consists of land, a contract for the sale of such debentures is a contract for the sale of an interest in land within s. 4 of the Statute of Frauds.3 It follows that where a company, after issuing debentures which create a "floating charge" only, makes a legal mortgage of a specific part of its property, at any time before the debenture holders have taken steps to enforce their security, such mortgage has priority over the debentures.5 Sometimes the debentures provide that the company shall not create any mortgage or charge to take priority of the debentures; in such case, if they are secured by a mere equitable charge, a person taking a legal mortgage without notice of the debenture charge would take priority over it. Such a restrictive condition will not apply to prevent a solicitor acquiring a lien, though he has notice of the restriction.7 8 Priority of legal mort gages; of distress or judgment; A distress for rent will take priority over such floating charges, but an execution will not, unless, perhaps, the goods have been sold before the debenture holders intervene.9 Under the Preferential Payments in Bankruptcy Acts, 1888 and -of statutory 1897, certain debts are entitled to priority over claims in respect of such floating charges.10 Ex p. Pitman, 12 Ch. D. 707; Maclae v. Sutherland, 3 E. & B. 1; General Auction Co. v. Smith, [1891] 3 Ch. 432, where the cases are discussed. Willmott v. London Celluloid Co., 34 Ch. D. 147. See Re Florence Co., 10 Ch. D. 530; Brunton v. Electrical Corp., [1892] 1 Ch. 434; Re Yorkshire Assoc., [1903] 2 Ch. 284; Nelson v. Faber, [1903] 2 K. B. 367. 3 Driver v. Broad, [1893] 1 Q. B. 744. 4 Governments Stock Co. v. Manila R. Co., [1897] A. C. 81. Wheatley v. Silkstone Co., 29 Ch. D. 715; English & Scottish Co. v. Brun- 6 English & Scottish Co. v. Brunton, 7 Brunton v. Electrical Corp., [1892] 1 Ch. 434. 8 Re Roundwood Co., [1897] 1 Ch. 373. 9 Taunton v. Warwickshire, Sheriff of, [1895] 2 Ch. 319; Davey v. Williamson, [1898] 2 Q. B. 194. As to priority of a garnishee order, see Robson v. Smith, [1895] 2 Ch. 118. 10 51 & 52 Vict. c. 62; 60 Vict. c. 19. preferential debts. Chap. XVI. Realization of the security. Remedies of debenture holders. Companies under Com On the appointment of a receiver on behalf of the debenture holders, or on the commencement of the winding up of the company, the security of the debenture holders ceases to be a mere floating charge, and becomes a specific charge on the property of the company then existing; or it may be expressly made to attach as a specific charge in case of default in payment of interest or of principal, in which case the debenture holders must take steps to enforce their security in order to make it attach as a specific charge. The debenture holders may lose their priority by negligence.* The occurrence of a winding-up makes the debentures immediately payable, though the specified time of payment has not arrived, so that the debenture holders can at once enforce their security. 6 Debenture holders may, if the property charged is in danger, obtain the appointment of a receiver by the Court before any default has been made in payment. If the debentures, or the trust deed, gives such power, they may themselves appoint a receiver of the property charged. After default in payment, they may bring an action to enforce their security and obtain payment, and get a receiver appointed in such action; or they may foreclose; or they may petition to have the company wound up;10 or apply to enforce their security in an existing winding-up." There is, however, no power to give effect to the security by a sale, or to appoint a manager of the undertaking, where it is of a public nature, as a railway or gas or waterworks company; in such cases the debenture holders can only obtain the profits or fruits of the company's business by means of a receiver.12 Where a company, constituted by a special Act incorporating panies Clauses the Companies Clauses Consolidation Act, 1845,13 is authorized by Act, 1845. 1 Exp. Bradshaw, 15 Ch. D. 465; English Channel Co. v. Rolt, 17 Ch. D. 715. 2 Re Horne, 29 Ch. D. 736; see Hubbuck v. Helms, 35 W. R. 574. 3 Governments Stock Co. v. Manila R. Co., [1897] A. C. 81. Re Castell, [1898] 1 Ch. 315. 5 Hodson v. Tea Co., 14 Ch. D. 859; Wallace v. Universal Co., [1894] 2 Ch. 547. 6 Hubbuck v. Helms, 35 W. R. 574; McMahon v. N. Kent Iron Co., [1891] 2 Ch. 181; Re Victoria Co., [1897] 1 Ch. 158. 7 Re Pound, 42 Ch. D. 402; Re Stubbs, [1891] 1 Ch. 475. See Gosling v. Gaskell, [1897] A. C. 575. 8 Willmott v. Celluloid Co., 52 L. T. 642; see British Linen Co. v. S. American Co., [1894] 1 Ch. 108. 9 Sadler v. Worley, [1894] 2 Ch. 170; Re Continental Co., [1897] 1 Ch. 511. 10 Re Portsmouth Tram. Co., [1892] 2 Ch. 362. 11 Ex p. Bradshaw, 15 Ch. D. 465. 12 Gardner v. L. C. & D. R. Co., 2 Ch. 201; Blaker v. Herts Waterworks Co., 41 Ch. D. 399; per James, L. J., in Attree v. Hawe, 9 Ch. D. 347. 13 8 & 9 Vict. c. 16. |