share or shares, and to any actions and suits for the payment of the same respectively, to all intents and purposes, as if there had been no such forfeiture or expulsion as aforesaid." On the 25th of November, 1867, the bank served Andrew with a notice requiring him to pay all moneys due to the bank by the 2nd of December, and stating that in default of his so doing his shares would be forfeited. On the 28th of November he filed a declaration of insolvency, and on the following day was adjudicated bankrupt on the petition of the bank. On the 3rd of December the directors passed a resolution declaring his shares forfeited. On the 20th of February, 1868, an order was made by the Commissioner directing the property comprised in the memorandum of the 2nd of August, 1866, and in the deed of the 27th of August, 1866, to be sold, and the proceeds to be paid to the creditors' assignee, who was to apply them, first, in payment of certain costs, and, in the next place, in or towards satisfaction of the debt to the banking company; and the banking company were to be at liberty to prove for the deficiency, if any; and the order was expressed to be without prejudice to the question of the right of the banking company to forfeit absolutely the bankrupt's shares. The sales directed by the last-mentioned order were made, and the debt due to the bank was thus reduced to £6284 18s. 9d., for which they now claimed to prove. The creditors' assignee objected that the value of the forfeited shares ought to be deducted, and, by an order made by the Registrar and confirmed by the Commissioner, the proof was admitted for £6284 18s. 9d., less the value of the shares, the learned Commissioner being of opinion that the forfeiture was invalid by reason of the bankruptcy having intervened between the service of the notice and the time fixed for payment. The bank appealed from this order. Mr. Little, Q.C. (Mr. Bedwell with him), having opened the case, was stopped by the Court. Mr. De Gex, Q.C., and Mr. North, for the assignee : The clause of forfeiture in the deed of settlement gives a security on the shares; its frame is similar to that of a mortgage, and it is in the highest degree oppressive if not construed so, for otherwise L. J. G. 1869 Ex parte RIPPON. In re ANDREW. L. J. G. 1869 Ex parte RIPPON. In re ANDREW. a shareholder might lose £10,000 worth of shares for not paying a debt of £500. The bank, therefore, are in the position of a creditor having a security who has realized his security, and can only prove for the balance. [The LORD JUSTICE GIFFARD:-But the bank says bona fide, that it has not any security. If you can make out that the forfeiture is not absolute, you can recover the shares, but not in the Court of Bankruptcy.] A secured creditor who proves must give up his security, he is not entitled to say that he will prove for the full amount at his own risk, and put the assignees to independent proceedings to get the property in the security. SIR G. M. GIFFARD, L.J. :— I do not think that the learned Commissioner was justified in the course he took as to these shares. The bank asserts that they are their absolute property, and if the assignees claim them they must take proceedings to assert their right. When parties who have in their possession property which formerly belonged to the bankrupt, but which they bona fide assert to be their own absolutely, come forward to prove a debt, stating that they hold no security, I think the Commissioner cannot take upon himself to decide whether the property does or does not belong to them, or determine that they shall not prove without putting a value on the property. The order I propose to make, is :-The bank insisting that they are owners of the shares, and admitting that they have no claim on them as mortgagees, or by way of lien, or otherwise than by reason of the forfeiture, let the proof be admitted, without prejudice to such rights, if any, as the assignees may assert in respect of the shares. Solicitors: Messrs. N. C. & C. Milne; Mr. E. Worthington. In re HUMBER IRONWORKS AND SHIPBUILDING COMPANY. WARRANT FINANCE COMPANY'S CASE. Winding-up-Debts carrying Interest. In the case of an insolvent company which is being wound up, creditors whose debts carry interest are entitled to dividends only upon what was due for principal and interest at the winding-up, and it is only in the event of there being a surplus that they can have any claim for subsequent interest, in which case the dividends will be treated as applicable, first, in payment of interest, and then in reduction of principal. THIS was a motion by way of appeal by the official liquidator of the Humber Ironworks and Shipbuilding Company, Limited, from a decision of the Master of the Rolls. The order for winding up this company was made on the 13th of March, 1866. At the date of the order the company was indebted to the Warrant Finance Company in the sum of £25,000, which was to carry interest at £20 per cent. from a given day, which did not arrive until after the winding-up order. It was uncertain whether the funds applicable to payment of debts would be sufficient to pay the capital of the debts. In these circumstances the question as to the interest on the debt of the Warrant Finance Company became important, and was brought before the Master of the Rolls. A meeting of the Equity Judges was held to consider the point, but it being found that there was no uniformity in the practice, no resolution was come to. The Master of the Rolls then decided that, in respect of debts carrying interest, dividends should be declared on the sums due for principal and interest calculated up to the time of declaring the dividend, and that the dividend in respect of each such debt should be treated as applicable to the payment of principal and interest pro ratá, and be attributed accordingly. Mr. Southgate, Q.C., and Mr. Wickens, for the appeal motion :— Dividends in the case of an insolvent company ought to be paid only on what is due for principal and interest at the date of the VOL. IV. 3 G 1 L. JJ. 1869 June 1. L. JJ. 1869 WARRANT FINANCE COMPANY'S CASE. winding-up. This is the rule in bankruptcy, and is the fair and proper rule in the case of an insolvent company. In the cases of Re State Fire Insurance Company (1), In re Herefordshire Banking Company (2), and In re East of England Banking Company (3), no question of insolvency arose. We do not dispute that, if there is a surplus, dividends must be applied, first, in payment of interest, and then in reducing the principal, as in the ordinary case where a debt carrying interest is paid by instalments. Sir R. Baggallay, Q.C., and Mr. Eddis, for the Warrant Finance Company: We contend that the computation of interest should be carried on, and that dividends should be applied, first, in payment of interest, and then in reducing the principal. This is the rule in Chancery, and ought to be followed here: Bower v. Marris (4). Sect. 170 of the Companies Act, 1862, treats the rules of Chancery as applicable to winding-up proceedings, and the 74th rule of the Order of the 11th of November, 1862, is to the same effect. Kellock's Case (5) and In re Xeres Wine Company (6) shew that bankruptcy rules are not to be adopted in the winding up of companies. Mr. Westlake, for other creditors. Mr. Southgate, in reply: Sect. 170 of the Act merely relates to the mode of procedure. This is clear from In re East of England Banking Company (7), where the 26th rule of the General Order of the 11th of November, 1862, as to interest on simple contract debts, was held to be ultrà vires. SIR C. J. SELWYN, L.J. :— We have several times considered this case, for the Judges met together with the view, if possible, of laying down some general rule; but the result of that meeting was, that as there appeared (1) 2 H. & M. 722. (2) Law Rep. 4 Eq. 250. (3) Ibid. 6 Eq. 368; 4 Ch. 14. (4) Cr. & Ph. 351 (5) Law Rep. 3 Ch. 769. (6) Ibid. (7) Law Rep. 4 Ch. 14. to be no uniform practice, no final decision was arrived at, it being thought more advisable to leave the matter to be decided in the ordinary course of judicial proceedings. It is surprising, that after the number of years during which winding-up proceedings have been going on in this Court, and considering that this question must have continually arisen, the point has never yet been, so far as I am aware, the subject of judicial decision. It now comes before us upon the recommendation of the Master of the Rolls, that we may decide, so far as the authority of this Court can decide, what is to be the rule applicable to such cases for the future. It is satisfactory, that in forming that decision we are not fettered by any rule which obliges us to depart from what appears to us to be the justice of the The case is, I think, unaffected by any previous decision; for the cases that were alluded to, Kellock's Case (1) and In re Xeres Wine Company (2), proceed upon an entirely different point, and the effect of the judgment in them was only this: that the right of a creditor having a mortgage-security to proceed upon all his remedies at once was not taken from him by any of the provisions of the Companies Act. case. In the present case we have to consider what are the positions of the creditors of the company, when, as here, there are some creditors who have a right to receive interest, and others having debts not bearing interest. In the first place, it appears to me that we must consider the case under two aspects-first, where there is, and next where there is not, a surplus. I apprehend that in whatever manner the payments may have been made, whether originally they may have been made in respect of capital or in respect of interest, still, inasmuch as they have all been paid in process of law, and without any contract or agreement between the parties, the account must, in the event of there being an ultimate surplus, be taken as between the company and the creditors in the ordinary way; that is, in the manner pointed out in Bower v. Marris (3), by treating the dividends as ordinary payments on account, and applying each dividend, in the first place, to the payment of the interest due at the date of such dividend, and the surplus (if any) to the reduction of the principal. That disposes (1) Law Rep. 3 Ch. 769. (2) Law Rep. 3 Ch. 769. L. JJ. 1869 WARRANT FINANCE COMPANY'S CASE. |