Order of
Malins, V.-C.

Cases in which trust deed not usually adopted.

consequential directions. The order made (14 March, 1876), by Malins, V.-C. (A. 459), was as follows:

"Upon the application of A. B., &c., &c., being together the holders of all the mortgage debentures of and issued by the above-named company, for the amounts set forth in the schedule hereto opposite the respective names of the said applicants, and all hereinafter referred to as the debenture holders, which, upon hearing the solicitors for the applicants, and for the official liquidator of the above-named company, and for, &c., was adjourned to be heard in Court, coming on the 26th day of February, 1876, and this day to be heard accordingly, and upon hearing, &c. This Court being of opinion that the property, book-debts, credits, assets, monies, and other effects, of or to which the above-named company was possessed or entitled at the commencement of the winding up of the said company, are subject to the debenture securities and charges thereby created in favour of the applicants, and ought to be applied in the first instance to satisfy or provide for, pro tanto, the respective amounts due to the applicants for principal and interest in respect of their mortgage debentures, rateably, in proportion to the said respective amounts of such mortgage debentures, in priority to the general or unsecured creditors of the company. It is ordered that the liquidators of the above-named company do, out of the assets of the said company, pay and satisfy the said principal monies due to the said debenture holders, with interest thereon, at the rate of 18 per cent. per annum, down to the day of payment; and do also pay to the said debenture holders their costs of and occasioned by this application, to be taxed by the taxing master, as between solicitor and client, in case the parties differ, including the costs of the summons on the 18th day of June, 1875, taken out by the said liquidators, and all others the costs of the said debenture holders (if any), properly incurred as mortgagees, all such payments to be made in priority to the payment of the costs hereinafter mentioned and of the costs of the liquidators of this application and also previously to any payment to the general and unsecured creditors of the company. And it is ordered that the liquidators do, out of the assets of the company, retain their own costs, and pay the said, &c., their costs of this applica tion and of the said summons, such costs to be taxed by the taxing masters, as between solicitor and client, in case the parties differ."

There was an appeal from this order, but it was dismissed, the debenture holders to "be at liberty to add their costs of the said motion to their securities," 2 Ch. Div. 314.

When, as in the case last mentioned, the property of a company is of a fluctuating character, consisting altogether or for the most part of choses in action, bills, notes, and chattels, which in the course of business are being constantly

dealt with, mortgage debentures not secured by a trust deed

are generally preferred.

Occasionally mortgage debentures are issued in part secured Mortgage deby a trust deed, which will declare the trusts of certain bentures in part secured portions of the company's property, e.g., land and other by trust deed. property not required to be dealt with by the company in the ordinary course of its business-and partly by a charge contained in the debenture upon all the residue of the company's property.

As far as the company is concerned it is more convenient, if possible, to dispense with a trust deed.

that deben

tures shall

It is usual to insert a clause or declaration in mortgage As to clause debentures, providing that the debentures of the same issue shall rank pari passu. If the debentures are secured by a rank pari trust deed this declaration may be inserted in that deed instead passu. of in the debenture. The object of the clause or declaration is to place all the debentures on a level. In its absence they would rank according to date of issue, which might give rise to serious disputes and complications.

If future property of the company is to be included in a charge effected by mortgage debentures, the terms of the charge ought to be expressly extended thereto.

Thus, In re New Clydach, &c., Co., 6 Eq. 514, debentures had been issued, charged upon "the undertaking and all the real and personal estate" of the company: the company was ordered to be wound up; and, its chattels and personal estate having been sold in the winding up, the question arose whether the debentures were a charge on chattels acquired by the company after the issue thereof. Lord Romilly, M.R., said: "I think I must hold that the debentures passed all personal property in existence at their respective dates. But it appears that they are not all of the same date, and that may give rise to questions of importance. Assume that one set of debentures were issued in May, and a second set in August, then the May debenture holders would have a charge upon all the stock in trade and all the chattels of the company which existed in May at the date of the debentures, and the subsequent debenture holders would have all which existed in August."

As to excluding future pressly in

property.

It was contended in the case of The Marine Mansions Co., Object of 4 Eq. 605, that the issue of debentures, including all the

clause en

abling company to continue its business.

Remedies of debenture holders.

Right to sue.

Action of mortgage debenture holders on behalf, &c.

Order of

Malins, V.-C.

property of a company, was a breach of trust, since it must paralyse the directors in the conduct of the company's business, but it is now settled that it is not. S. C. and In re Panama, &c., Co., 5 Ch. 319. However it is usual to provide against any such objection by inserting a clause (see infra, pp. 435 and 438), enabling the company, until default, &c., to deal with the mortgaged property in the ordinary course of its business. This also avoids another difficulty which might arise if the company were disposing of any of its property, viz., the purchaser might object that he had notice of a specific equitable charge.

With regard to the remedies of a debenture holder :-If default is made by the company in payment of the principal or interest in accordance with the terms of the debenture the holder will be entitled to sue for the amount due. See supra, p. 401.

If the debenture is a mortgage debenture the holder may also, subject to any conditions contained in the instrument, or, if it be secured by a trust deed, to any conditions in such deed, sue for the realisation of the security. See supra, p. 402.

Where the debenture is not secured by a trust deed the holder will sue the company on behalf of himself and all other the debenture holders of the company, or all other the debenture holders of a particular series, and will claim that accounts should be taken of what is due, and that the securities may be enforced by foreclosure or sale.

The action of Huntingdon v. The Coal Consumers, 1876, H. 114 Association, Limited, was an action of this kind. After the writ was issued the company was ordered to be wound up, and on August 4th, 1876, the following order was made by Malins, V.-C., in the winding up and in the action:"Upon, &c., it is ordered that the following accounts and inquiries be taken and made, that is to say:

1. An inquiry what debentures or mortgage securities have been issued or created by the said association or the directors thereof since the registration of the said association.

2. An inquiry which of the debentures are still unpaid or subsisting, and what persons are the holders of the same respectively.

3. An inquiry what property, monies, or assets, of the association, are included in the said several debentures, and the charge or security thereby created.

4. An account of the principal and interest monies secured by or due under or in respect of the said debentures respectively, and to whom the same respectively are due.

And it is ordered that the proceedings in the action of Huntingdon v.

The Coal Consumers Association, Limited, 1876, H. 114, be stayed until further order, with liberty to any party to apply on giving notice to the other parties appearing upon the present application."

Owen.

Dawson v. Owen, 1876, D. 166, was another action of the Dawson v. same kind. In that case the plaintiffs were suing the Industrial Coal and Iron Company, Limited, on behalf of themselves, &c. On 11th November, 1876, the following order was made by Malins, V.-C. :

"Upon motion made unto this Court by counsel for the plaintiffs, and upon hearing counsel for the defendants, and upon reading the plaintiffs' statement of claim, and the statement of defence, and an order dated the 29th August, 1876 [for receiver and manager by consent]. This Court doth order that the following accounts and inquiries be taken and made, that is to say:

1. An account of what is due for principal and interest to the plaintiffs, and the other holders of debentures issued by the defendant company, distinguishing the holders of the A. and B. debentures in the pleadings referred to.

2. An inquiry of what the property comprised in and charged by the A. and B. debentures, respectively, consists, and in whom the same is vested.

3. An inquiry what steps ought to be taken for getting in such parts (if any) of the said property as may be outstanding.

4. An inquiry in what way the property comprised in or charged by the said respective securities can best be realised for the benefit of the plaintiffs and the other debenture holders, and whether a sale or mortgage, or sales or mortgages, of any and what portions of the same is or are necessary or desirable for that purpose. 5. An inquiry whether any and what contracts have been entered into, and what steps ought to be taken in respect thereof. "And it is ordered that the receiver and manager appointed by the said order of the 29th August, 1876, be continued upon the same terms.

"And it is ordered that the further hearing of this matter be adjourned without requiring the action to be brought on for trial.

"And any of the parties, including the holders of any of the said debentures issued by the defendant company, are to be at liberty to apply to the Court or to the judge as they may be advised." [A. 1778.]

Where the debentures are secured by a trust deed the trustees can, if the occasion arises and they desire to act under the direction of the Court [supra, p. 402], bring an action against the company for the execution of the trusts of the deed. For an example see Campbell v. Compagnie Générale de Bellegarde, Limited, 2 Ch. Div. 181.

The

Order of

Malins, V.-C.

Action by

trustees of covering deed.

But generally a debenture holder brings the action making Action by the company and the trustees defendants. Louth v. Western of Canada Oil, &c., Co., incidentally mentioned in 17

debenture holder for

execution of trusts.

Receiver and manager.

Eq. 1, is an example. The action (1875, B. 25) of Brown [suing on behalf of himself and all other the holders of the first mortgage debentures issued by the Wedgewood, &c., Co., Limited] v. The Wedgewood, &c., Co., Limited, Lord Sheffield, Otway and Clayton, defendants, is another case of the same kind.

In Perry (on behalf, &c.,) v. The Clutton Coal Co., Limited, and others [the trustees], the following order was made by Malins, V.-C., July 7th, 1876:

"Upon motion for judgment this day made unto this Court, &c., and upon hearing counsel for the defendants, and upon reading the plaintiff's statement of claim and a deed of covenant, dated, &c., this Court doth declare that the plaintiff and the other holders of mortgage debentures of the above named company issued under and in pursuance of the said deed, dated, &c., are entitled to a charge on all the real and personal property of the company, for securing the repayment of the principal monies and interest in the said mortgage debentures mentioned, and doth order that the following account be taken, namely, an account of what is due to the plaintiff and the other holders of mortgage debentures of the company on the security of the said debentures and the said deed, and it is ordered that the real and personal property comprised in the said deed and the business of the company be sold as a going concern with the approval of the judge. And it is ordered that the money to arise by such sale will be paid into bank to the credit of this action of Perry, &c., 1876, P. 139. And it is ordered that the receiver appointed and the injunction awarded by the said order, dated the of June, 1876, be continued, and [further consideration adjourned] ”—B. 1231.

In an action to enforce mortgage debentures a receiver and manager may be appointed. Peek v. Trimsaran Iron Co., 2 Ch. Div. 115. The order in this case was as follows:

"Upon motion, &c., This Court doth order that a proper person be, upon his giving security, appointed to receive the rents and profits of the defendants' real estate (including leaseholds,) and to manage the defendants' colliery business, and get in the outstanding debts and effects belonging to the defendants. And it is ordered that the defendants do deliver over to such receiver all the stock, plant, machinery, and effects of the defendants, and all securities in their hands for such outstanding debts and effects, with all books and papers relating thereto, and in case it shall be necessary to put any of the debts in suit for the recovery thereof, the same to be done with the approval of the judge, and the person so to be appointed is to be at liberty to make use of the names of the plaintiffs and defendants who are to be indemnified therein out of the premises comprised in the security of the plaintiffs in the said affidavit mentioned, and out of the said stock, plant, machinery, and effects. And it is ordered that the person so to be appointed do from time to time pass his accounts, and after retaining in his hands such sums as shall be deemed sufficient to carry on the said collieries, pay the balances which shall be certified to be due from him, in Court to the credit of this cause of, &c., and [invest and accumulete]."-Peek v. Trimsaran Co., M. R. 10 Feb. 1876, B. 246; 2 Ch. Div. 115.