In re WYNN HALL COAL COMPANY. Ex parte NORTH AND SOUTH WALES BANK. Company-Winding-up-Directors-Unregistered Mortgage Companies Act, 1862, s. 43. In the winding up of a company registered under the Companies Act, 1862, directors will not be allowed to set up against the general creditors a mortgage of, or charge on, the property of the company not registered pursuant to the 43rd section of the Act. Quære, whether an unregistered mortgagee, not being a director, can set up his mortgage against the unsecured creditors. A company, whose articles of association authorized the directors, with the sanction of a resolution of the company, to borrow money on mortgage, being indebted to their bankers on an overdrawn account, the payment of which some of the directors had personally guaranteed, passed a resolution authorizing the directors to raise money on a mortgage of the property of the company, to be applied in discharging the liabilities of the company, or any director or other person on behalf of the company, to the bankers; the resolution also confirmed the acts of the directors and any sureties of the company in reference to the creation or continuance of the liabilities to the bankers, and declared that the bankers, directors, and sureties should stand in the same position as to their claims against the company as if such liabilities had been originally loans specially authorized and secured by mortgage under the articles. No mortgage was executed, the resolution was not communicated to the bankers, and no charge on the property of the company in favour of the bankers or the guaranteeing directors was registered under the 43rd section of the Companies Act, 1862: Held, in the winding-up of the company, that the resolution not having been communicated to the bankers did not entitle them to a charge on the property of the company; and that, assuming the resolution to have created a charge in favour of the guaranteeing directors, their omission to register it disentitled them to set it up against the general creditors of the company. THIS HIS was a claim, adjourned from Chambers at the request of the claimants, in the winding-up of the Wynn Hall Coal Company, Limited, on the part of the North and South Wales Bank, to have a charge on all the property of the company for £2000, due to them from the company on an overdrawn account, and £500 lent by them to the company. The company was formed and registered under the Companies Act, 1862, in May, 1865, for the purpose of purchasing and working a coal mine. V.-C. M. 1870 June 4. V.-C. M. 1870 In re COAL CO. By the articles of association (sect. 24) the directors were authorized, from time to time, under a resolution of the company made în ordinary or special general meeting (at which meeting there WYNN HALL should be present in person, or by proxy, two-thirds in number and value of the shareholders), to borrow any sum or sums of money not exceeding £5000, and to mortgage or charge the works, hereditaments, premises, plant, property, and effects of the company, to secure the repayment of the money to be borrowed. Ex parte NORTH AND SOUTH WALES BANK. The former owners of the mine had kept an account with the North and South Wales Bank, and had deposited the lease of the mine with the bank as a general security for their account. The company, soon after its formation, opened an account with the bank, and the directors allowed the bank to retain the lease as security for their account, and four of the directors gave to the bank their joint and several guarantee for the payment of the company's debt to the bank on their account current to the extent of £2000. In June, 1868, the directors convened a special general meeting of the company, for the purpose of passing a resolution authorizing them to borrow money on mortgage for the purpose of discharging the liabilities of the company. At this meeting, which was held on the 17th of June, 1868, twothirds in number and value of the shareholders being present, the following resolution was passed : "That the directors be instructed and authorized to borrow on mortgage the sum of £5000 at such rate of interest as the directors shall think reasonable; and in order to secure the repayment of the moneys so to be borrowed, and the interest thereof, and any lawful or usual costs, charges, and expenses, that the directors be and they are hereby authorized to pledge, mortgage, or charge the works, hereditaments, premises, plant, property and effects of the company; and in any such mortgage there may be inserted, if the directors shall think fit, a power of sale and all other usual powers, provisos, agreements and declarations; and that the directors be authorized and empowered to affix the common seal to any such mortgage so authorized as aforesaid; that in case any director, shareholder, or other person shall, at the request of the directors, in any manner become personally liable as a surety for any money so to be borrowed on mortgage, or any part thereof, either by means V.-C. M. 1870 W In re WYNN HALL COAL CO. Ex parte NORTH AND BANK. of the mortgage deed or any other document, such surety shall be indemnified and saved harmless out of the property and effects of the company, which shall, subject to the principal debt, be considered as mortgaged or pledged for such purpose; and the directors shall be and they are hereby authorized, when called upon by such surety, to execute to him a mortgage or other security SOUTH WALES contemplated by Article 24 for such indemnity and repayment of any moneys advanced by him; that the moneys so to be raised by mortgage under the resolution shall be applied by the directors, after the payment of all costs, charges, and expenses attendant thereon, in or towards satisfying and discharging all the liabilities of the company, or any director, shareholder, or other person on behalf of the company, to the North and South Wales Bank, whether due to the bank for an overdraw, with interest, commission, and charges, or upon bills, notes, or securities of the company, or any other person collaterally with the company, and whether such liabilities should have been incurred in strict accordance with the articles of association or not, and any surplus which may remain may be expended and applied by the directors at their discretion in aid of the general objects of the company; and that the acts of the directors, and any sureties of the company in reference to the creation or continuance of the said liabilities to the North and South Wales Bank, or any such collateral liabilities as aforesaid, shall be, and the same are hereby authorized and confirmed; and that the said bank, collateral creditors, directors, and sureties shall stand in the same position as to their claims against the company as if such liabilities had been originally loans specially authorized and secured by mortgage under the said 24th article." There was no evidence that the bank had ever asked for further security for their debt, or that the above resolution was communicated to them. No mortgage of the property of the company was executed, and no charge on the property of the company was registered under the 43rd section of the Companies Act, 1862. In September, 1869, the bank advanced £500 to the company, for which the same four directors and another director gave their joint and several promissory note as sureties for the company. The company, soon afterwards, went into voluntary liquidation, VOL. X. 2R 2 V.-C. M. 1870 In re WYNN HAL in consequence of the mine having been drowned out; and in November, 1869, the voluntary winding-up was ordered to be continued under the supervision of the Court. It was admitted that, if the claim was allowed, there would be Ex parte nothing left for the general creditors. It was also admitted that NORTH AND the bank were satisfied with the security of the guarantee of the BANK. directors, and that the claim was made for the benefit of the directors. SOUTH WALES Mr. Cotton, Q.C., and Mr. Freeling, for the claimants: The resolution of June, 1868, gave to the bank and to the directors, the guarantors, a charge on all the property of the company. The concluding words of the resolution expressly place the bank and the directors in the same position as if the company's debt to the bank, for which the directors had become sureties, had been a loan raised and secured by mortgage under the 24th article. The main object of the resolution was either to pay or secure the debt of the bank, and it can make no difference in equity whether or not the directors went through the form of reborrowing from the bank the amount of their debt, and executing a formal mortgage to secure it. Even if the bank are not entitled to be treated as mortgagees, the directors ought not to be deprived of the benefit of the indemnity intended to be given to them, because, relying on the last clause of the resolution, they refrained from putting the company to the expense of having a formal mortgage executed. Mr. C. Hall, and Mr. Shebbeare, for unsecured creditors : The first part of the resolution, which authorizes the directors to raise money on mortgage, to be applied in discharging the liabilities of the company to the bank, clearly creates no charge in favour of the bank or of the directors. The bank never asked for any security, no mortgage was executed to them, and the resolution was not even communicated to them. As to the last clause of the resolution, it was probably intended to give validity to the equitable mortgage of the mine by the deposit of the lease, which mortgage had been created or continued by the directors without the authority of a resolution under the 24th article. If, however, it can be construed as creating a charge on all the property of the company to secure an antecedent debt, it is invalid, at all events against creditors of the company, not being within the borrowing power given by the 24th article. [The VICE-CHANCELLOR referred to In re General Provident Assurance Company (1).] V.-C. M 1870 In re WYNN HALL Ex parte BANK. That is a clear authority for the proposition that, in exercising SOUTH WALES borrowing powers, the terms of the articles must be strictly complied with. Moreover, the concluding words of the resolution, "secured by mortgage under the said 24th article," are too vague and indefinite to create a charge. The claimants ask the Court to create an imaginary mortgage, and to assume that it would have included all the property of the company. But, even if the resolution had amounted to a charge, the omission to register it under the 43rd section of the Companies Act, 1862, would have disentitled the bank, and, à fortiori, the directors whose duty it was to register it, from setting it up against the creditors of the company. Mr. Crossley, for the liquidators. Mr. Cotton, in reply: It would be adding a new clause to the Companies Act to hold that no mortgage of a company's property is valid until it is registered under the 43rd section; that is a directory clause, with a penalty for disobedience, and it in no way affects the validity of a charge as against the company. The unsecured creditors can only stand in the same position as the company. SIR R. MALINS, V.C.: This summons raises a question of great importance. The facts are very simple. This colliery was worked originally by a partnership; in 1865 the partnership was converted into a joint stock company, which worked the colliery until 1869, when it was stopped by the coal mine being drowned out. The company is insolvent; it has incurred a debt to its bankers, the North and South Wales Bank, of £2500. It is avowed, as I understand, that the bank, (1) 17 W. R. 514. |