There is jurisdiction under the Companies' Act, 1862, s. 101, upon a summary application in a winding-up, to order a shareholder to refund a dividend improperly declared; and, a fortiori, under section 165, such an order may be made against a director. Circumstances considered under which a balance-sheet shewing a profit is to be held delusive. Where a company was engaged in a highly hazardous course of trade (that of running a blockade), under which large profits had been realized, a balance-sheet in which the assets were honestly estimated, although so situated as to be in great danger of loss, was held to be a proper balancesheet, and a dividend, declared upon the basis of the balance-sheet, upheld, although through the occurrence of subsequent events the assets were destroyed or became worthless. An application to make a director refund the dividend was therefore refused upon the merits. This was an appeal from a decision of Vice Chancellor Malins, made in the course of winding up the company, by which his Honour refused to order Mr. Stringer, a shareholder and director of the company, to refund a dividend which he had received during the existence of the company. The company was established, in the year 1863, for the purpose (according to the articles of association) of trading with America. The true object of the company was to establish a special trade with the Confederate States of America, then blockaded by the United States. The articles of association provided, in the usual terms, that no dividend should be paid except out of profits, and they also provided that the directors should declare a dividend on the subscribed capital as often as the profits of the company in hand should suffice for the payment of a dividend of 51. per cent., subject to the resolutions of general meetings. The capital of the company was of the nominal amount of 150,000l., of which upwards of 110,000. was paid up. All the shares were fully paid up. Shortly after the establishment of the with the Confederate Government under company, they entered into an arrangement which the latter were to become co-owners with the company of a number of ships, and were to join in the risk of running the blockade with cargoes of goods. Several adventures were thus made, of which some were successful and others unsuccessful; but the profit upon each successful trip made by a ship was very considerable. In May, 1864, a balance-sheet of the affairs of the company brought down to the end of the preceding February shewed a profit of 42,7187. In this balance sheet credit was taken for a large quantity of cotton, valued at 17,000l., then in Charleston, which had been appropriated by the Confederate Government for the payment to the company for their share of the ships; also for a debt of 51,5891. as due from the Confederate Government, valued at its full nominal amount. Upon the balance-sheet so made out the directors proposed a dividend of 25 per cent. upon the shares, which proposition was adopted by a general meeting of the company held on the 17th of May. In order to pay the dividend an application was made to the Agra Bank, now represented by the Agra & Masterman's Bank, for a loan of 20,000l., in addition to 4,000l. then overdrawn upon the company's account. The balance-sheet and a statement of the affairs of the company were submitted to the bank, who after the same had been examined by their accountant, made the required advance, and the dividend was accordingly paid, principally by cheques upon the bank. Mr. Stringer, who was managing director, received 3,5601. as his dividend. When the civil war in America was terminated by the defeat of the Confederates, the cotton in Charleston was destroyed, and the debt from the Confederate Government became worthless. The company therefore was ruined, and was soon afterwards ordered to be wound up. The bank constituted, however, the only creditors to any substantial amount. Some further details as to the circumstances of the company will be found in the judgment of Lord Justice Selwyn. The application made to the Vice Chancellor was refused by him upon the ground that he had no jurisdiction to make such an order in a winding-up. His Honour expressed his opinion, however, that the circumstances were such that upon a bill filed he would certainly make a decree against Mr. Stringer, as he held that the dividend had been improperly declared and was in fact a dividend out of capital. From this decision the official liquidator appealed. Mr. Cotton and Mr. Higgins, for the appellant.-The alleged profits upon which this dividend was declared were wholly delusive. The company was engaged in a most hazardous course of business, and it was therefore very probable, as in fact the event proved, that their engagements at the date of the balance-sheet would ruin them. The valuation of cotton whilst it was in America was clearly unjustifiable, and so was the valuation at its full nominal amount of the debt of the Confederated States. No dividend was to be declared out of any profits unless in hand. How could they be said to be in hand when the company had to borrow the money to pay the dividend? The dividend then ought to be refunded. They cited on this branch of their argument— Evans v. Coventry, 8 De Gex, M. & G. 835; s. c. 25 Law J. Rep. (N.S.) Chanc. 489. Turquand v. Marshall, 37 Law J. Rep. Kearns v. Leaf, 1 Hem. & M. 681. Macdougall v. the Jersey Imperial Hotel Company, 2 Hem. & M. 528; s. c. 34 Law J. Rep. (N.S.) Chanc. 28. Corry v. the Londonderry and Enniskillen Railway Company, 29 Beav. 263; s. c. 30 Law J. Rep. (N.S.) Chanc. 290. The Society for Illustration of Practical Knowledge v. Abbott, 2 Beav. 559. Next, as to jurisdiction under the Companies' Act, 1862. There is ample power under the act to make the order asked for; either section 101. or section 165. will be sufficient. Such orders are often made In re the Cardiff Coal Company, 11 The Cardiff Preserved Coal Company v. 646; s. c. 36 Law J. Rep. (N.S.) Chanc. 451; Law Rep. 2 Ch. 405. In re the Agra and Masterman's Bank (Shipman's case), unreported, before Vice Chancellor Giffard, 7th December, 1868. In re the London and Provincial Starch Mr. Glasse and Mr. Jackson, for Mr. Stringer. The dividend was perfectly regular. The balance-sheet was made out in the usual way, and the assets were fairly estimated; there is no pretence for saying that any fraudulent statement or concealment was made. The directors of the bank, which is the only creditor, were themselves fully cognizant of every fact relating to the affairs of the company, and knew when they lent the money how it was to be applied. The bank, therefore, cannot complain; yet there is no one else for whom the official liquidator raises this contention. They also contended that there was no jurisdiction. The Winding-up Acts were not intended to meet cases of great difficulty, where special and difficult equities affect the parties In re the Royal Hotel of Great Yar- 1 De Gex, J. & S. 634; s. c. 33 Law Mr. Cotton, in reply. LORD JUSTICE SELWYN.-This case has been conveniently divided by the learned. Vice Chancellor into two separate and distinct points. He says, in his judgment, "Being on the first point entirely with the applicant, that this is a dividend most improperly made and a return of one-fourth of the capital, the next question is, have I power under the act of parliament in this summary manner to make an order upon the shareholders, and Mr. Stringer in particular, the managing director, to return it?" I think it is convenient to take the second of those two questions, that which the Vice Chancellor refers to, as the question whether he has this power under the act of parliament, in the first instance; for it is a question involving very important considerations with respect to the practice of the Court, and it is also one of very general application. It appears that different opinions have been entertained by different Judges upon it in this court, and under those circumstances it appears to me to be the duty of this Appellate Court to form and express its own opinion as speedily, as clearly and as decisively as possible upon that question. This is a question which has been agitated more or less almost ever since the passing of the first Winding-up Act, in the year 1858; but the power which was given by the old Winding-up Acts is expressed in them in a very much less stringent and comprehensive form than the clauses which appear in the present act of 1862; but even under the old Winding-up Act this summary jurisdiction was very frequently and usefully exercised. I believe that one of the earliest instances of its exercise was in the case of the Madrid and Valencia Railway Company, which was wound up before Master Blunt, and where very large sums of money had been misappropriated by the directors of the company. Without any bill being filed, and in the course of the winding-up of the company, proceedings were taken to enforce the restitution of that money by the directors, and, as appears by the report in 15 Jurist, some of those proceedings before the Master were brought before Lord Justice Knight Bruce when Vice Chancellor, and approved of by him. Another case, which came before another Judge of great eminence, is the case of Carpenter's executors (1), which came before Sir James Parker. In that case the directors had employed moneys belonging to a company in purchasing the shares of the company. There, without bill filed, proceedings were taken, and it came before the Master, who was then the Judge of first instance, for the purpose of recovering those moneys. There the Vice Chancellor says, at page 414, "If the act now complained of had been done by these gentlemen at their own instance I cannot entertain a doubt that the Master would have properly charged them under the act on the present proceedings." That is, upon summary proceedings which had been instituted without any bill. He however goes on to say, "The vice of the Master's order lies in this: that it assumes that the five individuals where there is no cheque forthcoming, or three of them where there are cheques, are the parties who as between the persons signing and the company are solely and ultimately chargeable with the moneys misapplied." Then he goes on to say he thinks there was that which, in substance, was an objection for want of parties. That case appears to me to be of importance in two respects: first, as shewing the clear opinion of so eminent a Judge as Sir James Parker, that in such a case the Master had jurisdiction without any bill being filed; and, secondly, that in those summary proceedings every objection is just as open to the person sought to be charged as it would have been if a bill had been filed. I need not multiply instances of the exercise of the summary jurisdiction. Another of which is found in Ex parte Johnson (2). But it is perfectly true that, notwithstanding those proceedings and those opinions so expressed by several Judges, the doubt as to the propriety or the competency of the Court to exercise this jurisdiction was very frequently expressed by the late Lord Justice Turner. The matter very seldom came before him without his taking the opportunity of saying that, in his judgment, such proceedings were, if not unlawful, at all events inexpedient; and I believe it was in consequence of the doubt so frequently expressed by that eminent (1) 6 De Gex & Sm. 402; s. c. 21 Law J. Rep. (N.S.) Chanc. 855. (2) 5 Jurist, 519. BIBLI Judge, that the clauses were introduced into the subsequent act of parliament, and made so comprehensive and stringent as they now are. We find them expressed in the most wide and general terms. It is true they are permissive, but they are proceedings to be taken under the authority of the Court. They are to be taken by the official liquidator, who is the officer appointed by the Court, under the advice of solicitors appointed with the sanction of the Court; and, under those circumstances, I think it may be assumed that proceedings so instituted would be properly conducted, that is to say, that they would be so conducted as to afford to the persons sought to be charged a full knowledge of all the points of the case intended to be brought against them, and it would give to them the fullest opportunity of defending themselves in any legitimate way; and the able counsel who have argued this case on the part of Mr. Stringer have entirely failed (although requested by the Court to do so) to point out any substantial difference or disadvantage in the position in which the present respondent, Mr. Stringer, stands from that which he would have occupied if a bill had been filed containing the same statements as those found in the affidavit filed by the official liquidator, and concluding with a prayer in the precise words of the present notice of motion. The summary power which has been given by the recent act of parliament has been very frequently exercised; and in a case before the Master of the Rolls, of The Cardiff Preserved Coal Company v. Norton, there is a very strong expression of his Lordship's opinion as to the propriety of such proceedings; for he there says, at page 563, "It is said that the shares taken by them in exchange from the Crown Company belong to and form part of the assets of the Cardiff Company. If this be so, the proper mode of getting at the assets of the company in the hands of contributories is by a proceeding in the court in which the company is being wound up,"-that was in the Court of Bankruptcy, which, under the peculiar circumstances of that case, was the Court having the conduct of the winding-up. Therefore that amounts to an expression of opinion by the Master of the Rolls that a bill was not the proper proceeding, but that a proceeding in the Court of Bankruptcy under the winding-up was the proper proceeding in such a case. It appears that this power has been very recently exercised, particularly in Shipman's case, which came before the Lord Justice when Vice Chancellor, and still more recently in a case mentioned at the bar, but which has not yet been reported, decided by Vice Chancellor James. Under these circumstances, it appears to me that we should be doing something which is entirely inconsistent with the provisions of the act of parliament, so general as they are, if we were to introduce any such qualification as that said to have been laid down by the Master of the Rolls in the case of The Yarmouth Hotel Company (3). His Lordship is there reported to have said, at page 248, "that where there is really a question to be tried then I do not think this 165th section enables you to dispose of it in this way"; and at page 249 he says, "The Court can only do so in plain and straightforward cases where there is no point of law to be determined." I am much disinclined to doubt whether those are not the words of the Master of the Rolls, but, having regard to what I have always understood to be his opinion upon this subject, and to his own decision in the case to which I have referred of the Cardiff Coal Company, I cannot help thinking that there must be some error in that report; if not, I feel bound to say that I do not think there is to be found, either in the words of the present act of parliament or in the conclusion which is justly to be drawn from the decisions upon this subject, any such qualification or limitation as that which is there expressed by his Lordship; and, if we were so to hold in all these cases, we should be inducing the person against whom the charge is made to endeavour to make out that there was some question to be tried, or that the matter was not so plain or straightforward as it was represented to be; and there are very few cases indeed in which some such attempt as that might not be made with some reasonable hope of success. The result would be to occasion the necessity for a double mode of proceeding and unnecessary expense and delay. Applying, then, these observations to the present (3) Law Rep. 4 Eq. 248. case, and assuming with reference to this one part of the case that the Vice Chancellor was right when he said that "this was a wholly delusive and improper dividend, in effect a return of one-fourth of the capital, and a return of capital in violation of every rule of propriety,-a return of capital in violation of the general provisions of the act, that dividends are not to be declared out of capital, and, above all, an extraordinary violation of their own rule which prescribes that they are not to pay dividends except out of profits;" or, as it is more concisely put in another passage in the same judgment, that this is a dividend most improperly made, and a return of one-fourth of the capital; under those circumstances, has this Court jurisdiction, under the 101st and 165th sections of this act, to order the return of money so improperly paid without the necessity of having a bill filed? In my judgment, there is no doubt that the Court has that power under either of these sections, for, under the 101st section, "The Court may, at any time after making an order for winding-up the company, make an order on any contributory at the time being settled on the list of contributories, directing payment to be made in manner in the said act mentioned of any moneys due from him, or from the estate of the person whom he represents, to the company." Under the circumstances stated by the Vice Chancellor, can it be doubted that the amount of such a dividend so improperly paid, of capital so improperly returned, would be a sum of money owing from the contributory, who receives it, to the company? If so, there is in that act of parliament the clearest authority, under the Winding-up Act, without bill filed, to order a return of the money so received. The 165th section is, if possible, even clearer. That is, in particular, the section framed in this very comprehensive form in order to meet and obviate the doubts expressed by Lord Justice Turner. That section says, "Where, in the course of the windingup of any company under this act, it appears that any past or present director, manager, official, or other liquidator, or any officer of such company, has misapplied or retained in his own hands or become liable or accountable for any moneys of the company, or been guilty of any mis feasance or breach of trust in relation to the company, the Court may, on the application of any liquidator or of any creditor or contributory of the company, notwithstanding that the offence is one for which the offender is criminally responsible, examine into the conduct of such director, manager or other officer, and compel him to repay any moneys so misapplied or retained or for which he has become liable or accountable, together with interest after such rate as the Court thinks just, or to contribute such sums of money to the assets of the company by way of compensation in respect of such misapplication, retaining, misfeasance or breach of trust, as the Court thinks just." There is no such limitation to be found in the words of either of these sections as is reported to have been considered to be included in them by the report of The Royal Hotel Company of Great Yarmouth case, but, on the contrary, the Court is empowered to examine into the conduct of the director, and that necessarily implies deciding the question whether he has been guilty of any misfeasance or breach of trust, which, of course, it would be open to him to deny, and therefore there would be a question to be tried in every such case. It is open to the Court to examine into his conduct, to compel him to repay any moneys so misapplied, or to contribute such sums by way of compensation as the Court shall think fit. It appears to me that if we had now to draw a clause in the widest and fullest manner, it would be very difficult to conceive anything more large or comprehensive than the words of the 165th section. Under these circumstances, it appears to me perfectly clear that if this was a wholly delusive dividend and an improper return of capital, this money so received by the managing director of the company in respect of that delusive and improper dividend, and in respect of that improper return of capital, would be most clearly a sum of money for which the managing director would be accountable, and which consequently the Court might under this jurisdiction order him to refund. I must therefore entirely differ, though most respectfully, from the conclusion at which the learned Vice Chancellor has arrived upon this part of |