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PETITION OF A LTD


Submitted: 24 October 2016

SHERIFFDOM OF LOTHIAN AND BORDERS AT EDINBURGH

 

[2016] SC EDIN 77

L108/16

JUDGMENT OF SHERIFF WILLIAM HOLLIGAN

 

In the petition of

 

A LTD

 

Petitioner

 

Petitioner:   Roxburgh;  Turcan Connell

 

Edinburgh, 24 October 2016

[1]        This matter concerns A Ltd (“the company”) which presented a petition for its winding up.  The company is a company limited by guarantee.  The issue is whether the sheriff court has jurisdiction to make a winding up order in the case of a company limited by guarantee.  Having ordered intimation and service, there being no opposition and having heard counsel for the company I made the winding up order and said I would issue my reasons therefor later.

[2]        The matter is one of statutory interpretation.  The relevant statutory provision is section 120 of the Insolvency Act 1986 (“the 1986 Act”) which provides as follows:-

“Section 120

(1) The Court of Session has jurisdiction to wind up any company registered in Scotland.

(3)  Where the amount of a company’s share capital paid up or credited as paid up does not exceed £120,000, the sheriff court of the sheriffdom in which the company’s registered office is situated has concurrent jurisdiction with the Court of Session to wind up the company; but –

 

(a)  the Court of Session may, if it thinks expedient having regard to the amount of the company’s assets to do so –

(i)  remit to a sheriff court any petition presented to the Court of Session for winding up such a company, or

(ii) require such a petition presented to a sheriff court to be remitted to the Court of Session; and

(b) the Court of Session may require any such petition as above mentioned presented to one sheriff court to be remitted to another sheriff court; and

 

(c) in a winding up in the sheriff court the sheriff may submit a stated case for the opinion of the Court of Session on any question of law arising in that winding up.”

 

[3]        The key provision is section 120(3).  Put very generally subsection (3) could either mean that the concurrent jurisdiction of the sheriff court is only excluded should the company have a share capital in excess of £120,000; or that the jurisdiction is limited to companies having a share capital where that share capital does not exceed £120,000.  Miss Roxburgh very helpfully took me through the history of the section.  The Companies (Consolidation) Act 1908 (“the 1908 Act”) provided by section 135, that, in Scotland, the only court having jurisdiction to wind up companies registered in Scotland was the Court of Session.  Section 131 of the 1908 Act provided that, in England, both the High Court and county courts had jurisdiction to wind up companies, however, as I understand it, in terms of section 131(3) the jurisdiction of the county court was limited to companies whose share capital did not exceed £10,000. (The statutory provisions to which I will refer make reference to a share capital being paid up or credited as paid up but for reasons of brevity I shall simply refer to the share capital as not exceeding the relevant sum).  It was not until the Companies Act 1928 (“the 1928 Act”) that the jurisdiction to wind up a company was extended to the sheriff court.  Section 100 of that Act repealed section 135 of the 1908 Act and replaced it with provisions which are in terms very similar to section 120.  Section 135(3) of the 1908 Act was amended to provide that the sheriff court was to have concurrent jurisdiction with the Court of Session to wind up a company where the paid up share capital did not exceed £10,000.  Clearly this was a jurisdiction similar to that exercised by the county court in England.  Miss Roxburgh informed me that she had looked at the reports of Hansard concerning the 1928 Act but was unable to find any useful material in the debates to suggest why this provision was enacted in relation to Scotland when it was.  Section 220 of the Companies Act 1948 largely continued the same statutory provision in relation to jurisdiction, as did section 515 of the Companies Act 1985 (“the 1985 Act”).  By the time of the 1985 Act, the limitation on the amount of a share capital had been increased from £10,000 to £120,000.  With the exception of the amount of the share capital referred to, the text of section 120 of the 1986 Act is, with minor stylistic changes, identical to section 100 of the 1928 Act. 

[4]        The only authority dealing with the interpretation of this provision, as it relates to the sheriff court, is the case of Pearce & Cannon 1991 SCLR 861.  The report is very brief.  That case concerned the presentation of a petition by directors of a company limited by guarantee (for convenience I will refer to such companies as “guarantee companies”).  It was said that as the company was limited by guarantee “therefore there was no share capital”.  The short argument before the sheriff was that as there was no share capital it could be said that the share capital did not exceed £120,000 and therefore the sheriff court had jurisdiction.  The sheriff, although with some regret, disagreed and said “As I have already noted there are three types of companies, namely those limited by shares, those limited by guarantee, and those which are unlimited.  I consider the proper interpretation of section 120(3) of the Insolvency Act 1986 is that its provisions only refer to the first class of company, namely a company limited by shares.  If the share capital paid up or credited as paid up does not exceed £120,000 the sheriff court has jurisdiction.  For companies with share capital in excess of £120,000, for companies limited by guarantee, and for unlimited companies, in my opinion, the Court of Session has exclusive jurisdiction.”(at page 961). Miss Roxburgh drew my attention to certain texts in which the reasoning of the learned sheriff was the subject of comment (Palmer’s Company Insolvency in Scotland para. 408, footnote 27; MacRoberts Scottish Liquidation Handbook (4th Edition) para.2.1; The Law of Corporate Insolvency in Scotland, St Clair and Drummond Young (4th Edition) para.4-97, footnote 420; and para.22-05, footnote 24).  The authors pointed out that, at least prior to 1980, it was competent for guarantee companies and unlimited liability companies to have a share capital.  Section 1(2) of the Companies Act 1980 abolished the right of guarantee companies formed after 22 December 1980 to hold a share capital.  The rights of guarantee companies in existence prior to that date and holding a share capital were preserved (section 5 of the Companies Act 2006; Mayson, French and Ryan on Company Law 2016-2017 Edition, para.2.3.2.5).  In the submission of Miss Roxburgh, as the reasoning of the judgment of the learned sheriff was not correct it follows that the matter is at large for me to decide.  Miss Roxburgh also quite properly submitted that the learned sheriff did not have the benefit of the research put before me.

[5]        In my opinion, the matter is one of statutory interpretation.  The section falls to be interpreted in accordance with the law as it currently is.  When determining the division of jurisdiction between the two courts, Parliament could have prescribed that each court could have an unlimited, concurrent jurisdiction but it chose not to do so.  In relation to the sheriff court, where the company has a share capital, there are two conditions to be satisfied in order to invest the sheriff court with jurisdiction: the registered office of the company is situated within the sheriffdom; and the share capital must not exceed £120,000.  From an administrative point of view, if there has to be a difference in the jurisdiction, registered office and share capital are both easily identifiable from public registers.  That makes the identification of jurisdiction straight forward, particularly for creditors who may have no intimate knowledge of the solvency of the company. As a matter of generality, more complex litigation is reserved to the Court of Session.  The amount of share capital is, in itself, not necessarily an indicator of complexity but I can see that it may be thought a larger share capital is indicative of a larger enterprise and thus more suitable to superintendence by the Court of Session.  Determining the division of jurisdiction between the two courts on the basis of assets would be wholly impractical, especially for creditors, although I do note that section 120(3)(a) permits the Court of Session to remit a liquidation to the sheriff court having regard to the company’s assets.  In my experience, the amount of share capital of a company rarely gives rise to any issue in itself.  In relation to a guarantee company, the guarantee provision only comes into effect upon the liquidation of the company (see Mayson para 2.3.2.3).  Guarantee companies are, as in this case, often utilised by organisations pursuing charitable rather than commercial interests.  The amount of the guarantee is also usually nominal.  There is accordingly nothing in the nature of a guarantee company as such which makes its winding up particularly problematic or different from a company limited by shares.  It is difficult to identify any particular reason to exclude guarantee companies from the jurisdiction of the sheriff court. Indeed, given that many guarantee companies pursue charitable interests and possess modest assets there is, for reasons of cost, a positive argument in favour of the sheriff court having jurisdiction. When limiting the right of guarantee companies to have a share capital, the 1980 Act made no amendment to the grounds of jurisdiction to make a winding up order.  Taken broadly, the jurisdiction of the sheriff court is now significantly greater than it used to be.  In my opinion, the words of section 120(3) are wide enough to encompass the present petition and I see no reason, either by way of policy or other provision to read to section 120(3) as excluding from the jurisdiction of the sheriff court the power to wind up a guarantee company.  I read section 120(3) as providing that, where a company does have a share capital, the jurisdiction of the sheriff court is excluded should the share capital, paid up or credited as paid up, exceed £120,000.  Otherwise, the sheriff court has, as the subsection provides, concurrent jurisdiction with the Court of Session to wind up a company.