Mayfair properties Ltd Re (1898) 2 CH 28

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This present case deals with the winding up procedures and the rights of the debenture holder in the winding up process.

Facts of the Case

The company is a limited company having, under its articles, power to issue debentures charging its assets including its uncalled capital, passed a special resolution under s. 5 of the Companies Act, 1879, declaring that 5 l. per share remaining uncalled up upon its ordinary 10 l. shares should not be capable of being called up “except in the event of and for the purpose of the company being wound up.” In June, 1894, when 5 l. 15 s. remained uncalled up, the company issued debentures charging all its undertaking and property, “including its uncalled capital for the time being,” with the principal money and interest secured by the debentures.

After which the company was afterwards ordered to be wound up, and the issue of whether the debentures issued by the company created a valid first charge upon the 5 l. per share reserved capital so as to entitle the debenture-holders to payment thereout in priority to the other creditors and the cost of winding up for which the court of appeal observed that

The company was formed and registered as a limited company in the year, 1892, with a nominal capital of 50,000 l. , divided into 5000 shares of 10 l. each. The memorandum of association stated that one of its objects was to borrow money and issue debentures charged upon “the property and rights of the company both present and future, including its uncalled capital.” By the articles of association full power was given to the directors to issue debentures charging all the assets of the company, “including its uncalled capital.”

Before this power was exercised, namely, on October 12, 1892, a special resolution was passed by the company under s. 5 of the Companies Act, 1879, and it was thereby declared “that such portion of the company’s capital as consists of 5 l. per 1 share remaining uncalled upon all the ordinary shares of the company shall not be capable of being called up, except in the event of and for the purpose of the company being wound up in accordance with the provisions of the Companies Act, 1879.”

In June, 1894, it was resolved by the directors to create and issue debentures for 50,000 l., bearing interest at 6 l. per cent.; and in accordance with this resolution, 160 debentures for 100 l. each, bearing interest at 6 l. per cent., were created and issued under the seal of the company. By these debentures the company bound itself to pay the principal moneys and interest secured by them, and the company as beneficial owners charged with such payments “its undertaking and all its property whatsoever and wheresoever, both present and future, including its uncalled capital for the time being.”

At the time these debentures were issued 4 l. 5 s. per share had been called up, and 5 l. 15 s. per share remained uncalled up. On August 8, 1896, an action was brought against the company by a debenture-holder suing on behalf of himself and all other the debenture-holders of the company, and on August 18, 1896, he obtained judgment in the usual form, and a receiver was appointed in the action.

On the same day the company was ordered to be wound up, and a liquidator was appointed. Meanwhile, out of the 5 l. 15 s. per share above referred to as uncalled up when the debentures were issued, 15 s. per share had been called up by the directors; so that, at the date of the winding-up, the 5 l. per share, which constituted the capital reserved by the resolution, alone remained uncalled up.

This 5 l. per share the liquidator had since called upon the contributories to pay, and as the assets of the company, including it, were insufficient to pay the costs of the winding-up and the creditors of the company, the issue arose whether or not the debentures created a valid first charge upon the 5 l. per share reserved capital, so as to entitle the holders of them to payment out of that fund in priority to the other creditors and the costs of the winding-up.

Hence the present case.

Issues raised

The issue that came up for consideration before the court of Appeal is that;

whether the debentures issued by the company created a valid first charge upon the 5 l. per share reserved capital so as to entitle the debenture-holders to payment thereout in priority to the other creditors and the cost of winding up and what is the proper construction of s. 5 of the Companies Act, 1879

Decision of the Court

The Hon’ble Court of Appeal, that, upon the true construction of s. 5 of the Act of 1879, the company had no power to create any charge on that portion of its capital which, in accordance with the resolution passed under that section, could only be called up “in the event of and for the purposes of the company being wound up.”. Therefore the Debenture holders did not have any right accruing against the company therefore the appeal was dismissed.


The company passed a special resolution under that section was passed by the defendant company in 1892. Debentures in the customary structure, however explicitly stretching out to uncalled capital, were given in 1894; and now the inquiry emerges, the organization being in liquidation, regardless of whether the privileges of the debenture holders reach out to the capital referenced in the special resolution passed under the forces of the Act.

Analysing the language of the section It is clear that the resolution that the section implies what it prima facie says, in particular, that after such a resolution has been passed there is a legal block with respect to the organization to call up additional capital for any other reason than for the reason behind the organization being wound up. Further, it becomes important to analyse that very object of the Act is to preserve intact for the general creditors or with the end goal of a liquidation the measure of that uncalled capital.

Moreover, what was the effect of articles of association which did not manage winding-up process at all, however given that the organization ought not call up in excess of 5 l. per share, except if it dictated by special resolution that the settled-up capital was inadequate to meet its liabilities. It is very clear that that doesn’t really include a winding up. What becomes more important to consider and was rightly pointed out by the judge was that the articles of association on which the matter depended were part of a friendly arrangement between the shareholders, and the case is not like this, where there is a legal sanctioning totally crippling the organization from managing the assets with the exception of a specific reason.

In order properly to interpret any statute it is as necessary to understand Heydon’s Case to consider how the law stood when the statute to be construed was passed, what the mischief was for which the old law did not provide, and the remedy provided by the statute to cure that mischief. It is is a landmark English case that initially utilized the mischief rule for interpretation of statutes. As indicated by this standard, while deciphering rules, first the issue or wickedness that the rule was intended to cure ought to be recognized and afterward a development that smothers the issue and advances the cure ought to be adopted.

Notwithstanding, this standard of development is of smaller application than the golden rule or the plain meaning rule, as it must be utilized to decipher a rule and, stringently talking, just when the legislation was passed to cure an imperfection in the customary law.Mischief Rule was begun for Heydon’s situation in 1584. It is the standard of purposive development in light of the fact that the motivation behind this legislation or law is generally significant while applying this standard. It is known as Heydon’s standard since it was given by Lord Poke for Heydon’s case in 1584. It is called as Mischief rule in light of the fact that the emphasis is on restoring the Mischief.

In the Heydon’s case, it was held that there are four things which must be followed for valid and sure understanding of the interpretation of all the statutes by and large, which are as per the following-

1.         What was the law before the creation of a legislation.

2.         What was the mischief for which the current law was sanctioned.

3.         What cure did the Parliament looked for or had settled and named to fix the illness of the law.

4.         The genuine explanation of the remedy.

In the current case, the Companies Act, 1879, was passed to cure a few deformities in the law identifying with unlimited companies, which deserts, albeit since a long time ago known to legal counsellors. To begin with, directors of unlimited companies were obligated to call on their share to their nominal sums. This was the solitary risk which could be implemented by the organization or by its directors while the organization was carrying on business. This obligation, yet no risk past, was a resource of the organization with which the organization could bargain. Yet, also, notwithstanding this restricted responsibility, the individuals were under a unlimited liability to the directors of the organization; and this unlimited risk could be authorized by lenders, in spite of the fact that it was anything but a resource of the organization which the organization or its directors could charge, outsider, or discard in any capacity whatever to the bias of any bank. What was needed was ability to frame an organization with a save capital which ought to be restricted in sum, which ought to be accessible for creditors in case of a winding up, and which ought not be heavily influenced by the directors anything else than the assets were which the lenders could acquire, however the directors couldn’t under the old law. This correction in the law was made by the Act of 1879.

The judge deciphered the language and object of s. 5 which was framed with a double object;

  • to preserve for the general creditors of the company the funds which the members were liable to pay, but which the directors could not call up;
  • to enable the members to limit the amount of their liability on a winding-up to pay the creditors more than the amount preserved for them.

To impact such a change of the law appropriate to unlimited companies which profit themselves of the Act of 1879, some arrangement is needed to present on organizations carrying on business ability to manage what the individuals are simply obligated to pay when the winding up happens. Such a force would be a finished oddity, and can’t be construed from the shortfall of any words disallowing it. It was clearly alluring to empower organizations initially shaped and enrolled as restricted organizations to have reserve capitals, and not to bind that benefit to unlimited companies enlisting themselves as limited companies.

The two classes of organizations are put on a similar balance undoubtedly. The disallowance against calling up the reserve capital on account of limited companies is embedded for accurately a similar reason as on account of limited companies, specifically, to protect such capital for the overall motivations behind the organization when winding up. To decipher the part to empower an organization to overcome this object by promising or in any case discarding its reserve capital is, completely to miss the genuine importance of the Legislature as communicated in the language it has utilized. Neither the Act of 1879 nor different Companies Acts give an organization ability to discard resources which can’t appear until it is wound up.To give up the reserve capital or any part of it when called up to an prior assignee, or to a mortgagee who has no case against the resources until he has acknowledged or surrendered his security, isn’t to apply the reserve capital for the motivations behind the organization being ended up inside the genuine significance of that articulation as utilized in s. 5, yet to forestall such application.


Therefore, in the present case the, considering the true meaning and object of section 5 of the act, the debenture holders shall be not entitled for a claim against the company. Therefore, thee appeal was dismissed.

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