9911796707
TMI Blog1971 (5) TMI 39X X X X Extracts X X X X X X X X Extracts X X X X ..... itioners' shares in the company, on such terms as the court thought fit, or alternatively that the company should be wound up. On May 13, 1970, Pennycuick J. held that although the acts of the respondents represented conduct which was oppressive to the petitioners, to wind up the company would unfairly prejudice the petitioners within the meaning of section 210(2)(b), and that Mrs. Peskoff would be given the opportunity of buying out the petitioners the price being calculated on the footing (1) that she should be treated as owning a one-half interest in the company and the petitioners, the other half; (2) that the £2,936 owing to Mr. Littman's estate should be reinstated as a debt owed by the company; and (3) that Mrs. Peskoff should be treated as accountable to the company for remuneration in excess of £6,000 for the year ended March 31, 1962, and subsequent years. The respondents appealed on the grounds (1) that the allotment of 100 shares to Mrs. Peskoff on January 28, 1954, was made bona fide in the interests of the company ; (2) alternatively that the petitioners were barred by laches or acquiescence from complaining of the allotment; and (3) that the court did no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company was £2,936. At this time the company was suffering from an acute shortage of cash. The balance-sheet at March 31, 1953, shows current liabilities amounting to £20,557, made up of sundry creditors £9,177, bank overdraft (secured by the deposit of the title deeds of the leasehold property) £7,538, current taxation £3,842. The figure for sundry creditors included the balances on the directors loan accounts. Against these liabilities, the current assets amounted to no more than £2,102 in value, including only £45 cash in hand. The company's leasehold properties were still shown in the balance-sheet at cost, nothing having been written off in respect of amortisation. The trading account for the 12 months ended March 31, 1954, shows a loss of £1,737, after taking into account a sum of £1,494 in respect of defalcations by an employee of the company. The balance-sheet at March 31, 1954, shows current liabilities amounting to £19,131 and current assets valued at £763. On September 26, 1953, Mrs. Peskoff appointed her son, Michael Peskoff, a director of the company, but he never acquired his share qualification and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is at present under-capitalised, and I shall be very glad if you will let me hear from you as soon as possible. " There was no written reply to that letter but Mr. Biddle's evidence was that, although he did not recall the conversation, he probably said some thing to Mr. Rowberry to the effect that there was no money available and that Mr. Rowberry and Mrs. Peskoff would have to manage as best as they could. Mr. Rowberry's evidence was to the effect that Mr. Biddle told him that Mrs. Peskoff should not expect Mr. Littman's representatives to provide further funds. In these circumstances Mrs. Peskoff consulted Mr. Rowberry about the terms on which she could safely put further moneys into the company. Mr. Rowberry in his reply dated January 6, 1954, stressed that it must be borne in mind that even £2,000, which was the amount which he hoped Mrs. Peskoff would be able to raise from the bank, would not put the company in a sufficiently strong position to pay off its creditors, and there could be no guarantee, even if this money were put in and then paid out to creditors, that someone would not take proceedings which would enforce liquidation, almost certainly resulting in the lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dness of the company was of the order of £21,000, including the amounts due on the directors' loan accounts. Mrs. Peskoff raised the largest sum she could on the security of her own personal assets, but this did not amount to more than £1,100. At a board meeting held on January 28, 1954, and attended by Mrs. Peskoff and Mr. Woodley 100 shares of the company were allotted to Mrs. Peskoff and one to Mr. Woodley. These shares were allotted for cash at par. At the same meeting it was agreed that upon Mrs. Peskoff being repaid the sum of £2,080 owing to her on the Stealey loan account she would lend the sum of £2,000 to the company upon a debenture at 6 per cent. It was further agreed that Mrs. Peskoff would lend the company a further sum of £1,000 upon another debenture at 6 per cent. Mrs. Peskoff agreed not to recall the £2,000 loan for three years except in the event of her death in the meantime or on the company going into liquidation or of a receiver being appointed or a judgment being entered against the company. The £1,000 loan was to be repayable on seven days' notice. At the same meeting Mr. Woodley was appointed secretary of the compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transfers they, the directors, may prevent the administrators from becoming members by refusing to register a letter of request. If in the event of their becoming members the administrators find themselves in a minority and are of the opinion that the affairs of the company are being conducted in an oppressive manner they could apply to the court under section 210 of the Companies Act, 1948. It may be that the solution would be for the administrators, in their capacity as creditors, to have the company wound up." It is clear from this that the search was made either on the administrators' behalf or with a view to advising them, and that the information given by Mr. Rowberry to Mr. Biddle had reached Silver, Altman & Co. and the administrators. On February 11, 1954, Mrs. Peskoff wrote to Mr. Rowberry telling him that a Mr. Morris, who was a partner in Silver, Altman & Co., had telephoned her to say that it had been drawn to his notice that certain changes had been happening at the baths, that a new director had been appointed, and also that Mrs. Peskoff now held more shares. She said that Mr. Morris expressed surprise that this had been done without Mr. Silver or Mr. Bourner being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... believe that application could be made to the court for an order to wind up the company on the grounds that oppressive action has been taken by Mrs. Peskoff. " Through my partner, Mr. Morris, I have been endeavouring to contact Mrs. Peskoff but without success and I have very recently received a letter copy of which I enclose herewith. It rather looks to me as if Mr. Rowberry is the man to see, but I feel that we ought to discuss this with Mr. Tobin first. I am having a word with Mr. Tobin about the matter and no doubt an early appointment can be arranged amongst which this, together with many other important matters, can be discussed." On March 11, 1954, a copy of this letter was sent to Mr. Tobin by Mr. Silver with a covering letter in which Mr. Silver confirmed that Mr. Tobin would be taking immediate action in the matter and asked Mr. Tobin to let him know as quickly as possible what steps he proposed to take. Mr. Silver saw Mr. Tobin on the following day, when he understood that Mr. Tobin would be getting in touch with Mr. Rowberry. On March 29, 1954, Mr. Silver wrote to Mr. Tobin saying " Please let me know immediately what the position is as both Mr. Bourner and myself ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing significant happened at this general meeting. Mr. Rowberry subsequently advised that it should be reconvened on proper notice but this was in fact never done. On March 14, 1955, Mr. Tobin for the first time took some action in the matter. He wrote to the company's bank manager asking to be informed of the amount of the company's indebtedness to the bank. On the same day he wrote to the company requesting payment within 14 days of the sum of £2,936 owing on Mr. Littman's loan account. On March 18, 1955, Mr. Tobin suggested to the bank manager that they should meet Mrs. Peskoff with a view to discussing the acquisition by her of the Littman interest in the company. Nothing came of this proposal at this stage. At a board meeting held on October 17, 1955, at which Mrs. Peskoff and Mr. Woodley were present, the following three resolutions purport to have been passed : "(10) Resolved that the following directors' appointments as from January 1, 1955, be and are hereby confirmed: (1) Mrs. J. Peskoff to be chairman and managing director at a salary of £1,560 per annum; (2) Mr. A. C. Woodley to be secretary and manager at a salary of £780 per annum. "(11) Resolved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave been abortive. The matter then went to sleep entirely until February, 1959. On February 9, 1959, Mr. Louis Littman wrote a letter to Mr. Rowberry, which seems to constitute a personal and informal approach, saying that the administrators were feeling that it was time to have the question of the turkish baths sorted out, and suggesting that he and Mr. Rowberry and Mrs. Peskoff might have a preliminary chat. Such a meeting took place on March 12, 1959, at which it seems Mr. Woodley was also present. The position regarding the company was discussed. Mention was made of Mr. Littman's loan account, and Mr. Louis Littman's attendance note recording what took place at the meeting contains this statement: "This figure however appears to be an arbitrary one fixed by the accountants after a study of the books which they found largely incomprehensible" This appears to relate to the figure standing to the credit of Mr. Littman on the loan account at his death, but it is not clear whether Mr. Louis Littman is recording what he was told by others present at the meeting or information which he had himself obtained elsewhere. The position with regard to the shareholdings was made plain to Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treet, the turnover at which was of the order of £6,000 per annum. The effect of this resolution there fore was to maintain the commission received by Mrs. Peskoff and Mr. Woodley at approximately the same level as obtained theretofore. In April, 1956, Mr. Morris ceased to act as the representative of Silver, Altman & Co. for the purpose of audits of the company's accounts and his place was taken by a Mr. Goldwater, also of Silver, Altman & Co. At a directors' meeting held on March 28, 1960, at which Mrs. Peskoff and Mr. Woodley were present and Mr. Goldwater was in attendance, draft accounts of the company for the three years ended March 31, 1959, were presented and provisionally adopted subject to the following resolution : " That the sum previously shown in the accounts as due to the late J. A. Littman be deleted from the accounts for the year ending March 31, 1959, and all subsequent years as the debt is not acknowledged." In April, 1960, Mrs. Peskoff by written entry in the minutes book signed by herself purported to allot one share in the company to her son Michael and to appoint him to be an additional director of the company as from October 17, 1960. This allotment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany's accounts for the five years ended March 31, 1960, were sent by Silver, Altman & Co. to Mr. Louis Littman. No transfer of the shares registered in Mr. Littman's name into the names of the administrators was registered in the company's register of members. The names of the administrators were noted, at the head of the page containing registration of Mr. Littman as a shareholder, as administrators of his estate. In the court below the question was raised whether the administrators were ever registered as members of the company, but this point has not been pursued in this court. Mr. Harman for the respondents has been content to treat the administrators as duly registered members of the company as from November 21, 1961, or thereabouts. At about this time a detailed investigation of the position was conduct ed in the offices of Silver, Altman & Co. evidently with a view to advising Mr. Louis Littman. The validity of the allotment of shares to Mrs. Peskoff and of the issue to her of debentures was considered. So also was the position with regard to the commission payable to the directors, and with regard to the balance on Mr. Littman's loan account. With regard to the latter th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... veyor to inspect the buildings and the leases with a view to giving Mr. Silver an idea of their value so that Mr. Silver should be in a position to estimate the total value of the company's business as it stood. Some correspondence between Mr. Rowberry and Mr. Louis Littman followed this meeting and on April 11, 1963, Mr. Louis Littman informed Mr. Rowberry that he had, subject to agreement of their fee, instructed a firm of estate agents to proceed with their valuation of the leaseholds. Nothing further happened until June 8, 1964, when in the course of a letter to Mr. Rowberry, Mr. Louis Littman wrote : " Incidentally, when are we going to settle the question of Jermyn Street Turkish Baths Ltd. ? We are close to the prospect of winding up the estate and this matter must be dealt with soon." Mr. Rowberry replied, pointing out that the matter had been left with Mr. Louis Littman to obtain valuations. As nothing happened, Mr. Row berry wrote to Mr. Louis Littman on August 14, 1964, saying that he would like to have a discussion with him to see whether they could reach some arrangement about the company. Shortly before October 8, 1964, Mr. Rowberry attempted to make an appointment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Nevilles to the company. The company appointed Nevilles to be general managers and controllers of the company's turkish bath in Jermyn Street and of the hairdressing and allied businesses carried on therewith but not of the flats and apartments belonging to the company situate above the company's premises in Jermyn Street. The appointment was to take effect from January 1, 1961, and to continue for the term of two years and thereafter from year to year until determined. Nevilles were to receive by way of remuneration £1,440 per annum and 5 per cent, of the gross receipts of the business. Nevilles were to have complete management and control of the business of which they were appointed managers and were to appoint and remunerate out of their own funds competent persons to carry out their duties under the agreement. Mr. Woodley ceased to be a director of the company and Mrs. Peskoff ceased to be a director of Nevilles. The company's business had prospered under the management of Mrs. Peskoff. In the year to March 31, 1953, the total receipts were just under £30,000 ; by the year ended March 31, 1957, they had increased to over £40,000 and remained around that fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es on to allege that the company's principal fixed assets are (a) its leasehold property in Jermyn Street, the lease of which is due to expire on March 25, 1973, (b) its furniture, fixtures and fittings and (c) the goodwill of the company's business, which could be gravely damaged by. a winding up of the company. The petition further alleges that in a winding up of the company it would not necessarily be possible to recompense the petitioners for the wrongs suffered by them at the hands of Mrs. Peskoff and Mr. Woodley since 1953. The petition prays that either (1) Mrs. Peskoff, Mr. Woodley and Michael Peskoff should sell their shares in the company to the petitioners on terms to be fixed by the court, or alternatively (2) Mrs. Peskoff, Mr. Woodley and Michael Peskoff or one or more of them, should be ordered to purchase the petitioners' shares in the company upon terms to be fixed by the court. Alternatively, the petition asks for a winding up of the company. We have set out the facts of the case in so much detail because much reliance has been placed by the respondents on the delay on the part of the petitioners and their predecessors in title in pursuing such remedies as may hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e." Later in his judgment Pennycuick J. dealt with the allotment of these shares in the following terms, at p. 1206 : "In the course of her cross-examination it became clear to my mind beyond doubt that Mrs. Peskoff and Mr. Woodley when they issued these new shares did not do so in good faith for the benefit of the company. It is quite true that in 1954 the company needed money, and Mrs. Peskoff quite properly advanced £1,000 of new money against a debenture. But the sole purpose of issuing the new shares was not to raise another trifling sum, namely, £100, but to increase Mrs. Peskoff's interest in the company as against the interest of the Littman estate. It never entered the heads of Mrs. Peskoff and Mr. Woodley that they we to concerned to advance the benefit of the company or the shareholders collectively. On the contrary, their sole motive was to benefit themselves at the expense of the remaining shareholders. That that is the true view is borne out, if any corroboration is needed, by the form the resolution took. It will be remembered that the resolution to issue 101 shares came first, in complete isolation from the resolution to raise further finance by the is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y had been negotiating at arm's length, the lender might very well have insisted upon. It is true that neither Silver, Altman & Co. nor the administrators were told anything about the proposal before the allotment was made, but Mr. Biddle was told of it within a week and he passed the information on to Mr. Bourner promptly. This does not indicate any sinister intention on Mrs. Peskoff's part. The allotment of 100 shares to Mrs. Peskoff and, so far as it is material, the allotment of one share to Mr. Woodley, which was necessary to qualify him as a director, were legitimate acts done in good faith in the interests of the company and were not oppressive in any sense. Pennycuick, J. rightly recognised that the issue of these shares in 1954 did not constitute oppressive conduct continuing in operation in the present tense at the date of the presentation of the petition. He expressed the view, however, that it represented the first of a chain of events which continued right up to the presentation of the petition, the most important of which was Mrs. Peskoff's taking excessive remuneration. We can discover no link between the issue of the shares and the voting or taking of the remunerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rried the seeds of oppression, and that oppression arose as soon as the remuneration received by Mrs. Peskoff became excessive. He disclaims any suggestion that the resolution was itself an oppressive act, but he says that Mrs. Peskoff acted oppressively by continuing to draw commission under the resolution after the year ended March 31, 1961. We are not concerned in this case to consider whether the minority shareholders could succeed either in misfeasance proceedings against the directors or in a minority shareholders' action in the name of the company. We are concerned only to consider whether the affairs of the company were, when the petition was presented, being conducted in a manner oppressive to some part of the members of the company. What does the word "oppressive" mean in this context ? In our judgment, oppression occurs when shareholders, having a dominant power in a company, either (1) exercise that power to procure that something is done or not done in the conduct of the company's affairs or (2) procure by an express or implicit threat of an exercise of that power that something is not done in the conduct of the company's affairs ; and when such conduct is unfair or, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the months of November and December, 1961. He also received from Silver, Altman & Co. in January, 1964, particulars of the directors' remuneration and management fees in each of the three years ended March 31, 1961, 1962 and 1963. There was never any attempt on the part of Mrs. Peskoff and Mr. Woodley to disguise from the administrators the , fact that they were drawing remuneration by way of commission under the resolution of October 17, 1955, subject in due course to the amendment contained in the resolution of July 15, 1959. Indeed it is right to say that throughout the whole history Mr. Rowberry acting on Mrs. Peskoff's behalf was willing to make full disclosure to the administrators of any relevant material. Never in the whole course of the intermittent discussions which have taken place over the years has it been suggested on behalf of the administrators that the resolution of October 17, 1955, was ultra vires the directors, nor have Mrs. Peskoff and Mr. Woodley ever been called upon to discontinue taking commission or to reduce the rate of their commission. Such negotiations as have taken place have always been with the view to one side buying out the other. It seems to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so, they must now have a substantial value notwithstanding that they now constitute a minority shareholding in the company. In this connection it is worth recording that in 1965 Coward, Chance & Co. on the administrators' behalf secured the agreement of the Inland Revenue to certain calculations resulting in Mr. Littman's shares in the company being treated for death duty purposes as having been worthless at his death and the debt of £2,936 as having then been worth only £751. The deletion from the company's books of the credit in favour of Mr. Littman of £2,936 on his loan account could have had no effect upon the liability, if any, of the company to his estate in this respect; nor could this deletion constitute oppression of anyone in the capacity of a member of the company. This action cannot be regarded as having been in any way oppressive. The debt, if a good one, was statute barred long before the petition was presented, and, notwithstanding that section 210 confers a very wide discretion on the court as to the form of relief to be granted under the section, we cannot agree that it was right to take this sum into account as Pennycuick J. did in granting rel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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