ceedings, meant the Court of Chancery, and that it was competent to any branch of the Court to make the order; and on the words of the Act, and on the authority of Ex parte Sleeman, it was clear that the suit in which the property was recovered need not be actually pending at the time of the application, and he therefore refused to discharge the order, and made no order on the motion, except that the plaintiff must pay Fiddey his costs of the motion. Solicitors Mr. Fiddey, Messrs. Wilkinson & Howlett, and Messrs. Tatham & Son, for different parties interested. Companies Act, 1862 and 1867-Company consisting of only seven MembersWinding-up Order. A Company registered under the Act of 1862, consisting of only seven members, was ordered to be wound up on a petition. Re Sea and River Marine Insurance Company, 35 Law J. Rep. (N.s.) Chanc. 820; Law Rep. 2 Eq. 545, and In re Natal Company, 1 Hem. & M. 639 not followed. This was a petition for winding up. Sanderson's Patents Association Company, Limited, was a company duly registered under the Companies Act of 1862 on the 15th of February, 1868, with a nominal capital of 10,000l., divided into 10,000 shares of 17. each, all of which had been allotted as paid up. The petition stated that the company was formed for the purpose of working certain patents; that it had never commenced business; that questions had arisen relating to the title of the company to the patents and as to the rights of the members; and that in order to settle these questions and avoid penalties under the Act, it was necessary to wind up the Company. Mr. Glasse and Mr. Napier Higgins, for two of the shareholders, supported the petition. Mr. Batten, for three other shareholders. The machinery of the winding up Acts is only applicable to companies where there are numerous shareholders Re Natal Company, 1 Hem. & M. 639; Re Sea and River Marine Insurance Company, 35 Law J. Rep. (N.S.) Chanc. 820; s. c. Law Rep. 2 Eq. 545, in one of which cases Wood, V.C., refused to wind up a company consisting of nine members; in the other, Kindersley, V.C., followed his decision in the case of a company consisting of seven members. Further, in this case four out of the seven shareholders are opposed to the winding up, and the Court will regard this fact in considering the expediency of the winding up Ex parte Wise, 1 Drew. 465. Another reason why the order would be improper is that there are no demands against the company, and the shares are fully paid up. Ex parte Inderwick, 3 De Gex & Re London and Suburban, Bank, 19 were also referred to. He asked that the petition should be dismissed or an inquiry directed of what the property of the company consisted, and what had been done with it. MALINS, V.C.-The Companies Act speaks of companies consisting of seven members or more. This Company therefore comes directly within the words of the Act, and there is no reason why the winding up provisions should not apply to it just as much as the other provisions. Indeed the Act expressly directs that a company shall be wound up if the number of its members is reduced below seven. shall not direct the inquiry asked for by Mr. Batten, only because it will in the ordinary course be made as the first duty of the liquidator. The usual order for winding up compulsorily must be made. Solicitors. Mr. T. W. Roffey, for petitioners; Mr. E. H. Barlee, for respondents. I BACON, V.C. 1871. June 2, 6. IN RE THE ORIENTAL COM MERCIAL RANK (LIMITED), Companies Act, 1862, sect. 38, sub-sect. 1-4 (1) Contributories-Past Members. A past member of a company who has transferred his shares within a year of the winding up is liable (if his transferee has not paid the unpaid capital on his shares, and if the present members' contributions are insufficient, and if any of the debts which were due at the date of his transfer are still unsatisfied at the date of the winding up) to contribute, together with other past members, to the assets of the company to the full amount of such debts without deducting dividends received in respect of the contributions of present members. M. transferred shares to a transferee, who became bankrupt. Of the debts owing by the company at the date of the registry of the transfer, 6421. remained unpaid at the winding up, which took place within a year. The unpaid capital in respect of these shares was 8007.:—Held, that he was liable to contribute with other past members to the 6421. without any deduction for dividends received out of the contributions of present members. This was a summons to determine the mode in which contributions are to be (1) Section 38 of the Companies Act, 1862, so far as material for this case, is as follows:-In the event of a company formed under this Act being wound up, every present and past member of such company shall be liable to contribute to the assets of the company to an amount sufficient for payment of the debts and liabilities of the company, and the costs, charges, and expenses of the windingup, and for payment of such sums as may be required for the adjustment of the rights of the contributories among themselves with the qualifications following; that is to say 1. No past member shall be liable to contribute to the assets of the company if he has ceased to be a member for a period of one year or upwards prior to the commencement of the winding-up. 2. No past member shall be liable to contribute in respect of any debt or liability of the company contracted after the time at which he ceased to be a member. 3. No past member shall be liable to contribute to the assets of the company unless it appears to the Court that the existing members are unable to satisfy the contributions required to be made by them in pursuance of this Act. levied from past shareholders, who have transferred their shares within a year of the date of the commencement of the winding-up of their company, and whose transferees have not paid the whole of the capital not paid up on their shares. The Oriental Commercial Bank (Limited) was being wound up voluntarily under the supervision of the Court; the winding up commenced in June, 1866. The whole of the unpaid capital was required to pay the debts of the company. The liquidator was unable to get in the calls due from a large number of the present members. A supplementary list of contributories, called the "B. list," was therefore prepared, consisting of the names of those persons who had transferred their shares within a year from the commencement of the winding np, and the holders of which shares had failed to pay the calls due on such shares. The B. list of contributories comprised the particulars of the transfers of 4,436 shares, in respect of which there was an unpaid liability of 64,4927. 12s. 7d. In order to have the matter argued before the Court, the case of a single past member on the B. list of contributories, that of Mr. John Morris, was selected to be heard by the Court. John Morris had transferred 50 shares to Demetrio Pappa, and the transfer was duly registered in the books of the company on the 25th of November, 1865. At that date the debts of the company amounted to upwards of 200,000l., but at the commencement of the winding-up only 6421. of these same liabilities remained undischarged. The sum of 8001. remained unpaid on the 50 shares, no part of which was received from Demetrio Pappa, who was made bankrupt and whose estate paid no dividend. present members' contributions were sufficient to pay 15s. in the pound. So that the debts of the creditors, who were creditors on the 25th of November, 1865, were reduced to the sum of 1607. 10s. The summons was in the following form, “an application on the part of Arthur Cooper, The 4. In the case of a company limited by shares, no contribution shall be required from any member exceeding the amount, if any, unpaid on the shares in respect of which he is liable as a present or past member. the liquidator of the above named bank (who has been advised that the contributories of the said bank, who have been settled as past members upon class B., are liable to be called upon as follows:1st. Each of such contributories to the extent now remaining unpaid on his shares for the total amount of the bank's indebtedness when he transferred his shares; or 2nd. Each contributory to the extent aforesaid rateably with all the other B. contributories for his proportion of the indebtedness of the bank which existed at the time he transferred his shares ; or 3rd. Adopting the last mentioned principle, the indebtedness of the bank at the time such contributory transferred his shares, is to be considered as diminished by the application of the assets of the bank towards such payment, and by the proportionate part of the contributions of the shareholders, which have been applied in discharge of the debts of the bank), that he may be at liberty to call upon each of the said contributories who has been so as aforesaid settled upon class B. to the extent now remaining unpaid on his shares for the total amount of the bank's indebtedness when he transferred his shares." Mr. Kay and Mr. H. M. Jackson, for the liquidator, contended that the operation of section 38, ss. 3, was not to place any limit upon the liability of the past members, but merely to enforce a condition precedent to their being made liable. They were not to contribute to the particular debts due when they ceased to be members, and still remaining due, but to the general assets of the company. This was shewn by the fact that under sections 98 and 133 the assets were to be distributed pari passu among the creditors In re The Accidental and Marine and the contributions were towards the assets of the company to an amount sufficient for the payment of the debts and liabilities of the company. All the sections treated the assets as one general fund, to which all contributions were to NEW SERIES, 40.-CHANC. be paid. There were only two limits to the liability of B. members imposed by the Act; first, they were only to pay to the amount of the debts when they ceased to be members; second, they were not to contribute more than the amount remain ing unpaid on their shares. In the first case on this subject, which did not amount to a decision In re Barned's Banking Company; Andrews' case, 36 Law J. Rep. (N.S.) Chanc. 802; s. c. Law Rep. 4 Eq. 458, the Master of the Rolls had considered that this doctrine, somewhat modified, ought to be worked out by means of marshalling. In the Court of Appeal the ground of decision was approved, but no expression of opinion was given on the dictum (37 Law J. Rep. (N.s.) Chanc. 87; s. c. Law Rep. 3 Chanc. 161). The 38th section provided in effect that the transferor was to guarantee to the company the contributions required from him without reference to the time when the debts had been contracted. The only other case affecting the liability of past-members was In re The Blakely Ordnance Company; Brett's case, ante p. 222, which merely decided that the past members by buying up the older debts. could prevent one condition of their being made liable from happening. If this was to be looked upon as an authority that the debts were a limit, so that Mr. Morris would be liable for the 6421. and not for 8001. (the amount unpaid on his shares) it was submitted that he was liable to the full extent of this, and not to a mere contribution. This was a voluntary winding-up to which only section 133 applied, and as suggested by James, L.J., in Brett's case, whatever were the relative rights of creditors in a compulsory windingup, the distribution was to be made pari passu in this case. Mr. Eddis and Mr. Higgins, for a creditor, supported the same contentions. Mr. Fry and Mr. Westlake, for Mr. Morris, as one view of the construction of the Act, put forward the contention that the limit of liability of Mr. Morris was the 6421., the difference between the amount of the debts due both at the date 3 X of the transfer and those due at the winding-up, In re The Contract Corporation; Weston's case, 37 Law J. Rep. (N.S.) Chanc. 617; s. c. Law Rep. 6 Eq. 17; this amount was further reduced to 1607. by the payment of dividends subsequent to the transfer, and Mr. Morris would have to contribute only a rateable proportion of this sum together with other contributories of his class. They contended also in the alternative, that if the principle of marshalling suggested by the Master of the Rolls in Andrews' case (loc. cit.) was to be adopted, it was clear that Mr. Morris would have to contribute with others towards 6421. and no more, but the Lords Justices by expressly refusing to sanction that principle, seemed to throw doubt upon it. It was a mere dictum upon a point to which not a word of argument had been addressed. The case ofEx parte The Briton Company (loc. cit.), had been practically overruled by— Brett's case (loc. cit.), in which the judgment of Giffard, L.J., in the former case, had been disapproved of by the present Lords Justices. Besides, the decisions of the two cases were irreconcileable, for if Brett's case were law (and they submitted it was), and The Briton Company's case (loc. cit.) was also law (which they disputed) the past members by buying up the older debts could diminish the dividends receivable by the creditors in respect of newer debts. For the same reason Brett's case was inconsistent with the dictum of the Master of the Rolls in Andrews' case. The logical conclusion of Brett's case was that from the distribution of the assets, pari passu, must be excepted the assets contributed by past members, which belonged only to the creditors in respect of the older debts. There were other cases in which the assets were not distributed pari passu, the cases of mortgagees for instance. All that was meant was that the assets were to be distributed pari passu among the persons entitled to them, not that the rights of particular creditors over particular assets were to be taken away. And hence it followed that the past members had merely to make good to the older creditors so much as they would have received if their respective transferees had paid in full. The result of this in Mr. Morris's case would be that what dividends would be paid out of 8007. divided among the whole creditors should be ascertained, and Mr. Morris would have to pay that dividend on the 6427. This was also the conclusion to be derived from the words of the Act, for it was clear that the present members who, under section 38, sub-section 3, were to pay the whole of their unpaid capital before the past members could be touched, would have no equity against the past members, and the creditors in respect of the later dates were precluded from any such equity by the words of section 38, sub-section 2. They also contended that the A. class of contributories had no rights whatever against the B. class, as was clear from the fact that the B. contributories were under no liability at all, except in case there was a winding-up; that the creditors whose debts had accrued subsequent to the transfer had equally no equities against the B. contributories under the express provisions of the Act; and that the B. contributories were liable only to those creditors whose debts were in existence at the time of the transfer of the shares. Mr. Kay in reply.-The A. contributories had an equity against the B. contributories, because if the B. contributories failed to pay the creditors, the A. contributories would be liable to pay it. [BACON, V.C.-The A. contributories are primarily liable, and the B. contributories would not be called upon at all unless the A. were unable to pay in full.] It would be no answer to a call made upon the B. contributories for them to say the A. contributories were able to pay. The first part of section 38 determined the liabilities of the past members, who were released from all obligation if certain accidents had happened, stated in the subsequent part of the section. This was what the decision in Brett's case amounted to, which the conclusion in the case of Ex parte The Briton did not impeach, but only the remarks of Giffard, L.J. Although the creditors had only to look to the present members in the first instance for payment, it would, after the creditors were paid all they were entitled to, devolve on liquidators to adjust the rights of the contributories among one another under section 133, sub-section 10. Under that provision, if the creditors were paid in full, the present members would have an equity to contribution from the past members whose transferees had not paid all calls. Hence it followed that Mr. Morris having to equalise the sums paid on the shares which had been his, with what was paid on the shares of the solvent present members, would have to pay the whole 8001. unpaid. This would carry out an object of the calls, namely, to render the dividends paid to older creditors unaffected by the transfer, consistently with the decision of Giffard, L.J., that all creditors were entitled to participate in the contributions of the past members. The cases In re Smith, Knight & Co.; Weston's case, 38 Law J. Rep. (N.s.) Chanc. 49; s. c. Law Rep. 4 Chanc. 20, in which it was decided that directors have no power independently of the articles of association to refuse to register bona fide transfers of shares, and— The Imperial Land Credit Company of Marseilles; M'Ewen's case, ante pp. 184, 341, a case relating to the liability of bankrupt shareholders, were also referred to in course of argument. BACON, V.C., said: I heard this case argued at considerable length a few days ago, and I have had an opportunity of thinking about it since, and of listening to the arguments addressed to me this morning. The question turns, as it seems to me, entirely for all present purposes upon the 38th section. The collocation of the words contained in that section cannot and ought not to make any difference in its effect; but in order to help the understanding and to give full effect, in point of construction, to the Act, it may be read differently from the manner in which it is printed. For example, it begins with an enactment that every present and past member of the company shall be liable to contribute, and then it contains qualifica tions. Now read the qualifications first, and suppose the section to begin thus: "No past member shall be liable to contribute in respect of any debt or liability contracted after he has ceased to be a member. No past member shall be liable to contribute to the assets of the company unless it appears to the Court that the existing members are unable to satisfy the contributions required to be made by them in pursuance of this Act." Those propositions must be considered before you begin to try to understand the enactment itself. The Court must be satisfied, which, with reference to what was said about the two classes and the right to make a call at an earlier period, seems to me to be directly pertinent-it must appear to the Court that the existing members are unable to satisfy the contributions required to be made in pursuance of this Act, that is, to the amount of the last shilling of the amount of the contributions. Then with those qualifi cations put in what I conceive to be their right place, removing them from the place in which they are found, you must read those as the first enactment and then proceed that every present and past member, that is, the people who are not liable and those who are liable, shall be liable to contribute to the assets of the Company to an amount sufficient for payment of the debts and liabilities of the Company. It becomes therefore of the utmost importance to consider what is the distinction between the persons who were members and those who had ceased to be members for a year before the winding-up. It is not in any respect a question between the shareholders and the creditors, it is between the shareholders of the company and only between them. The only result of the solution of that question is to increase or diminish the means of the company to satisfy their debts. In this result alone the creditors are interested. If there be enough the creditors are paid because the company can pay them; if there be not enough the creditors, like any other creditors whose debtors are unable to pay, must lose some part of their claim. That is the universal law of debtor and creditor applicable to partnerships especially, and |