Scottish Insurance Corp Ltd v Wilsons and Clyde Coal Co Ltd

May 6. Viscount MauGcHaM. My Lords, the facts in
this case are sufficiently stated in the speech of my noble and
learned friend Lord Simonds which I have had the advantage of
studying in print, and I see no benefit to be gained by repeating
them. I also agree with the conclusions which he has reached,
and if I think it is desirable to express my own opinion
on the construction of the articles of association, so far as
they bear on the question whether the proposed reduction
of capital is fair and equitable as between the ordinary share-
holders and the preference shareholders, it is because there
has been a difference of opinion in the First Division of the
Court of Session and your Lordships have listened to the
citation of a large number of authorities which are thought
to bear upon the matter in debate. I should perhaps add that
I have arrived at my conclusion by somewhat different con-
siderations from those upon which Lord Simonds prefers to
lay stress.

I will begin by treating the matter as if s. 25 of the Coal
Industry Nationalization Act, 1946, did not enter into the
case. The company, as a matter of law, is not in liquidation
and I agree with the view that the circumstance that liquidation
is contemplated in the near future ought not to affect the

A. ¢. AND PRIVY COUNCIL.

construction of the terms on which the preference shares were
issued, that is, in this case, the articles of association, which
are to be found set out in Lord Simonds' speech. We are not
therefore entitled in considering the question of fairness to
shut our eyes to the fact that the directors still have their
powers as such and that they and the shareholders at any time
before liquidation can exercise their rights under arts. 139
and r4r (A).

My Lords, if I am right so far I can see no great
difficulty in the present case. We must first have regard to
the plain terms of art. 128. It is a complete statement of the
rights of the shareholdérs to the profits earned year by year
by the company as a going concern, subject to two supple-
mentary articles, arts. 139 and 141, which must be read with it.
Article 128 begins with saving the rights of members
entitled to shares issued upon special conditions. The words
in the article as to division of "the residue'' (after the
word "thirdly '') are perfectly clear, and they beyond doubt
show that subject to a reserve fund and amounts written off
for " depreciation or otherwise' (a far-reaching phrase) and
to payment of cumulative preferential dividends due on the
two issues of preference shares the whole residue is divisible
among the holders of the ordinary shares in proportion to the
amounts paid up or credited as paid up on their shares. The
amounts of profits so distributed may obviously be less or
greater than the amounts paid up or credited as paid up;
but the preference shareholders have no share in the residue.
So far the article has only dealt with the rights of the ordinary
shareholders to the whole of the divisible profits (the so-called
"residue '') after paying the preference dividends, and there
would remain the reserve fund, and any proper provision
for depreciation and also, no doubt, sums carried forward,
which, of course, would normally come into the profit and loss
account for the next year. The ordinary shareholders for
obvious reasons are not given any immediate right to call for
division of these amounts of profit, but arts. 139 and 141 make
clear provision that the items in question are only being
retained among the company's undistributed assets so longas it
is thought expedient, andit is these articles which in my opinion
clinch the matter. Article 139, after elaborate provisions
as to how the reserve fund is to be employed and subject
to a number of permissible applications for the general
benefit of the undertaking, vontains the following words as to

Vv

479
H. L. (Sc.)

1949

SCOTTISH
INSURANCE
CORPOR-
ATION
Lp.

VU.
WILSONS
&
CLYDE
CoaL
Co, Lp,

Viscount
Maugham.

480

H. L. (Sc.)

1949

ScoTTIsH
INSURANCE
CoRPOR-

Viscount
Maugham,

HOUSE OF LORDS [1949 |

distribution, "or for division by way of bonus to the
'' ordinary shareholders, or as bonuses to the employees of the
'company, or for repaying any moneys borrowed by the
"company, or for making provision for paying off the preference
" shave capital, or for such other purposes as the directors
"shall, in their absolute discretion, think conducive to the
"interests of the company or its shareholders." I have
italicized the words as to paying off the preference share capital
The words are none the less important because the reduction
of capital would require the sanction of the court. They
show at least that, if the transaction is fair and equitable,
the article contemplates that the preference shareholders can
be paid off with or without their consent. Article 141 (A) is
also of great importance. It provides for the conversion into
capital of undivided profits standing to the credit of a reserve
fund, or a profit and loss account " or otherwise, and including
" divisible profits arising by way of permanent appreciation in
"value of any of the company's assets'? and the distribution
of these amounts " among the members of the company who are
"holders of ordinary shares.' My comment on the words
I have here italicized is that if the undertaking of the company
had been sold for cash (and provision made out of a reserve
fund or otherwise for payment of debts and liabilities and for
paying off the preference share capital) every penny could be
distributed among the holders of ordinary shares. I should
add here that I agree with Lord Keith (1) that the suggestion
that such a distributon is unlikely because of the surtax
liability which might accrue to the richer of the recipients is an
accidental consideration which ought not to be considered.

My Lords, for these and other reasons given by your
Lordships, my conclusion is that taking these articles together
it is reasonably clear that subject to the payment to the
preference shareholders of their capital and their preferential
dividends if any not yet paid, and subject also to discretionary
applications by the directors under the terms of arts. 139 and
141 as above set forth, the whole of the reserve funds and
other assets of the company, including the proceeds of sale
of the capital assets, are appropriated to the ordinary share-
holders and in that sense belong to them to the exclusion of the
preference shareholders.

If, then, the question of the approval by the court falls to
be considered in the light of the present position of the company
(t) 1948 S. C. 360, 374.

A. C. AND PRIVY COUNCIL.

it must follow that the main argument of unfairness falls to
the ground, but I am not prepared to deny that the admitted
intention to go into liquidation might be one of the facts which
the court ought to consider and I will therefore state my
opinion on that footing. If there is a liquidation arts. 159
and 160 will apply to the first and second issues of the
preference shareholders which are sufficiently stated in the
speech of my noble friend. Are they a complete statement
of the rights attached in a winding up to the preference shares
or should such shares also have a right to participate with |
the ordinary shares in the remaining assets after payment)
of the amounts called up and paid up on the ordinary shares ?!
My Lords, I am of opinion that the articles in question must
be construed as a complete statement of the rights of
the preference shares in the winding up for the reason that the
whole of the profits and assets of the company (subject to
payment of the amounts called up and paid on the preference
shares) has been appropriated before liquidation to the ordinary
shareholders, and that there is not a word to indicate that
on liquidation the rights of the preference shareholders (if
they have not already been paid off) would be increased,
perhaps very materially, by attributing to them part of the
profits and assets which have been appropriated to the ordinary
shareholders. There might perhaps have been some doubt
as to the compensation payable under the Coal Industry
Nationalization Act as being "' surplus assets '' of the nature
of capital not distributable as dividend ; and I will deal later
with this point.

The view which I have suggested as to the effect of an
appropriation of profits in favour of a certain class of share-
holders is supported by a decision of Lord Lindley (then
Lindley L.J.) in the Court of Appeal (In ve Bridgewater
Navigation Co. (1) ), a sequel to the important case in this
House of Birch v. Cropper (2). The facts were briefly these.
The capital of the company was divided into preference and
ordinary shares. It was the owner of the Bridgewater and
other canals which it sold in 1887 for 1,710,000]. to the

481

H. L. (Sc.)

1949

ScoTTIsH
INSURANCE
CORPOR-
ATION
Lp.
vz.
WILSONS
&
CLYDE

CoaL
Cobb:

Viscount
Maugham,

Manchester Ship Canal Co. It then went into liquidation. /

The liquidators paid all the debts and liabilities, and repaid

to the preference and ordinary shareholders the amount of

capital paid up on their shares. There remained in their

hands a surplus of 550,000/. ; and the question arose how this
(x) [1891] 2 Ch. 317. (2) 14 App. Cas. 525.

482 HOUSE OF LORDS [1949 |

H.L. (Sc.) sum should be distributed between the ordinary and the
preference shareholders. The latter might have been entitled
under art. 85, while the company was a going concern, to a
haa preferential dividend of 5 per cent.and there was (in the view of
Corror- this House) no other relevant term or condition as to their |
AnoN rights, but on liquidation the article ceased to be applicable.}
v. Part of the 550,000/. consisted of three distinct reservefunds for
WnsSons river improvements, insurance and depreciation ; and none of
Crvpe _ these funds were actually set apart from the other assets of the
Fg company. In the books of the company they were sums |
"deducted from profits which the ordinary shareholders might |
uc. have divided among themselves; they were the undrawn™

profits of the ordinary shareholders. But the House of Lords

did not deal with these items. They decided (see per Lord

Macnaghten (1) ) (in the complete absence of any such

articles as we have in this case) that subject to the payment

of the costs, charges and expenses of the winding up and to

the costs of the application "the assets of the company

" remaining undistributed other than the reserve fund, which

"is not the subject of this application, ought to be distributed

"among all the shareholders in proportion to their shares."

When the question of the reserve funds came before the Court
of Appeal in In re Bridgewater Navigation Co. (2), it was te |

1949

that since the assets or amounts in question consisted of the
undrawn profits of one class, those profits ought to be distributed
in the winding up amongst the members of that class in the |
absence of some sufficient reason to the contrary ; and there |
was no such reason. In the result the ordinary shareholders |
were exclusively entitled to the three reserve funds. I have~
to doubt that this was a correct decision, and there was
no appeal. Apart however from any authority, I cannot see
any sufficient reason for coming to a conclusion other than
the one I have above indicated. In my view it is a sound |
prima facie rule that profits which have been appropriated,
subject to possible application for the benefit of the company, }) _
to the ordinary shareholders to the exclusion of the preference fj "
shareholders must, in the absence of some other consideration; }
remain the property of the former on a winding up.. It
should be observed that in the case last cited there were no
such articles as exist in the present case, which is an a fortiori
one. Much reliance is placed on behalf of the appellants
on the case of In ve William Metcalfe & Sons Ld. (3). I must

(1) 14 App. Cas. 525, 548. (3) [1933] Ch. 142.
(2) [1891] 2 Ch. 317.

MSE: AND PRIVY COUNCIL. 483

say that in my opinion that case was wrongly decided; and 4. L. (Sc.)
it should be noted that it is expressly stated (x) that the bulk
of the sum of 21,000/. there in dispute was attributable to
accumulated profits. It seems to me difficult to reconcile Bscikh
that case with the decision of this House in Will v. United — Corvor-
Lankat Plantations Co. Ld. (2) and impossible to reconcile ey

it on sound grounds with the decision of In ve Bridgewater vu

Navigation Co. (3). ANGERS

{t is true that the general principle does not by itself apply, éiyah
to_moneys arising from appreciations in value of capital ; " aa te
but in the present case I read art. 141 as showing that such =
appreciations are appropriated (in the sense in which I use aaeee
the word) to the ordinary shareholders. Apart from that
view, it seems to me that any doubt as to the attribution of
such special assets is removed by the terms of arts. 159 and
160 which refer to "' the property of the company "' as a whole,
and do not justify the conferring of a further right to the
preference shares beyond the amounts called up and paid
thereon. Such a right would require definition and cannot
in my opinion be derived as a matter of construction from
the language of the two articles. I doubt whether there exist
any such assets in the present case, where the colliery assets
were transferred compulsorily under the Coal Industry
Nationalization Act, 1946. Counsel for the appellants in his
forcible argument claimed—and I think with prudence—
that his clients were entitled to share in the whole of the
(so-called) surplus assets; and no distinction was drawn
between different kinds of such assets.

The question that arises as to the effect, if any, of s. 25
of the Coal Industry Nationalization Act, 1946, is due to the
difficulty of appreciating its purpose or its implications.
I agree with the preliminary considerations stated by Lord
Greene M.R. which are to be found in his judgment on the
appeal in the case of In re Chatterley-Whitfield Collieries Ld. (4)
including his remarks as to the drafting of the regulations
which are contemplated by the section. In particular I
agree with the following remark (5): " One thing the section
"clearly does not do. It does not purport expressly or
"impliedly to limit or affect in any way the existing provisions ,
'of the Companies Act, or the well-known practice of the

1949

}

(x) [1933] Ch. 142, 143. (4) [1948] 2 ANE. R. 593.
(2) [ror4] A. C. x7. (5) Ibid. 599.
(3) [1891] 2 Ch. 317.

484

H. L. (Sc.)

1949

SCOTTISH

INSURANCE

CORPOR-
ATION
Lp.

Uv.
WILSONS

CLYDE
COAL
Co. Lp.

Viscount
Maugham.

HOUSE OF LORDS [1949]

'courts thereunder, or to lay down any new principles for
"the court to follow." The regulations contemplated by
the section have now been published and the remark of the
Master of the Rolls applies with additional force. It would,
I think, be going too far to say that in confirming or refusing
to confirm a reduction of the capital of a colliery company |
the court ought to act as if the Coal Industry Nationalization |
Act, 1946, had not been passed. On the other hand, I think 4
those who oppose the reduction by founding their argument
on the provisions of s. 25 are bound to indicate how the section
or the regulations which have recently been made thereunder,
on any reasonable view of probability, can operate in this
case to give the preference shareholders any rights to share |
in the assets beyond those they now possess under the articles"
of association. Taking the view I have expressed as to the
position of these shareholders either now or in a liquidation
and agreeing with my noble and learned friend in the view
that the court in the exercise of its jurisdiction should regard
the provisions of s. 25 as a factor in its consideration of the
fairness of a proposed reduction, I find myself unable to see |
any want of fairness in the proposed reduction of capital.
I will summarize the grounds of my decision as follows.
The case is one in which liquidation, when it comes, will have
been brought about by the action of the legislature. If there
were no reduction of capital the holders of preference shares
would not in my opinion be entitled in a winding up to anything
more than a return of their paid-up capital. I am quite
unable to see why they should claim more on the proposed
reduction, nor why they should object to being repaid by means
of the reduction the amounts so paid up which they would
receive on the proposed liquidation. In my opinion the
decision of the judges of the Court of Session by a majority
was right and the appeal must be dismissed. The answers
should be repelled as irrelevant and the petition should now
be remitted to a reporter. The appellants must pay the costs
of the appeal.

Lorp Simonps. My Lords, on January 1, 1947, the
colliery assets of the respondent company, Wilsons & Clyde
Coal Co. Ld., which I will call the respondents, were in terms
of the Coal Industry Nationalization Act, 1946, transferred
to and vested in the National Coal Board, which was con-
stituted under that Act. Thus the effective business of the

AC AND PRIVY COUNCIL

respondents was brought to an end and it is their avowed
intention in due course to go into voluntary liquidation.
But this they will not do until the compensation payable to
them under the Act has been assessed and paid, an event
which at the hearing of this appeal in March, 1949, could not
be assumed to be immediately impending. In the meantime
they have all the powers of a company which is not in liquida-
tion and I cannot attach any legal significance to the
description of them as "' comatose," "' moribund," or " having
one foot in the grave.' [His Lordship stated the facts and
continued :} At an extraordinary general meeting held on
September 26, 1947, the respondent company passed a special
resolution for the reduction of its capital from 850,000/. (con-
sisting of 40,000/. first preference stock, 10,000/. second pre-
ference stock and 800,000 ordinary shares of 1/. each, of which
675,000 had been issued and converted into 675,000/. ordinary
stock), to 462,500/. divided into 337,500/. ordinary stock and
125,000 ordinary shares of 1/. each and for effecting such
reduction by returning to the holders of the first and second
preference stocks of 1. for each unit of stock held by them and
extinguishing such stocks and by returning to the holders
of the 675,000/. ordinary stock capital to the extent of Ios.
for each unit of such stock held by them. It appears that
not all those who voted for the resolution were ordinary stock-
holders, nor did all the preference stockholders vote against
it, nor do they all now oppose the reduction. I do not think
that your Lordships can get any guidance from the way in
which votes were given. The resolution, of which the formal
validity is not challenged, having thus been passed, the
respondents, as the Companies Act, 1929, requires, presented
a petition to the Court of Session for confirmation of the
reduction, and on February 17, 1948, in spite of opposition
by the appellants, who hold about 45 per cent. of the first
and second preference stock of the company and lodged answers,
by which they averred that the proposed reduction was
contrary to law and in any event unfair and inequitable, the
First Division of the Court of Session, consisting of the Lord
President, Lord Russell and Lord Keith (the Lord President
dissenting) repelled the answers as irrelevant in hoc statu
and made an order for the usual procedure to follow. Against
that interlocutor the present appeal is brought.

My Lords, apart from a special factor which is intro-
duced into it by the provisions of s. 25 of the Coal Industry

485

Eee (SCs)

1949«

SCOTTISH
INSURANCE
CORPOR-
ATION
Lp.

Vv.
WILSoNnsS

Lord Simonds.

480

H. L. (Sc.)

+1949

SCOTTISH
INSURANCE
CoRPOR-
ATION
LD.

Vv.
WILSONS

Lord Simonds,

HOUSE OF LORDS (1949 |

Nationalization Act, 1946, which I will call the Coal Act, I do
not entertain any doubt about this case.. The court should
in my opinion confirm the reduction upon which the respondents
have resolved.

The Companies Act, 1929, no more than its predecessors,
prescribes what is to guide the court in the exercise of its
discretionary jurisdiction to confirm or to refuse to confirm
a reduction of capital. But I agree with the learned Lord
President that, important though its task is to see that the
procedure, by which a reduction is carried through, is formally
correct and that creditors are not prejudiced, it has the
further duty of satisfying itself that the scheme is fair and
equitable between the different classes of shareholders : see
e.g. British & American Trustee G& Finance Corporation Ld.
v. Couper (1). But what is fair and equitable must depend
upon the circumstances of each case and I propose, ignoring
for the moment the particular factor introduced by the Coal
Act, to consider the elements on which the appellants rely
for saying that this reduction is not fair to them.

In the formal case which they have presented to the House
the element of unfairness on which the appellants insist is that
the reduction deprives them of their right to participate in
the surplus assets of the company on liquidation and leaves
the oidinary stockholders in sole possession of those assets.
But in their argument both in the Court of Session and before
your Lordships they have further relied on the fact that they
have been deprived of a favourable 7 per cent. investment
which they cannot hope to replace and might have expected
to continue to enjoy. They further contend that the depriva-
tion of these rights, which would in any case have been an
unmerited hardship, is rendered the more unfair because it is
likely to be followed at an early date by liquidation of the
company or, as it is less accurately expressed, because it is
itself only a step in the liquidation of the company.

The first plea makes an assumption, viz., that the
articles give the preference stockholders the right in a winding
up to share in surplus assets, which I for the moment accept
but will later examine. Making that assumption, I yet see
no validity in the plea. The company has at a stroke been
deprived of the enterprise and undertaking which it has
built up over many years: it is irrelevant for this purpose
that the stroke is delivered by an Act of Parliament which

(x) [1894] A. C. 399.

A. C. AND PRIVY COUNCIL.

at the same time provides some compensation. Nor can it
affect the rights of the parties that the only reason why there is
money available for repayment of capital is that the company
has no longer an undertaking to carry on. Year by year the
7 per cent. preference dividend has been paid ; of the balance
of the profits some part has been distributed to the ordinary
stockholders, the rest has been conserved in the business.
If I ask whether year by year the directors were content to
recommend, the company in general meeting to vote, a dividend
which has left a margin of resources, in order that the preference
stockholders might in addition to repayment of their capital
share also in surplus assets, I think that directors and company
alike would give an emphatic negative. And they would,
I think, add that they have always had it in their power,
and have it still, by making use of arts. 139 or I4I1, to see that
what they had saved for themselves they do not share with
others. I observe that the learned Lord President (1) was
of opinion that such a use of one or other of these articles
would be an impropriety which would at least be open to
challenge in a court of law, but learned counsel for the appellants
candidly admitted that he could not support this view. Reading
these articles as a whole with such familiarity with the topic
as the years have brought, I would not hesitate to say, first,
that the last thing a preference stockholder would expect
to get (I do not speak here of the legal rights) would be a share
of surplus assets, and that such a share would be a windfall
beyond his reasonable expectations and, secondly, that he had
at all times the knowledge, enforced in this case by the unusual
reference in art. 139 to the payment off of the preference capital,
that at least he ran the risk, if the company's circumstances
admitted, of such a reduction as is now proposed being sub-
mitted for confirmation by the court. Whether a man lends
money to a company at 7 per cent. or subscribes for its shares
carrying a cumulative preferential dividend at that rate,
I do not think that he can complain of unfairness if the com-
pany, being in a position lawfully to do so, proposes to pay
him off. No doubt, if the company is content not to do so,
he may get something that he can never have expected but,
so long as the company can lawfully repay him, whether it be
months or years before a contemplated liquidation, I see no
ground for the court refusing its confirmation. To combat the
suggestion that, so far as any benefit to the preference stock-
(1) 1948 S. C. 360, 379.

487

H. L. (Sc.)

1949

SCOTTISH
INSURANCE
CORPOR-
ATION
Isp}

VU.
WILSONS

CLYDE
CoaL
Co. Lp.

Lord Simonds.

488

H. L. (Sc.)

1949

ScoTTISsH
INSURANCE
CORPOR-
ATION
ips
v,
WILSONS
&

CLYDE
COAL
Co; Lb:

Lord Simonds.

HOUSE OF LORDS [1949]

holders is concerned, the position is substantially the same
whether they are now repaid their capital or full use is made of
arts. 139 and I41, it was urged that the incidence of income
tax would be a sufficient deterrent of this alternative measure,
I do not, however, consider that the court can properly have
regard to such a consideration as this in determining what is
fair between the parties. It might indeed be considered
improper to do so if it drove the ordinary stockholders to a
course less advantageous to themselves but no more advan-
tageous to the preference stockholders.

It will be seen, my Lords, that, even making an assumption
favourable to the appellants, I reject their first plea. But it
is perhaps necessary, in case there should be a division of
opinion which would make this a decisive issue, that 1 should
shortly examine the assumption. It is clear from the
authorities, and would be clear without them, that, subject
to any relevant provision of the general law, the rights inter se
of preference and ordinary shareholders must depend on the
terms of the instrument which contains the bargain that they
have made with the company and each other. This means,
that there is a question of construction to be determined and
undesirable though it may be that fine distinctions should be
drawn in commercial documents such as articles of association
of a company, your Lordships cannot decide that the articles
here under review have a particular meaning, because to
somewhat similar articles in such cases as In re Wulliam
Metcalfe & Sons Ld. (1) that meaning has been judicially
attributed. Reading the relevant articles, as a whole, I come
to the conclusion that arts. 159 and 160 are exhaustive of the
rights of the preference stockholders in a winding up. The
whole tenor of the articles, as I have already pointed out, is
to leave the ordinary stockholders masters of the situation.
If there are "surplus assets "' it is because the ordinary stock-
holders have contrived that it should be so, and, though this
is not decisive, in determining what the parties meant by their
bargain, it is of some weight that it should be in the power of
one class so to act that there will or will not be surplus assets.

There is another somewhat general consideration which
also, I think, deserves attention. If the contrary view of
arts. 159 and 160 is the right one and the preference stock-
holders are entitled to a share in surplus assets, the question
will still arise what those surplus assets are. For the profits,

(1) [1933] Ch. 142.

A. ¢. AND PRIVY COUNCIL.

though undrawn, belong, subject to the payment of the
preference dividend, to the ordinary stockholders and, in so
far as surplus assets are attributable to undrawn profits, the
preference stockholders have no right to them. This appears
to follow from the decision of the Court of Appeal in Jn ve
Bridgewater Navigation Company (x), in which the judgment
of the House of Lords in Birch v. Cropper (2) is worked out.
This again is not decisive of the construction of particular
articles, but I am unwilling to suppose that the parties intended
a bargain which would involve an investigation of an artificial
and elaborate character into the nature and origin of surplus
assets.

But, apart from those more general considerations, the words
of the specifically relevant articles, "'rank before the other
"shares . . . . on the property of the company to the oa |

"of repayment of the amounts called up and paid thereon,"
appear to me apt to define exhaustively the rights of ie
preference stockholders in a winding up. Similar words,
in Will v. United Lankat Plantations Co. Ld. (3), " rank,
"both as regards capital and dividend, in priority to the other
"shares," were held to define exhaustively the rights of
preference shareholders to dividend, and I do not find in the
speeches of Viscount Haldane L.C. or Earl Loreburn in that case
any suggestion that a different result would have followed
if the dispute had been in regard to capital. I do not ignore
that in the same case in the Court of Appeal (4) the distinction
between dividend and capital was expressly made by both
Cozens-Hardy M.R. and Farweil L.J., and that in In re
Wiliam Metcalfe & Sons Ld. (5) Romer L.J. reasserted it.
But I share the difficulty, which Lord Keith has expressed
in this case (6), in reconciling the reasoning that lies behind
the judgments in Wzil's case (3) and In re William Metcalfe

_& Sons Ld. (7) respectively. In Collaroy Co. Ld. v. Giffard (8)
Astbury J., after reviewing the authorities, including his
own earlier decision in In ve Fraser and Chalmers (g), said (10) :
"But whether the considerations affecting them [sc. capital
"and dividend preference respectively] are ' entirely different '
"is a question of some difficulty," and approved the proposition

(6) 1948 S. C. 363, 374.

[1933] Ch. 142.

y )
)
) [1928] Ch. 144.
)
)

(x) [z891] 2 Ch. 317.
(2) 14 App. Cas. 525.
\ifror4) A. Corr, 13.
) [r912] 2 Ch. 571. [1919] 2 Ch. 114.
) [1933] Ch. 142, 16r. (10) [1928] Ch. 144, 155.

A. C. 1949. 3

(7
(3 (8
(4 (9
(5 Io
20

489

GHich..(Scd)

1949
SCOTTISH
INSURANCE
CoRPOR-
ATION
Lp.

Vv.
WILSONS

Lord Simonds.

/

499 HOUSE OF LORDS [1949 |

H.L. (Sc) there urged by the ordinary shareholders that a fixed return

of capital to shareholders in a winding up is just as artificial

as a provision for a fixed dividend and that, if the latter is

coarse regarded as exhaustive, there is no prima facie reason why

Corpor- the former should not be similarly regarded. So also that

ANION learned judge was influenced by the consideration which
D. : . .

v. appears to me to have much weight, that, if such an article
foe ag as our art. 159 is regarded as a complete definition of the
Ciypz Tights of the preference stockholders in a winding up, then
Pacer there is a logical consistency between their rights before and

oO, ep. - : eth :
after the company is put into liquidation. In effect I prefer
Lord Nonmead. the reasoning of Astbury J. in the case last cited to that of
'iMpann Eve J. and the Court of Appeal in In re William Metcalfe &
Sons Ld. (1). Counsel for the appellants in the present case
sought to draw a distinction between the right to repayment
of capital and the right to some further share in surplus assets
and pointed to the fact that arts. 159 and 160 said nothing
about surplus assets. But this distinction is not in my opinion
in the present context a valid one. Articles 159 and 160
are the first two in a number of articles headed " Distribution
"of assets on winding up "' and there is nothing in them to
suggest a distinction between " surplus assets '' and " property
"of the company," the expression in fact used in arts. 159
and 160, required for repayment of capital or distributable
as surplus assets. Nor, I think, is the latter expression used
throughout the articles: it is perhaps an expression which is
better avoided.

Finally on this part of the case I ought to deal with an
observation made by Lord Macnaghten in Birch v. Cropper (2) |
upon which counsel for the appellants relied. '' They," he |
said, ''[sc. the preference shareholders] must be treated as ..
"having all the rights of shareholders, except so far as they |

_ 'renounced these rights on their admission to the company."' o)
But, in my opinion, Lord Macnaghten can have meant nothing
more than that the rights of the parties depended on the
bargain that they had made and that the terms of the bargain
must be ascertained by a consideration of the articles of asso-
ciation and any other relevant document, a task which I have
endeavoured in this case to discharge. I cannot think that
Lord Macnaghten intended to introduce some new principle
of construction and to lay down that preference shareholders
are entitled to share in surplus assets unless they expressly
and specifically renounce that right.

(1) [1933] Ch. 142. (2) 14 App. Cas. 525, 546.

1949

A. ¢. AND PRIVY COUNCIL.

For these reasons I reject the assumption upon which the
appellants' first plea is founded.

I can deal shortly with the other element of unfairness
upon which the appellants rely, viz., that they have been
prematurely deprived of a favourable investment. Much
that I have already said is equally applicable here. Funds
being available for payment off of capital, the natural order
is to pay off that capital which has priority and I see no
glimmer of unfairness in the company doing so at the earliest
possible moment, particularly if, their undertaking having
been wrested from them, they can no longer earn 7 per cent.
or anything like it on their money.

I am of opinion then that, apart from the special consider-
ations arising from s. 25 of the Coal Act, the appellants
objections to the proposed reduction have no substance.
I turn then to this section. I will not repeat its provisions.
The appellants say (I quote their formal reasons) that "' the
" proposed reduction of capital unfairly and illegally deprives
"the preference stockholders of their right to an adjustment
"of their interest in the company's assets as affected by the
"payment of compensation under s. 25 of the Coal Industry
" Nationalization Act, 1946," and that it "is contrary to,
" or in any event frustrates, the object of s. 25, and therefore
"ought not to be sanctioned by the court.'' In argument
it has been urged that the preference stockholders have a
statutory right to adjustment, with which the court either
cannot or should not interfere.

I dissent at once from the major proposition that in view
of s. 25 it is no longer competent for the court to exercise
its jurisdiction under s. 55 of the Companies Act, 1929. It is
impossible to read any such implication into s. 25 of the Coal
Act or to suppose that the jurisdiction of the court could have
been intended to be ousted except by express words. The
greater difficulty lies in the alternative proposition, that at
least in the exercise of a discretionary jurisdiction the court
ought not to preclude any interested party from the opportunity
of such advantage as s. 25 might afford him. And in support
of this view it may be urged that until the statutory com-
pensation has been awarded it is not possible to predicate
of any class of shareholders what is a fair way of dealing with
any of the assets of the company. I have felt the force of
this argument. But, if it is accepted, the court must in the
result hold its hand in every case, in which a company carrying

2 PO)

491
H. L. (Sc.)

FA
y v

1949

'SCOTTISH
INSURANCE
CORPOR-
ATION
Lp.

v,
WILSONS

Lord Simonds.

SCOTTISH
INSURANCE
CORPOR-
ATION
JlApy
v.
WILSONS
&
GLYDE
CoaL
Con ip:

Lord Simonds.

HOUSE OF LORDS (1949 |

on a colliery undertaking proposes either to reduce its capital
or to enter into a scheme of arrangement affecting classes
of shareholders or debenture holders, perhaps too even where
debenture holders take proceedings to enforce their security,
on the ground that by exercising jurisdiction it might prejudice
the inchoate rights of some person under s. 25 of the Coal
Act. I cannot think it right to accede to a suggestion which
would involve so much delay and inconvenience to companies
which wish to rearrange their affairs in view of the changes
brought about by the Act. I prefer therefore to adopt the
view put forward by the learned Dean of Faculty and to say
that the court should in the exercise of its jurisdiction regard
the provisions of s. 25 as a factor to be included in its
consideration of the fairness of a proposed reduction, but no
more than that. It is in that way that I propose to examine
the section in relation to the present proposal.

The section looks forward to regulations to be made in due
course, which are to provide facilities for adjusting the
respective interests of different classes in the company's
assets so as to give effect, so iar as may be, to " their relative
"expectations of income yield" and to their respective
"rights of priority.' At the date of the proceedings in the
Court of Session no regulations had been made and it was
legitimate to hope that, when they were made, they would
throw further light on the way in which effect should be given
to expectations of income yield and rights of priority. That
hope bas been disappointed ; for regulations have now been
made, but they do not illumine the darkness. The court
therefore has on the one hand to take into account all those
factors with which I have already dealt in considering whether
the proposed reduction apart from the Coal Act is fair and the
further, by no means negligible, factor that the interposition
of further months and perhaps years of delay can be nothing
but a hardship to the ordinary stockholders, and on the other
hand the factor that the preference stockholders might at
long last get something better than they are now getting,
i.e., repayment in full of their capital, a possibility resting
not on any sure guidance in the section or regulations, but
on the speculative hope that, since there is no guidance,
anything may happen.

It does not appear to me, my Lords, that there is in this
latter factor such weight as to justify the court in saying
that the reduction here proposed is not fair and equitable

A. C. AND PRIVY COUNCIL.

between the different classes of shareholders. I do not want
to prejudge what may happen in any similar case that comes
before a tribunal to be set up under this Act. But I find it
difficult to conceive circumstances in which preference stock-
holders, being repaid their capital in full and their claims
to priority being thus satisfied, can yet assert with any hope
of success that their expectations of income yield relative
to those of the ordinary stockholders entitle them to something
more.

[I am therefore of opinion that the court has properly
exercised its jurisdiction in confirming the proposed reduction
and that this appeal should be dismissed with costs.

Lorpd NorMAND. My Lords, the appellants are certain
of the preference stockholders who lodged answers to the
petition for confirmation. Their objections to the proposed
reduction are that it deprives them prematurely oi the advant-
age of a well secured 7 per cent. investment; that it
deprives them of a right to participate in the liquidation along
with the ordinary stockholders in the division of the property
of the company if any remains after repayment of the capital
of all stockholders ; and that it deprives them of the oppor-
tunity of obtaining a favourable adjustment of their interests
under s. 25 of the Coal Industry Nationalization Act, 1946.

I shall begin by dealing with the first and second of these
objections and it is first necessary for that purpose to consider
what are the rights of the preference stockholders under the
articles of association. These articles give clear notice to the
preference stockholders that there is no assured permanence
of their right to a cumulative 7 per cent. dividend, and there
is no unfairness in abridging, if that were all, the brief period
now remaining before liquidation, in which dividends might
still be paid, by the use of the power to repay preference capital.
The appellants' case, indeed, was not founded so much on the
loss of their expectation of future dividends as on the depriva-
tion of the major right which they said they had in the property
of the company in a liquidation, and if their case on this major
ground fails, their case upon loss of expectation of dividend
must fall with it. So much is this true that there would have
been, I think, no opposition if a substantial pari passu repay-
ment of the capital of all stockholders had been proposed.
What the appellants object to is the complete extinction of
their rights as stockholders by the repayment of their whole

493

Hel, (Ed

1949

ScoTTisH
INSURANCE
CoRPOR-
ATION
Lp.

WILSONS

Lord Simonds.

494 HOUSE OF LORDS [1949]

H.L. (Sc.) capital on the eve of liquidation, andtheir main claim is that as
corporators they have an equal right with the ordinary stock-
holders to share in the company's property in a liquidation,
See unless that right is excluded by the terms of those articles by
NSURANCE 3 : :
Corror- which their rights are conferred. The chief controversy is
Ano therefore whether arts. 159 and 160 contain an exhaustive
v. statement of their rights in a liquidation, excluding any further
Wirsoxs right to share in what have been called the surplus assets of
Crype the company. But these articles can only be properly under-
oo stood if they are read in conjunction with arts. 17, 78, 128, 139
_.' and z41 (A). The cumulative effect of these articles is to give
ford Normand. the ordinary stockholders power until liquidation begins to
distribute among themselves in one way or another all accre-

tions to capital which may arise either from the profits

of the company or from the permanent appreciation of its

assets, and I find it difficult to reconcile a power so compre-

hensive in its scope with an intention that the preference
stockholders should, after liquidation takes place, retain an

interest in the company's property beyond what is necessary

to satisfy their prior claim for the return of their capital.

The wording of arts. 159 and 160 appears to be well designed

to give effect to this limitation of their rights. The appellants

placed some reliance on the word " rank,' which they said

implied an ulterior right to participate in the company's

property after their priority right to a return of capital and the

ordinary stockholders' right to a like return were satisfied.

In support of this view it was argued that there were three

elements to be considered, the rights of the stockholders to

dividends while the company was a going concern, and in a
liquidation their rights first to a return of their capital and

second to "surplus assets.'' I am unable to assent to these
contentions. The word "ranking"? may be used, and in

Scottish legal practice it is habitually used, of an absolute

and exhaustive right ; and it carries no implication of an

ulterior right not included in the ranking. Moreover in art. 12,

which empowers the issue of new shares " with a preferential

"or qualified right to dividends and to ranking in the distribu-

"tion of the assets of the company," the word " ranking '' is

plainly used with reference to a right which may be exhaustive.

The rights in liquidation are not two rights but one, a right

to participate in the division of the company's property.

In arts. 159 and 160 the priority ranking of the preference
stockholders is expressly a ranking on " the property of the

1949

A. C. AND PRIVY COUNCIL.

"company" and there is no room for the suggestion that
these articles leave over a further unexpressed ranking also
on the property of the company. I therefore come to the
conclusion that, subject to the argument based on s. 25 of the
Coal Industry Nationalization Act, the preference stock-
holders have no right to anything beyond what they will
receive under the proposed reduction of capital.

My Lords, the same conclusion results from a consideration
of the authorities and especially of Will v. United Lankat
Plantations Co. Ld. (1). In that case art. 43 of the articles of
association provided that new shares should be issued with
such priority as regards dividends or in the distribution of
assets as the company in general meeting might direct. The
special resolution creating new shares declared "that the
"holders thereof be entitled to a cumulative preferential
" dividend at the rateof 10 per cent. per annum onthe amount
"for the time being paid up on such shares ; and that such
" preference shares rank, both as regards capital and dividend,
"in priority to the other shares." In the Court of Appeal
it was held that the preference shareholders were not entitled
in the distribution of profits to anything more than a Io per
cent. dividend. Cozens-Hardy M.R., said (2): " Sir Francis
_ " Palmer in his book, Palmer's Company Precedents, 11th ed.,
"part (i), p. 814, says this 'It is generally assumed that
'""" where the preference shares are given a fixed preferential
"* dividend at a specified rate, that impliedly negatives any
" "right to take any further dividend, and probably this
" "assumption is well founded.' In my opinion, that assump-
"tion is well founded." Farwell L.J., agreed. But these
learned judges were careful to confine their judgments to
preferential dividend rights, and Farwell L.J., said (3) that
the considerations affecting capital and dividend were entirely
different and that he did not think that you could reason
from what will happen to capital in a winding up to what
ought to happen to dividend while the company is a going
concern. This House affirmed the decision of the Court of
Appeal, and Viscount Haldane L.C., said (4): "I should
"have thought that if we were dealing with an ordinary
"case of two individuals coming together, and if a document
"were produced saying ' You are to have a cumulative pre-

(1) [t912] 2 Ch. 571; [1914] (3) Ibid. 580.
A. Gert. (4) [1914] A.,C. 11,.17.
(2) [1912] 2 Ch. 571, 576.

495

H. L. (Sc.)

1949

ScoTTISH
INSURANCE
CORPOR-
ATION
Lp
Vv.
WILSONS
&
CLYDE
CoaL
Co. Lp.

Lord Normand.

1949
Scorrisu
INSURANCE
COoRPOR-
ATION
Lp.

us
WILSONS

Lora Normand.

HOUSE OF LORDS [1949 |

"ferential dividend of 10 per cent.' or whatever might be
'the equivalent in the circumstances of the bargain, it would
"be naturally concluded that that was the whole of the
'" bargain between the parties on that point. You do not look
"outside a document of this kind in order to see what the
"bargain is; you look for it as contained within the four
"corners of the document." Later in his judgment he adds
this (1): '1 think that Farwell L.J., called attention to what
"is really a cardinal consideration in this matter. Shares
"are not issued in the abstract and priorities then attached
"to them ; the issue of shares and the attachment of priorities
" proceed uno flatu ; and when you turn to the terms on which
"the shares are issued you expect to find all the rights as
'regards dividends specified in the terms of the issue."" With
this opinion Earl Loreburn and Lord Atkinson agreed. My
Lords, the ratio decidendi applies with equal force to priorities
of participation in the company's property, and I see no
ground on which it may be supposed that the declaration of
rights as regards dividends is exhaustive, but the declaration
of rights as regards property is not exhaustive. There is as
good reason and it is equally easy to define exhaustively the
one set of rights as the other. Sargant J., in In ve National
Telephone Co. (2) said: "... . it appears to me that the
"weight of authority is in favour of the view that, either with
'regard to dividend or with regard to the rights in a winding
'up, the express gift or attachment of preferential rights to
"preferential shares, on their creation, is, prima facie, a
" definition of the whole of their rights in that respect, and
"negatives any further or other right to which, but for the
"specified rights, they would have been entitled." The
decision of this House in Wdll's case (3) had not been pro-
nounced when Sargant J., decided Iu ve National Telephone
Co. (4), and his opinion reflects his construction of the judg-
ment of the Court of Appeal. The next case is Jn re Fraser
& Chalmers Ld. (8), in which Astbury J., held that the pre-
ference shareholders in the company were entitled to participate
along with other shareholders in the company's property
after repayment of the capital ; but he explained in the later
case of Collaroy Co. Ld. v. Giffard (6) that this decision was based
on the particular terms of the special resolution and he retracted
what he had said in In re Fraser & Chalmers Ld. (5) so far

¢

'

GL erEnO TAA AS Cl nat aa, (4) [r914] 1 Ch. 755.
(2) [1914] 1 Ch. 755, 774. (5) [1919] 2 Ch. r1q.
(CE) ublliastoyiaw.ilh ean Cason (6) [1928] Ch. 144, 158--60.

A. ¢. AND PRIVY COUNCIL.

as it controverted the opinion of Sargant J., in In ve National
Telephone Co, (1) which I have quoted. The last case calling
for consideration is In re William Metcalfe & Sons Ld. (2).
In that case Eve J., repudiated the idea that an express
direction as to ranking in priority for return of capital excludes
any further pari passu ranking on surplus property, and held
that the ordinary shareholders must establish that the pre-
ference shareholders had renounced their statutory right as
members of the company to share in the company's property
in a liquidation. His judgment was affirmed by the Court of
Appeal. With respect to the learned judges who were parties
to the decision, I have felt unable to reconcile it with the ratio
of the judgment in Wallv. Umted Lankat Plantations Co. Ld (3).
It is unnecessary for me to elaborate my reasons, because they
are most clearly stated in the opinion of Lord Keith in the
present case and I would respectfully adopt what he has there
said. It is, I think, not possible to distinguish Meicalfe's case
(2) from the present case, and I have therefore come to the
conclusion that it should be overruled and that the ratio of
Will v. United Lankat Plantations Co. Ld. (3) was correctly
applied in Collaroy Co. Ld. v. Giffard (4) and In ve National
Telephone Co: (1).

I must now turn to s. 25 of the Coal Industry Nationalization
Act, and I begin with what is common ground, that the
statutory jurisdiction of the court to confirm reductions
of capital is not ousted. It was, however, said that the court
should decline to entertain applications for confirmation
of a reduction of capital in the interval between the vesting
date and the settlement and payment of compensation under
the Act on the ground that the declared intention of Parliament
is that the interests of different classes of shareholders or
stockholders shall be subject to an adjustment under regulations
made by virtue of s. 25. That, I think, is in accordance
with the opinion of the Lord President. I share, however,
the difficulty, which the Master of the Rolls felt and expressed
in his judgment in In re Chatterley-Whitfield Collieries Ld. (5),
in appreciating what the declared intention of Parliament
may be. It must be remembered that a court of law has no
discretion whether it shall exercise its jurisdiction or not:
'""judex tenetur impertiri judicium suum.'"' The court,

(x) [1914] 1 Ch. 755. (4) [1928] Ch. 144.
(2) [1933] Ch. 142. (5) [1948] 2 All E. R. 593.
(3) [t9r4] A.C. 11.

497

H. L. (Sc.)

1949
SCOTTISH
INSURANCE
CORPOR-
ATION
Lp
uv.
WILSONS
&
CLYDE
COAL
Cos ip,

Lord Normand.

1949
SCOTTISH
INSURANCE
CORPOR-
ATION
ibjey
Uv,
WILSONS
&
CLYDE
COAL
Coe ip:

Lord Normand.

HOUSE OF LORDS [1949 |

therefore, cannot be moved to suspend applications for
confirmation of reduction of capital in order to give place to
a tribunal created by a statute which has neither clearly
ousted nor clearly suspended the jurisdiction. Its duty
therefore remains to consider whether the proposed reduction
of capital is fair and equitable, but in discharging this duty
it must have regard to the provisions of s. 25. If that section
opens to the preference stockholders a prospect of advantage,
of which they could be deprived only by a reduction of capital
involving the extinction of their shares before liquidation,
I would be prepared to hold that the reduction was unfair.
But neither s. 25 nor the regulations, which have been made
under it since this case was before the Court of Session, justify
any firm expectation of advantage to the preference stock-
holders. How the regulations will be applied by the tribunal
is a matter of doubtful speculation. The ordinary stockholders
are not bound to await the operation of the regulations before
exercising powers which are committed to them by the articles.
It was conceded that the payment of a dividend which would
absorb all "surplus assets"' or the distribution of a bonus
which would exhaust the undivided profits could not be met
by an interdict based on the plea that these were oppressive
abuses of powers. Why then should they hold their hand
if they desire to reduce the capital in the manner proposed
rather than to take part in the doubtful hazard of proceedings
before a tribunal constituted under s. 25? The company
is not bound to satisfy the court that its proposals are not
unfair. It has brought forward proposals which are intra
vires, regular on the face of them, and in conformity with the
usual practice as laid down by Lord Wrenbury in his book
on the Companies Acts (11th ed., p. 120). If the objectors
can find in the provisions of s. 25 or of the regulations anything
which should stand in the way of the court's approval, it is
for them to disclose it. If they fail to do this, the court has
no material before it which would warrant a finding that the
proposed reduction is unfair.
I would dismiss the appeal.

Lorp Morton oF HEnRyTON. My Lords, the respondent
company (hereafter called "the company "') seeks to effect
a reduction of its capital, by returning to the holders of its
40,000/. first preference stock and 10,000/. second preference
stock capital to the full extent of 1/. in respect of each 1/. of

A. C. AND PRIVY COUNCIL.

such stock held by them respectively and thereby extinguishing
these two stocks, and by returning to the holders of its
675,000/. issued ordinary stock, capital to the extent of Ios.
in respect of each 1/. of such stock held by them respectively.
This reduction can only be carried out subject to confirmation
by the court and the court will not confirm the reduction
unless it is " fair and equitable.'' It is this discretion, vested
in the court, which properly safeguards the interests of a
dissenting minority : see British & American Trustee & Finance
Corporation Ld. v. Couper (1). The words " fair and equitable "'
are not used with any technical meaning, but " in the ordinary
"sense of those words "' (per Lord Macnaghten (2) ).

The appellants are a dissenting minority, of no fewer than
seventy-one preference stockholders, holding among them
about 45 per cent. of the preference capital, and there can,
I think, be no doubt that the proposed reduction is detrimental
to the preference stockholders and beneficial to the ordinary
stockholders. Moreover there is no reason for the proposed
reduction, at this stage in the company's history, other than
the desire of the ordinary shareholders to obtain a benefit
for themselves, at the expense of the preference shareholders.
It is for your Lordships to determine whether, notwithstanding
these facts, the proposed reduction is fair and equitable in
all the circumstances of the present case.

In agreement with the Lord President of the Court of Session,
but in disagreement with the majority of the First Division,
I have reached the conclusion that it is neither fair nor equitable.
I shall first state my reasons and shall then proceed to expand
them and to consider the arguments advanced at the hearing
in favour of the proposed reduction. For the sake of brevity,
I shall refer to the proposed reduction as "' the scheme "' and
shall use the phrase " surplus assets' as a convenient phrase
to describe the assets which remain, in the winding up of a
company, when all its creditors have been paid and all the
members have been repaid the amounts paid up on the capital
held by them. In so using the phrase I do not forget Lord
Macnaghten's observation in Birch v. Cropper (3) that the
'surplus assets '' are '"' part and parcel of the property of the
"company—part and parcel of the joint stock or common
" fund—which at the date of the winding up represented
"the capital of the company. It is through their shares

(t) [1894] A. C. 399, 406. (3) 14 App. Cas. 525, 546-7.

(2) Ibid. 413.

499

hyd Ban CSte))

1949

SCOTTISH
INSURANCE
CORPOR-
ATION
1D.

v.
WILSONS
&
CLYDE
CoaL
Co. Lp.

Lord Morton
of Henryton.

300 HOUSE OF LORDS [1949]

H.L. (Sc.) ''in the capital, and through their shares alone, that members
" of a company limited by shares become entitled to participate

= "'in the property of the company.'
oor My Lords, my reasons for the conclusion already stated are

Corror- as follows: (1.) In my view the preference stockholders have,
AvtoN under the company's memorandum and articles, a right to
v, share inthe surplus assets inawinding up. (2.) Thecompany's
WILSONS substratum is gone and a winding up is inevitable. Thus
Crypz the scheme does not serve any useful business purpose connected
Coat with the carrying on of the company. The only results which
-—- will follow from it are (az) The preference stockholders will
fiers forthwith cease to receive their interest at 7 per cent., instead
"i ie of continuing to receive it until winding-up ; (b) The preference
stockholders will be excluded from any share in the surplus
assets on a winding up. The ordinary shareholders have
used their voting power in order to secure these results, and
for no other purpose ; there is noother reason why the company
should not proceed to liquidation without taking this preli-
minary step. (3.) The opposition to the scheme does not come
from a small or factious minority, but from a substantial
minority who have excellent reasons for wishing to oppose
the scheme. (4.) It is possibly of some importance that the
scheme cuts out the preference stockholders from any chance
of getting favourable adjustment of their interests in the
company's assets under s. 25 of the Coal Industry Nationaliza-
tion Act, 1946. As will appear hereafter, however, I attach

very little weight to this point.

My Lords, my first reason is of great importance. If the
preference stockholders are not entitled to share in the surplus
assets, the scheme at once assumes a different aspect. In
the Court of Session Lord Keith thought that they were not
so entitled, and the question is, of course, one of construction.
The respective rights of preference and ordinary stockholders
depend entirely upon the company's memorandum and articles
of association, to which I now turn. By cl. 5 of the memo-
randum the company has power to increase its capital " by
"the creation and issue of new shares, either ordinary, or
"having such preference, priority and_ special. privileges
'attached thereto, as may be determined by special resolution
"of the company." It is, I think, unnecessary to trace the
stages by which the company's capital reached its present
amount. In the year 1923 the company by special resolution
adopted new articles of association. Before that date, all

A. ¢. AND PRIVY COUNCIL.

the preference stock had been issued, and, in my view, no
other document is material for determining the present rights
of all classes of stockholders.

The articles must, of course, be read as a whole, and in reading
them it is important to bear in mind that (to quote Lord
Macnaghten in Birch v. Cropper (1)) " every person who
'becomes a member of a company limited by shares of equal
"amount becomes entitled to a proportionate part in the
"capital of the company, and, unless it be otherwise provided
" by the regulations of the company, entitled, as a necessary
"consequence, to the same proportionate part in all the
"property of the company." Thus in the present case the
preference stockholders are entitled to share in the surplus
assets with the ordinary stockholders in proportion to their
respective holdings, unless the articles of the company otherwise
provide.

I turn first to arts. 159 and 160, since they are the only
articles which deal directly with the matter in issue, though
of course they must be read in conjunction with all the other
articles, in order to get a complete picture. I shall quote
these two articles, as they have not yet been read in full:
"159. In the event of the company being wound up, the
"preference shares (first issue) shall rank before the other
"shares of the company on the property of the company,
"to the extent of repayment of the amounts called up and
"paid thereon. 160. In the event of the company being
"wound up, the preference shares (second issue) shall rank
"before the ordinary shares but after the said preference
"shares (first issue) on the property of the company to the
"extent of repayment of the amounts called up and paid
"thereon." As these two articles are similar in their terms,
mutatis mutandis, it will be sufficient to examine one of
them in detail. Certainly neither of them contains any
words which expressly exclude the preference stockholders
from sharing in the surplus assets, although such words are
very commonly found in a company's articles, and they appear,
for instance, in the articles of Chatterley-Whitfield Collieries
Ld., the respondent company in the next appeal before this
House. The omission of any words of exclusion is, I think,
somewhat significant. The new articles were adopted in 1923,
and in 1919, Astbury J. had decided in the case of In re
Fraser & Chalmers Ld. (2), that the preference shareholders
in the company then in question were entitled to share in the

(x) 14 App. Cas.'525, 543- (2) [r919] 2 Ch. 114.

501

Ei Lin(Se:)

1949

SCOTTISH
INSURANCE
CORPOR-
ATION
Lp.

Vv.
WILSONS
&

CLYDE
COAL
Co. Lp.

Lord Morton
of Henryton.

502 HOUSE OF LORDS [1949]

H.L. Sc.) surplus assets, pointing out that "' all shareholders are entitled
"to equal treatment unless and to the extent that their rights

i ''in this respect are modified by the contract under which
eg 'they hold their shares." This was the last relevant decision

Corror- before the company in the present case adopted its new articles,
Anon and I think that if it had been intended to exclude the
v, preference shareholders from any share in the surplus assets,
Ww ONS express words of exclusion would have been inserted in
Ciype arts. 159 and 160.

a Are there any words which raise an implication of such
_ "an exclusion? My Lords, I cannot find them. Article 159
ioe" is concerned simply with the order in which shares shall
= rank '"'on the property of the company,' and the extent
to which the first preference shares (now stock) shall rank
before the other shares of the company. They are to
rank before the other shares, on that property, to the extent
of repayment of the amounts paid up. Surely the implication
is that, except to the extent just stated, the preference shares
are to have no priority, but are to rank equally, on any property
of the company which is left after the paid-up capital has been
repaid ? If, however, there is no such implication, there is
not a word which raises the implication that they are to be
excluded from the ordinary right, as corporators, to share
equally with other corporators in a winding up on this portion

of "the property of the company."'

Turning now to the other articles, I look in vain for any
words which expressly or impliedly exclude the preference
shareholder from the right just mentioned. I would first
note that art. 12 has no relation to the existing preference
stock, as it had all been issued before this article was adopted.
I do not think it matters whether or not there was an earlier
article in the same terms, as the present rights of all stock-
holders depend upon the 1923 articles. Counsel for the
company relied particularly upon arts. 128, 139 and r4r (A).
I shall have to return to these articles later, and I have no
desire to minimize the marked difference between the position
of the preference and the ordinary stockholders in regard to
the profits, while the company is a going concern. But,
with all respect to those who think otherwise, I cannot obtain
from these three articles any light on the respective positions
of the preference and the ordinary when the company goes
into liquidation. As Lord Romer (then Romer L.J.) said in
In re William Metcalfe & Sons Ld. (1): '' Because .... the

(1) [1933] Ch. 142, 161.

A. ¢. AND PRIVY COUNCIL.

"preference shareholders, as regards dividend, are entitled
" to nothing more than the fixed preferential dividend expressed
"to be given to them, it does not in the least follow that so
"far as regards their rights in a winding up they are only
"entitled to the privileges of preference expressly given to
"them in that respect.' In order to find out how the
company's property is to be dealt with when that event
happens, one has to return to the articles dealing with the
position in a winding up. I have already dealt with arts. 159
and 160, and, having travelled full circle, I have discovered
nothing which expressly or impliedly deprives the preference
stockholders of their ordinary right as corporators to share
in the surplus assets in a winding up.

My Lords, I hope and believe that I have avoided approaching
this question of construction "with any obsession or
"preconceived idea as to the inherent equality between
"shareholders in a company '' to quote again Romer L.J.
in Metcalfe's case (1). I have construed the memorandum
and articles with an entirely open mind, and having construed
them [I fall back upon that inherent equality which is, to my
mind, in no way disturbed by the regulations of the company.

I leave the articles by asking, and answering to the best
of my ability, two questions: (@) What would have been
the position as to the distribution of the company's property
on a winding up, if the articles had contained no provisions
at all as to how that property was to be distributed ? In that
event there could, I suppose, be no doubt that the balance
remaining after payment in full of the creditors would have
been divisible equally among all the stockholders, preference
and ordinary alike, under ss. 211 and 247 of the Companies
Act, 1929. See Birch v. Cropper (2). (b) To what extent
is the position altered by the memorandum and articles of
this company ? Answer—The only provisions as to this are
contained in arts. 159 and 160, and they do no more than
confer a priority on the preference stockholders " to the extent
"of"? repayment of their capital.

My Lords, in every case the answer to the question now under
consideration depends upon the true construction of the
regulations of the company in question. I am, however,
strengthened in the view which I have formed by the closely
reasoned judgment of Eve J., in Metcalfe's case (3), unanimously

(x) [1933] Ch. 142, 159-60. (3) [1933] Ch. 142, 144-5.

(2) 14 App. Cas. 525, 546-7.

593

Hk. (Se-)

1949
SCOTTISH
INSURANCE
CORPOR-
ATION
Ibe
v.
WILSONS

Lord Morton
of Henryton.

504 . HOUSE OF LORDS [1949]

H.L. (Sc) accepted by the Court of Appeal as correct. There are, of
course, differences, in the wording of the memorandum and

9
noe relevant articles, between the present case and Metcalje's
cenanns case (I). The articles are very shortly set out in the report,

Corpor- which does not show whether or not there were any articles
ATION on the same lines as arts. 128, 139 and 141 (A) ; but Mr. Stamp

an argued (1) '"' the moment before the winding up the ordinary
Wisons «« shareholders could have passed a resolution dividing the
Crype '"' whole of the surplus assets or accumulated profits between
cot" them" and this argument is dealt with by Eve J. (2).
__—s«¢[.: think therefore that any distinction which exists between
Lord Morton

ofHenryion, the present case and Meftcalfe's case (1) must be an extremely

a fine one. Meitcalfe's case (1) settled, so far as regards the

Court of Appeal, a long-standing difference of judicial opinion

which is fully set out in the judgments. It is not binding

on your Lordships' House, but in my view the decision, and

the reasoning on which it was founded, were correct. I also

agree with the reasoning and the decision in the case of
Williamson-Buchanan Steamers Ld. (3).

I have not overlooked the case of In ve Bridgewater
Navigation Co. (4). If the preference stock were to continue
in existence until liquidation, interesting questions might arise
whether that case was rightly decided, and if so whether
the facts of the present case would support any claim by
the ordinary stockholders similar to the claim successfully
put forward in the Bridgewater case (4). I do not, however,
find that case, in which the facts were of a very special nature,
of any assistance on the question of construction which arises
in the present case.

It is, of course, necessary to consider carefully the decision
of this House in Wall v. Umited Lankat Planiations Co. Ld. (5).
I would observe first that the House was then dealing only
with a question as to the rights of the preference shareholders,
in respect of dividend while the company was a going concern,
but certain observations of Lord Haldane were much relied
upon by counsel for the company. My Lords, for my part,
I do not think that Lord Haldane was addressing his mind
in the slightest degree to the rights which the preference
shareholders would have in a winding up. These rights
were not in dispute in this House. See Collaroy Co. Ld. v.

(t) [1933] Ch. 143, 144-5. (4) [1891] 2 Ch. 317.

et lig (5) [rorg] A. C. rx.
GieG@o20)"o. Ly. roe

A. C. AND PRIVY COUNCIL.

Giffard (1). Lord Haldane was delivering an impromptu
opinion upon one topic only, and I do not think he intended
his words to be applied to any other topic. The other noble
and learned Lords also concentrated on the topic with which
alone the case was concerned. I cannot form any idea what
view the House would have taken if the rights of the preference
shareholders to surplus assets in a winding up had been under
consideration. I am supported in my view that Wdll's case (2)
is of no assistance in the present problem by the following
facts: (a) When Will's case (3) was heard in the Court of
Appeal Cozens-Hardy M.R. clearly thought that the preference
shareholders would share in surplus assets in a winding up (4)
while Farwell L.J. said (5): '"' To my mind the considerations
"affecting capital and dividend are entirely different. The
"preference given to capital is in the winding up, and the
"preference claimed to be given to dividend here is in a
" going concern; and I do not think that you can reason
"from what will happen to capital in a winding up to what
" ought to happen to dividend while the company is a going
"concern. As to what may happen in a winding up I express
"no opinion. Sir Francis Palmer says this, immediately
" following the passage read by the Master of the Rolls, in
"Palmer's Company Precedents, 11th ed., pt. I, p. 814:
"" Where preference shares are given a preference as regards
" "capital, that does not impliedly exclude them from sharing
'"""in the surplus assets in winding up, after clearing off the
" "whole of the paid-up capital: In re Espuela Land and
" * Cattle Co. (6). It is therefore open to contention that the
"attachment of a preferential dividend does not impliedly
"exclude the right to participate in surplus profits after
""paying a like dividend on the subordinate shares. In
"" order, however, to preclude any question on this point,
"<it has for some time past been customary to insert express
""" words negativing the right of preference shareholders to
"* participate in further profits '.'' If this House, in affirming
the Court of Appeal, had disagreed with these observations,
it would seem likely that some member of the House would
have criticized them. The absence of any such criticism
may indicate that their Lordships either formed no view
upon the observations of the Master of the Rollsand Farwell L. J.

(r) [1928] Ch. 144, 154. (4) Ibid. 578 ab init.
(2) [1914] A. C. 11. (5) Ibid. 580.
(3) [1912] 2 Ch. 571. (6) [1909] 2 Ch. 187.

A. C. 1949. 3 ae

55

Fick...(Sc:)

1949

SCOTTISH
INSURANCE
CORPOR-
ATION
Ep
Uv.
WILSONS
&
CLYDE
COAL
Gos Lp?

Lord Morton
of Henryton.

506

H. L. (Sc.)

1949

ScoTTIsH
INSURANCE
CoRPOR-
ATION
apy,

Oe
WILSONS
&
CLYDE
COAL
Co. Lb.

Lord Morton
of Henryton.

HOUSE OF LORDS | [1949 |

or agreed with those observations. (6) In Metcalfe's case (I)
all the members of the Court of Appeal mentioned Will v.
United Lankat Plantations Co. Ld. (2), and clearly did not think
it contained anything adverse to the reasoning of Eve J.
(c) It may possibly be material to note that in Wall's case (2)
this House had to consider the joint effect of the second
resolution of July 13, 1891, which (to quote Lord Haldane (3) )
'gave the authority to make the bargain and defined the
'terms which the bargain was to contain " when the preference
shares were issued, and thearticles of the company, in particular
art. 43. In the present case the first preference shares were
created in 1878, and the second preference shares in 1892
and the present rights of the shareholders are defined by
the articles adopted in 1923. Your Lordships do not know,
nor, in my view, is it now material to know, what were the
terms of the original offer of preference shares at the time
when they were created.

For these reasons, my Lords, I am of opinion that the
preference shareholders in the present case are entitled to
share in the surplus assets, and that the authorities furnish
no good ground for a contrary conclusion.

I now come to my second reason for thinking that the
scheme is unfair and inequitable, and I should like to adopt,
respectfully, the summary of the situation given by the learned
Lord President (4): '' What are the admitted facts? This
"company's capital structure consists of preference and
ordinary stock in the ratio of roughly 1 to 13. Its business
was coal-mining, and on January I, 1947, its collieries and
' working assets passed to the National Coal Board in exchange
for a share, as yet undetermined, in the global sum of com-
pensation. Liquidation is inevitable. The company's sub-
'stratum is gone. Its remaining assets, consisting of
'investments and cash, can no longer be employed in prosecut-
"ing the objects for which it was formed. No resumption
"of business is in contemplation. It survives, with one foot
'in the grave, solely for the purposes of being wound up, and
"it will be wound up as soon as the compensation has been
'ascertained. There is no question in this case, as in earlier
'cases, of recasting the company's finances in its interests
"as a trading entity. There is no question here of discre-
"tionary forecasts of business men as to the company's

(as

4¢

a

4

(1) [2933] Ch. 142, 157, 159, (3) [ror4] A.C. 16.

161. (4) 1948S.-C. 360, 377,
(2)=[r0T4] ASC, xx,

A.

ae

ce

<e

C. AND PRIVY COUNCIL.

commercial future. This company's future is behind it.

Its creditors are provided for. There is only one active

controversy, viz., the division of the assets amongst the

"shareholders. These assets, even without taking into

'account the compensation from the National Coal Board,

'are 'much more than sufficient' to meet all liabilities, and

a glance at the balance sheets is enough to show that in the
end of the day there are bound to be considerable surplus

'assets. Faced with this situation (which must have a

parallel in many other concerns affected by nationalization

' of the industries in which they have previously been engaged),
"this company determined to wind up by instalments

'and to die by inches. On September 26, 1947, a special
'resolution was passed (by a majority) reducing the capital

from 850,000/. to 462,000]. by returning capital to the share-
holders to the extent of 388,000/., described as being in

"excess of the wants of the company, as it manifestly is.

Had this return of capital been effected rateably, no objec-
tion could have been stated. But the proposal is to pay

'of the whole preference stock at par and to return Ios. in
'the 7. to the ordinary stockholders, who, if the scheme is

approved, will be left in undisputed possession of the field.

'In answer to a protest on behalf of the preference stock-
'' holders, the secretary of the company wrote on September 17,
"1947: ' Inviewof the passing of the Coal Industry Nationali-
" "zation Act, 1946, the liquidation of this company sooner
'" 'or later is inevitable. The proposed reduction of capital
"is only the first step in that direction, the directors being
" "unwilling to proceed with formal liquidation until further

'" progress has been made with the adjustment of the com-

_

'pany's claims... .' (The italics are mine.) Confirma-
tion is now opposed not by a single obstructive shareholder

'or a small coterie of dissentients, but by seventy-one pre-

"ference stockholders holding 45 per cent. of the preference

stock.'"' Later, the Lord President said (1): " If it were not

'anticipated by both parties that there will be a substantial

ce

(as

fas

"e

ce

'surplus after repaying to all the shareholders their sub-

scribed capital—and on the accounts this anticipation is
plainly well-founded—this case would be academic. Both
parties see that, if there is no ' first step ' of a reduction of
capital to extinguish the preference stock at par, the surplus
assets will have to be divided between all the shareholders,
(1) 1948 S. C. 378,
3 2

5°97

H. L. (Sc.)

ScorTtisH
INSURANCE
CoRPOR-
ATION
Isp,

v.
WILSONS

Lord Morton
of Henryton.

508

H. L. (Sc.)

1949

SCOTTISH
INSURANCE
CORPOR-
ATION
Lp.

v.
WILSONS
&

CLYDE
COAL
Col ep:

Lord Morton
of Henryton.

HOUSE OF LORDS [1949]

'whereas if this reduction is confirmed, the whole of the
"surplus assets will be appropriated by the ordinary stock-
'holders and the preference stockholders will get nothing
'but the par value of their stock. The ordinary stockholders
"have used their voting predominance with the object of
" cutting the preference stockholders out, and the question
'for us is whether in the circumstances that is, in a business
'sense, fair and equitable.'"' Finally, he observed (1) :
" ... it can make no appreciable difference to these

" ordinary stockholders whether they get Ios. in the J. now at
"the 'first step' in the winding up, or whether the relative
'investments continue to be held by the company until the
'""* formal liquidation.' On the other hand it is impossible
'' onany business view of the matter tosee how inthe inevitable
"liquidation the preference stockholders could ever get less
"than 20s. in the J. for their stock ; and if they are forced to
"accept 20s. now and to forgo their right to a 7 per cent.
"dividend and to participation in the surplus assets in the
" liquidation, they are being bought off for less than a just
"equivalent, and this loss is being inflicted upon them not
"in the interests of the company but solely in order that the
"ordinary stockholders may eventually appropriate 13-13ths
"of the surplus assets instead of 12-13ths. This is not my
"idea of what is just or equitable, and I do not believe that
"any jury of business men would so regard it."'

My Lords, these passages express so clearly my own views
on this branch of the case that I would only add this—there
is no question, in the present case, of a " continuing burden "
on the company in paying the dividend on the preference stock.
Winding up is inevitable, the sum required to pay this dividend
only amounts to 3,500/, gross per annum, and this sum cannot
seriously be regarded as a burden, having regard to the free
assets of the company and the " interim income "' provisions
of the Act of 1946.

My third reason, as to the nature of the opposition to the
scheme, is also dealt with in the passages quoted above.
I would only add that it is not of course to be supposed that the
holders of the remaining 55 per cent. of preference stock
support the scheme, merely because they have not appeared
in these proceedings. Indeed, I find it difficult to imagine that
any well-informed preference stockholder would support the
scheme, unless he were also a still larger holder of ordinary
stock.

(1) 1948 S. C. 378, 380,

A. ¢. AND PRIVY COUNCIL.

I do not place much weight on my fourth reason, because it
is impossible to foretell with any accuracy what (if any)
adjustment of interests will ultimately be made under s. 25
of the Act of 1946, if the preference stock continues in being.
There may be cases in which it can be said that adjustments
will probably be made in favour of preference stockholders,
but I am not satisfied that this is such a case. The existence
of s. 25 is, I think, of little importance in the present case, one
way or the other. It certainly cannot be regarded as sus-
pending the power of the court to approve a reduction of
capital ; it is merely a circumstance to be taken into account
when the court is exercising its discretion.

My Lords, I now turn to the reasons urged by counsel in
favour of the scheme. First, it is said that it is the ordinary
practice, where money is to be returned to the shareholders
in a company, to return it in the same manner as capital is
repayable in a winding up. Counsel referred, as part of his
argument, to a passage in Buckley on the Companies Acts,
11th ed., p. 120, which has appeared in a number of editions
of that work, including at least one which Lord Wrenbury
himself prepared. There is a striking lack of authority on
this point, but I would agree that in an ordinary case, where
a company is intending to carry on business and desires to pay
off any paid-up share capital under s. 55 of the Act of 1929,
the practice is as stated in Buckley. It is still necessary,
however, for the court to consider with care in eachcase whether
a scheme is fair and equitable in the circumstances of that
particular case. It is not enough for those supporting a
scheme to say "' the company is still in being and the proposed
'repayment is in accordance with the ordinary practice."
If that were enough, the court's discretion would be cut out
and the ordinary shareholders would be able to treat preference
shares as being redeemable, at their option, as soon as sufficient
capital, in excess of the wants of the company, became avail-
able for the purpose. The practice can, at most, have the
effect of making it necessary for objectors to point to some
circumstances which distinguish the case under consideration
from the ordinary run of cases. Here they can point at once
to the taking over of the company's business by legislative
action, the imminence of liquidation, and the absence of any
reason, from the standpoint of the company's business, for
any repayment of capital at this stage. Thus, I think that the
practice in question is of little assistance to the respondent

599

H. L. (Se.)

1949

ScorTrTrisH
INSURANCE
CoORPOR-
ATION
Lp.

v.
WILSONS
&
CLYDE
COAL
CoiLp:

Lord Morton
of Henryton.

H. L. (Sc.)

1949
ScoTrisH
INSURANCE
CORPOR-
ATION
Lp.

Uv.
WILSONS

Lord Morton
of Henryton.

HOUSE OF LORDS [1949]

company's argument. The ordinary stockholders are, in
effect, seeking to use to the detriment of the preference stock-
holders a priority in respect of capital which was intended to
be for their benefit. I would call attention, on this point,
to the contrast drawn between the position of a company
intending to continue its business and a company whose business
is at an end, in the judgment of the Master of the Rolls in
In ve Chatterley-Whitfield Collieries Ld. (1) which your Lord-
ships are about to consider. The considerations which make
the practice prima facie a fair and convenient one in the
former case have no application in the latter case.

Next, reliance is placed on art. 139, and in particular on the
power expressly given to the directors to set aside, out of the
profits, a reserve fund to be used, inter alia, " for making
"provision for paying off the preference share capital." This
provision formed, I think, the basis for Lord Russell's approval
of the scheme, but, with all respect, I feel that he gave too
little weight to the fact that this article gave the ordinary
stockholders no contractual right to pay off the preference.
If and when provision had been made for this purpose, it
would still have been necessary to bring the proposal before
the court for its confirmation or rejection. In this House
it was argued that this article " gave warning'"' to the pre-
ference stockholders that they might be paid off some day,
and therefore they could not properly complain if this event
happened. No doubt any stockholder who read art. 139
would be given this warning. But, in the case of every
company whose articles contain no provision as to the redemp-
tion of its preference shares, every preference shareholder who
reads s. 55 of the Act is given warning that, subject to confirma-
tion by the court, a scheme may provide for the payment off
of his shares. The preference stockholders in this company
are in exactly the same position ; they may be paid off if the
court, in its discretion, thinks fit, and they will not be paid
off if the court does not think it fair and equitable. I cannot
see why the existence of this "" warning'"' in art. 139 should
be of any real assistance to this House in deciding the question
whether payment off, in the present circumstances, is fair and
equitable. It may not be irrelevant to note that no funds
have ever been set aside for the express purpose of paying
off the preference stock, which has stood at the figure of 50,0001.
for over 50 years. I think that the Lord President was

(t) [1948] 2 All E, R. 593.

A. @. AND PRIVY COUNCIL.

justified in observing (1) that but for the " Act of 1946 the
"investment would in all human probability have continued
"to yield seven per cent. for an indefinite time."

Lastly, and this is, I think, the point which was most strongly
pressed, it is said that there can be nothing unfair or inequitable
about the scheme, because the profits (after payment of the
preference dividend) are divisible among the ordinary stock-
holders under art. 128; any surplus assets are due to the
abstinence of the ordinary shareholders as regards dividends
in the past, and the ordinary stockholders could now, if they
thought fit, use their voting power to divide the surplus
assets among themselves, either (a) by declaring a vast ordinary
dividend under art. 129 or (d) by capitalizing all undivided
profits under art. 141 (A) and distributing the resulting capital
among themselves by way of bonus. My Lords, I was at first
impressed by this argument, but I have come to the conclusion
that it is of little weight. Article 128 merely expresses that
which is the ordinary rule in companies having preference
shares, and no doubt there were good reasons, from the point
of view of the company's business, why no larger ordinary
dividends were paid in the past. Now comes an event,
imposed on the company from without, which puts an end to
the company's business. The fact that there are surplus
assets arises partly from this event and only partly from the
past abstinence of the ordinary stockholders. I have already
said why I think it would be unfair if the preference stock-
holders were now cut out by the proposed reduction of capital.
In my view it would also be unfair if at this stage the ordinary
stockholders were to adopt either course (a) or course (0)
already mentioned. It is quite true that they have a con-
tractual right to do so, but it is easy to think of many cases
in which it becomes unfair for a man to exercise a contractual
right in a particular way ; cases in which some unexpected
event happens, giving rise to a state of circumstances utterly
different from that which the parties contemplated. In the
present case, nationalization has come upon the company
and has made liquidation inevitable. The preference stock-
holders are about to lose an investment which they would
have liked to keep ; the ordinary stockholders would probably
have preferred the company's business to continue. In these
circumstances it does not avail the ordinary stockholders
to say: "' This scheme is not unfair, because we could have

(1) 1948 S. C. 360, 378.

511

H. L, (Sc.)

1949

SCOTTISH
INSURANCE
CORPOR-
ATION
icp;

Vv.
WILSONS
&
CLYDE
CoaL
Cop Ep:

Lord Morton
of Henryton.

512

H. L. (Sc.)

1949

SCOTTISH
INSURANCE
COoRPOR-
ATION
E35.

Uv.
WILSONS

Lord Morton
of Henrvton.

H. L. (E.)*

1949

Mar. 3,7;
May 6.

HOUSE OF LORDS [1949 |
'' achieved the same result by employing either of two other
"methods." I would reply: "Be it so; the adoption of
"either of these two methods would be unfair. It may be
"that the court could not prevent you from achieving your
" ends by either of these methods, but you have chosen a third
'"'method which gives the court a discretion to stop you,
"and you will be stopped."

For these reasons I do not think that your Lordships'
decision should be affected by the "alternative methods "
argument. The only question before you is in regard to this
particular scheme for getting rid of the preference shareholders.
Is it fair and equitable or not ? I think it is not. I would
allow the appeal, with the result that the company's petition
for confirmation of the reductivn of capital would meet with
the fate which, in my view, it richly deserves, that of dismissal
with costs.

Appeal dismissed.