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but that it was necessary for the official liquidator to file a bill for that purpose (1). The official liquidator appealed from this decision.

(1) 1869, March 22. The opinions expressed by the Vice-Chancellor respecting the delusive character of the dividend are sufficiently referred to in the judgment of Lord Justice Selwyn. The portion of His Honour's judgment which related to the jurisdiction of the Court under the Companies Act, 1862, was as follows:- 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. Now, against Mr. Stringer, the case is rested upon two sections, the 101st section and the 165th section. I will consider the 165th section first, because it is the most clear, and if it could be applied to Mr. Stringer, it would relieve the Court from the necessity of having recourse to the 101st section.

Now, the 165th section is in these terms:-[His Honour read the section and continued:-] Now, having very carefully considered the arguments addressed to me, and examined all the authorities which have been cited, I feel bound to come to the conclusion that this section can have no application unless the act complained of is a wrongful act towards the company itself. Mr. Glasse said, it was called the delinquent directors' clause. In the margin it is called "Power of Court to assess damages against delinquent directors and officers." In this sense this is a delinquency, undoubtedly, for a company to declare dividends out of profits which it has not made, and being bound to pay only out of money in hand, to

borrow money for the purpose. But I am of opinion, looking at the wording of this section, that it must be delinquency towards the company at large. Now, was this a delinquency or improper act towards the company? That cannot be, because it was the declaration of a dividend when profits had not been made, in which every shareholder equally participated; therefore no shareholder can, possibly, in this case, say that Mr. Stringer, as managing director, has been guilty; he cannot say that towards the company he has misapplied or retained in his own hands, or become liable or accountable for, any moneys of the company, or that he has been guilty of any misfeasance or breach of trust, within the words of this section, towards the company itself.

But it is said that this section gives the power either to a contributory or a creditor. No doubt, there are many cases in which, although there has been delinquency towards the company, the company itself may not feel inclined to take advantage of it, and then it gives the right to a contributory or a creditor. But it seems to me that before the right to the contributory can arise it must be a delinquency towards the company; but, if the company itself be a participator there is an end of any right to apply against the particular director who may have been the most active in taking that step.

Then is there any instance in which a creditor can complain of it if a contributory cannot? The case of Cardiff Preserved Coal and Coke Company v. Norton (Law Rep. 2 Ch. 405) was one where the complaint came from contributories. I think Turquand v. Marshall (Law Rep. 6 Eq. 112) was a bill

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1869

STRINGER'S
CASE.

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Mr. Cotton, Q.C., and Mr. Higgins, for the Appellant:

The declaration of the dividend was both in violation of the STRINGER'S articles and delusive, amounting to a return of part of the capital.

CASE.

filed by shareholders. Shipman's Case (before Vice-Chancellor Giffard, on Dec. 7, 1868) was an application under this section by the Agra and Masterman's Bank itself. Why was that? Because Mr. Shipman, having been their manager, had, in gross violation of his duty, used the money of the company for his own private speculations, and had caused losses thereby, and therefore it came strictly within the words of the section, that he had misapplied or retained in his own hands moneys belonging to the company; and accordingly, upon the application of the company, he was ordered to pay the money which had been lost by his conduct, amounting, I think, to more £30,000. [His Honour also referred to the observations of Lord Justice Turner in In re Bank of Gibraltar and Malta (Law Rep. 1 Ch. 74), and proceeded :-] I put this case upon the broad ground that the act complained of being one of the company at large, the individual director or manager who happens to participate in it cannot be made liable under this section. I am, therefore, compelled, though with very great reluctance, to refuse the application as far as regards the 165th section.

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Mr. Cotton also relied upon the 12th section, and he said that this was, within the meaning of the 12th section, a diminution of capital. But, looking at the terms of that section, I think that it must apply to a formal diminution of capital, not to a diminution of capital by an improper declaration of dividend; if that were to be the construction of the Act there is hardly a company in which it might not be argued that the officers, and those con

nected with the company, had improperly paid out of the capital a dividend. In my opinion, the 12th section has no application to a case like the present.

Then the only remaining section relied upon is the 101st, and that section is in these terms:-[His Honour read the section and continued:-] Now, this appears to me to be directed to the case of debtors to the company in the ordinary sense of the word. If you go through the ledger you find A., B., C., and D., and so forth, indebted to the company; the account being settled, the object of this section is to enable the Court to make a summary order upon the debtors of the company, in the ordinary sense of the word, to pay that debt. But I cannot see that it can have any application to a case like this, where the whole thing is founded upon a breach of duty in making a dividend at a time when I may well assume that these gentlemen believed themselves justified in making it, but which subsequent events shewed they were not justified in doing, and when, as men of prudence, they were bound to know that the circumstances did not afford any justification for making the dividend. The case of Evans v. Coventry (8 D. M. & G. 835), will, probably, at the present time, be applied to such a case. Evans v. Coventry was decided upon bill, it was not decided upon this summary application, and I think I am fortified in the conclusion at which I arrive, that none of these sections will apply to the case now before me, by the circumstance that there are very numerous cases which have been going on for years past, in which dividends have been from time to time

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1869

CASE.

Table A. of the Companies Act, 1862, which was adopted by the company, forbids payment of dividend out of capital, and the 5th clause of the articles is still further restrictive, providing that the STRINGER'S dividends are to be paid out of "profits in hand." So far was the company from having profits in hand that they were obliged to borrow part of the money to pay the dividend from the Agra and Masterman's Bank. But the balance could not be called profits in any sense until it was known whether the cotton in the Confederate States and the debt of the Confederate government could ever be realized. The directors were not justified in putting a value upon what they could not realize, and which it was very doubtful whether they would ever be able to realize. At all events, the value put upon these items was much too high. No cotton in the Confederate States or liability of the Confederate government bore such a high price in the market at that time as was put upon these items in the balance sheet.

If, then, this dividend was improperly paid to the shareholders, this Court must have power to recover it: Evans v. Coventry (1); Turquand v. Marshall (2); Kearns v. Leaf (3); Maclaren v. Stainton (4); Macdougal v. Jersey Imperial Hotel Company (5); Corry v.. Londonderry and Enniskillen Railway Company (6). It is not. necessary to file a bill. The Court can give complete relief in the winding-up. This power has been repeatedly recognised: In re Cardiff Coal and Coke Company (7); Cardiff Preserved Coal Company v. Norton (8); Shipman's Case, In re Agra and Masterman's Bank (before Vice-Chancellor Giffard, on Dec. 7, 1868); In re London and Provincial Starch Company (before Vice-Chancellor James, on April 22, 1869). There is a remedy under the 101st section of the Companies Act, 1862; but if not, the case comes under sect. 165. This section does not apply only to a breach of

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1869

trust of which the shareholders could complain, but if the articles are violated in a way which prejudices the creditors, the creditors STRINGER'S must have a right to complain. The only question is, whether funds have been abstracted from the coffers of the company which ought to be brought back into them.

CASE.

Mr. Glasse, Q.C., and Mr. H. M. Jackson, for Mr. Stringer:

There is nothing in the articles to render this dividend improper. The 5th clause does not mean that the directors were only to pay profits out of money at their bankers. They were to estimate the profits in the usual mercantile way, that is, by valuation of the assets of the company. This was done; there was no concealment on the balance sheet, and it was submitted to the Agra and Masterman's Bank, who understood all the circumstances, and would not have advanced the money unless the balance sheet had been honestly made. And yet they are the very parties who are now, through the official liquidator, complaining of it. At that time. the prospects of the Confederate cause and the security of the government were thought good by most mercantile men, and it is not right to judge of the fairness of the transaction by the result of the speculation.

But we also contend that the summary jurisdiction of this Court under the Companies Act, 1862, does not apply to a case of this kind, where there is no breach of trust, and there are questions of great difficulty to be tried; but only to cases where the facts and equities are undisputed; In re Royal Hotel Company of Great Yar mouth (1); In re State Fire Insurance Company (2).

Mr. Cotton, in reply.

SIR C. J. SELWYN, L.J.:

This case has been conveniently divided by the learned ViceChancellor into two separate and distinct points. He says in his judgment: "Being on the first part 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 (2) 1 D. J. & S. 634, 642.

(1) Law Rep. 4 Eq. 244.

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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 first, for it is a question involving very
portant considerations with respect to the practice of the Court,
and it is also one of very general application. It appears that
different opinions upon it have been entertained by different Judges
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 1848, but the power which was given by the old
Winding-up Act is expressed in it in a very much less stringent
and comprehensive form than the clauses which appear in the Act of
1862. But even under the old Winding-up Act this summary juris-
diction 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 (1), which was wound
up before Master Blunt, and where very large sums of money had
been misappropriated by the directors of the company, and in the
course of the winding up of the company, but without any bill being
filed, proceedings were taken to enforce the restitution of that
money by the directors, and, as appears by the report of the case,
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, Sir James Parker, is the case of Carpenter v. Weiss (2).
In that case the directors had employed moneys belonging to the
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 recover-
ing those moneys. The Vice-Chancellor says in his judgment (3):
"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
(2) 5 De G. & Sm. 402.
(3) 5 De G. & Sm. 414.

(1) 15 Jur. 597.

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1869

STRINGER'S
CASE.

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