CYCLEMAKERS' CO-OPERATIVE SUPPLY COMPANY v. SIMS. Company-Winding-up-Liquidator-Power to compromise Action-Extraordinary Resolution-Companies Act, 1862 (25 & 26 Vict. c. 89), s. 160. A compromise by the liquidator of a company in voluntary liquidation of a claim by the company against a third party is, if not set aside, binding on the company, although entered into by the liquidator without obtaining the sanction of an extraordinary resolution of the company under s. 160 of the Companies Act, 1862. APPEAL of the defendant from the decision of the judge of the Clerkenwell County Court. The action was brought by one Poppleton, the liquidator of the plaintiff company, against the defendant, a director of the company, to recover 50l. received by him by way of commission from the company. The facts, which were not in dispute, shewed that prior to February, 1898, the defendant, who was then a director, did certain work for the company, and that in that month he was paid 501. by the company as commission. In September, 1899, the company went into voluntary liquidation, one Turner being appointed liquidator. An action was brought by Turner, as liquidator, against the defendant to recover the 501., which was compromised on April 24, 1900, by the payment of 147. in full settlement of the claim against the defendant, and a receipt to that effect was given by Turner. In April, 1901, the company was ordered to be compulsorily wound up, Poppleton being appointed official liquidator, and in May, 1902, the present action was commenced by Poppleton in the High Court on the ground that the compromise made with Turner was invalid by reason of its not having been sanctioned by an extraordinary resolution of the shareholders under s. 160 of the Companies Act, 1862. The action was remitted to the Clerkenwell County Court, and the learned judge found that the compromise was invalid for the above reason; but he treated the 147. paid under the compromise as though it had been paid into court in the present action, and VOL. I. 1903. 2 L 2 1903 Jan. 16. 1903 CYCLE MAKERS' CO-OPERATIVE COMPANY v. SIMS. gave judgment for the plaintiffs for 361. The defendant appealed. Llewellyn Williams, for the defendant. The county court judge was wrong. An extraordinary resolution of shareholders under s. 160 of the Companies Act, 1862, is not necessary to the validity of a compromise by the liquidator of a claim by the company against a third party. A liquidator has general power to compromise law-suits. Under s. 133, sub-s. 7, of the Companies Act, 1862, a voluntary liquidator has the same power that is given to an official liquidator by the Act; he has, therefore, the right to bring or defend actions given to the official liquidator by s. 95, and a power to compromise an action is part of that right. If the liquidator had not that power, he would not be able to accept money paid into court in satisfaction of the claim, for that would be in effect to compromise the action; nor could he compromise at the last moment when there was no time to procure the passing of an extraordinary resolution, but would be compelled to fight the action to the end. The case of In re English and Scottish Marine Insurance Co. (1) shews that a compromise between the liquidator and a third party cannot be objected to by the latter on the ground that the sanction of the Court has not been obtained to it. The true view is that a liquidator has power to compromise, and that the compromise is complete and valid without the sanction of an extraordinary resolution, s. 160 being intended for the protection of the liquidator in case of an objection being made to the compromise. The shareholders could have applied to the Court under s. 138 to set aside the compromise, or have proceeded against the original liquidator for breach of trust under the Companies Act, 1890. Assuming that the liquidator should have obtained the sanction of an extraordinary resolution, the defendant was entitled to rely upon the maxim "Omnia præsumuntur rite esse acta," and to assume that it had been passed, the matter being one relating to what has been styled the indoor management of the company. In any event, the shareholders have by their laches acquiesced in the compromise. (1) (1870) 23 L. T. (N.S.) 685. [CHANNELL J. This action was clearly wrongly brought; a second action could not be brought until the compromise had been set aside.] That is so; but the point was not taken at the trial. H. Kisch, for the plaintiffs. Assuming, though it is not clear on the evidence, that an action was in fact brought by Turner against the defendant, the effect of s. 160 is to make an extraordinary resolution a condition precedent to the power of the liquidator to compromise an action; in the absence of such a resolution the compromise is null and void, and it is unnecessary to set it aside; it may be treated as a nullity. The object of the section is the protection of the shareholders against the unauthorized acts of the liquidator. In In re Dynevor Collieries Co. (1) it was assumed that an extraordinary resolution was necessary before a compromise could be effected; and James v. May (2) is an authority for the proposition that a liquidator cannot compromise an action without the consent of the Court. Llewellyn Williams, in reply, cited In re Anglo-RomanoWater Co., Wright's Case (3); In re British Provident Life and Fire Assurance Society. (4) LORD ALVERSTONE C.J. The point raised in this case is one of considerable difficulty, but I have formed a clear opinion that the decision of the county court judge was wrong, and that this compromise ought not to be held to be inoperative merely because of the absence of the sanction of an extraordinary resolution. It appears that the plaintiff company had gone into voluntary liquidation, and that Turner, the liquidator, brought an action against the defendant to recover a sum of 501., which he no doubt owed to the company. The defendant being impecunious, Turner compromised the action for 147., and that sum was paid; and matters so remained until the present proceedings were taken by the present official liquidator, the plaintiff company having in the meantime been ordered to be wound up compulsorily; the county court judge has given judgment for 367., the balance of the original claim (1) (1879) 11 Ch. D. 605. (2) (1873) L. R. 6 H. L. 328. (3) (1870) L. R. 5 Ch. 437. 1903 CYCLE MAKERS' SUPPLY COMPANY v. SIMS. 1903 CYCLE- V. SIMS. Lord Alverstone of 501., and it is said that he was entitled to take this view because there is no evidence to shew that the original liquidator had obtained the sanction of an extraordinary resolution to the compromise. Two points arise for our consideration: first, what is the real object of the protection afforded by s. 160 of the Companies Act, 1862 ?—and, secondly, is the obtaining of the sanction of an extraordinary resolution a matter of such a nature that a person dealing with the liquidator is entitled to assume that it has been, or will be, obtained? As to the first point, we have a distinct statement of very great authority which seems to lay down the principle that s. 160 is intended both to protect the interest of the company against the liquidator, and also to protect the liquidator as regards acts done by him in the winding-up. In In re English and Scottish Marine Insurance Co. (1) there was a claim by an agent for salary. The winding-up was under the supervision of the Court, and the liquidator was liable to the provisions of s. 160 —that is, he had power to compromise a claim with the sanction of the Court. The liquidator did compromise the claim, and it was contended that the compromise was not binding on the person who made the claim because the liquidator had not obtained the consent of the Court; that consent was, it was contended, a condition precedent to the right to compromise, and it was a condition of the same class as the condition relied on in the present case. In the course of his judgment James L.J. said: "Of course the liquidators, quà liquidators, might probably for their own protection require the sanction of the Court, but they took the positive burden upon themselves; they took the risk upon themselves of making that agreement and the further risk of obtaining that sanction, but as between themselves and the Court. It appears to me, therefore, that that is perfectly conclusive." That case clearly shews that a compromise between a creditor of a company and its liquidator, which is otherwise binding on both, cannot be objected to by the creditor merely on the ground that the liquidator did not obtain the sanction of the (1) 23 L. T. (N.S.) 685. Court to the compromise; and if the liquidator can say that the other party to such a compromise is bound by it, it follows that the liquidator himself must also be bound. Then there is the decision in In re Anglo-Romano Water Co., Wright's Case (1), which, though not so directly in point, tends in the same direction. Dealing with the construction of s. 160, Giffard L.J. said: "I think that it is competent to a liquidator, though the liquidation be under supervision, to enter into arrangements of this nature with the sanction of a meeting without the sanction of the Court, unless the Court has directed that he shall not do so without its sanction." That case is obviously not so much in point, as everything that was done by the liquidator was done with the sanction of a general meeting, and the question was whether the additional sanction of the Court was also necessary, but the decision supports the view that the object of s. 160 was to protect the company against the liquidator. The case of James v. May (2), which has been cited, does not help the plaintiffs; there the directors of a company, which was being voluntarily wound up under the supervision of the Court, purported to make a compromise without obtaining the sanction of the Court, and it was held that the liquidator of the company was not bound by it. Under the circumstances of the present case I do not think that the learned county court judge ought to have held this arrangement, which had been acted upon for two years, to be invalid. There is another objection which, if it had been taken in the Court below, must have been fatal: that, while this compromise was still standing, another action had been brought in respect of the same subject-matter. No doubt a second action might have been brought after the compromise had been set aside; but it is not possible to hold that, while the compromise is still standing, other proceedings can be brought in respect of the same cause of action. I think that this compromise must be held to be binding on the present liquidator. Further, I think that this compromise ought to be held binding for the additional reason that it was a matter relating (1) L. R. 5 Ch. 437. (2) L. R. 6 H. L. 328. 1903 CYCLE- V. SIMS. Lord Alverstone |