Soden v British and Commonwealth Holdings plc [1998] AC 298 is a UK insolvency law case, decided in the House of Lords.
BCH brought an action against AC for negligent misrepresentation, which induced BCH to buy shares, and also against its advisors in the acquisition Barclays de Zoete Wedd Ltd. ("BZW") started proceedings against AC for contribution.
action") for damages for negligent advice given in relation to the acquisition of the Atlantic shares.
In these proceedings the administrators have applied to the court by originating summons for directions (a) whether the damages and costs recoverable by B.
However, the courts below and your Lordships were satisfied that it is proper to decide these points at the present time.
The status of the claims in these actions vis-à-vis the other creditors of Atlantic has an immediate and profound impact on the way in which the scheme of arrangement is now to be administered.
So far as relevant it provides: "(1) When a company is wound up, every present and past member is liable to contribute to its assets to any amount sufficient for payment of its debts and liabilities, and the expenses of the winding up, and for the adjustment of the rights of the contributories among themselves.
& C., as shareholder in its wholly owned subsidiary Atlantic, could circumvent that rule by claiming as damages sums quantified by reference to the worth of the Atlantic shares payable in respect of a misrepresentation leading to the acquisition of such shares.
In particular, he submits, a claim is maintained in the character of a member where the claimant seeks to recover from the company the price which he has paid for his shares on the basis that such shares are not worth what they were warranted or represented by the company to be worth.
The claimant who is induced to acquire his shares by subscription falls within the class of those who are not allowed to compete with general creditors: see In re Addlestone Linoleum Co. (1887) 37 Ch.D.
There is no reason, he submitted, why a claimant who is induced to acquire his shares by purchase (as opposed to allotment) should be in a different position.
There was some discussion in the judgment of the Court of Appeal whether these words disclose a genus requiring a sum "otherwise" due to be given a narrow construction under the ejusdem generis rule and as to what, if any, genus was disclosed by the words "by way of dividends, profits."
The words "by way of dividends, profits or otherwise" are illustrations of what constitute sums due to a member in his character as such.
But the reference to dividends and profits as examples of sums due in the character of a member entirely accords with the view I have reached as to the meaning of the section since they indicate rights founded on the statutory contract and not otherwise.
Mr. Potts placed great reliance on the decisions in the Addlestone and Webb cases, in both of which it was held that a sum due in respect of damages payable for breach of contract or misrepresentation made by the company on the occasion of the issue (as opposed to the purchase) of its shares were held to be excluded by the section.
317 that a shareholder could not sue for damages for misrepresentation inducing his subscription for shares unless he first rescinded the contract and that once the company had gone into liquidation such rescission was impossible.
Practically, what these applicants are seeking to recover by their proof is a dividend in respect of the £2 10s.. per share which they have been compelled to pay in the winding up.
decided that the shareholders could not prove because the issue of shares at a discount (if it had occurred) was unlawful and that in any event the claim failed under the Houldsworth principle.
But, in any event, the reasons given by Kay J. for treating the case as falling within section 38(7) are directed exclusively to matters relevant to a claim involving the issue of shares by the company but irrelevant to a claim relating to the purchase of fully paid shares from a third party.
If such a payment were not made the capital of the company would not be maintained and the general body of creditors would be thereby prejudiced.
If, in such a case, the member could recover by way of damages for breach of the contract to issue the shares at a discount the same amount as he was bound to contribute on the winding up that would indirectly produce an unauthorised reduction in the capital of the company.
Such a failure to maintain the capital of the company would be in conflict with what Lord Macnaghten (in the Ooregum case [1892] A.C. 125, 145) said was the dominant and cardinal principle of the Companies Acts, i.e. "that the investor shall purchase immunity from liability beyond a certain limit, on the terms that there shall be and remain a liability up to that limit."
To allow proof for such a claim in competition with the general body of creditors does not either directly or indirectly produce a reduction of capital.
The general body of creditors are in exactly the same position as they would have been in had the claim been wholly unrelated to shares in the company.
The High Court held that the claim was excluded by the Houldsworth principle and held that the proposition deducible from that case was that a shareholder may not directly or indirectly receive back any part of his or her contribution to the capital save with the approval of the court.
The High Court further relied on the Addlestone decision and section 360(1) but carefully delimited its application to cases of contracts to subscribe for shares.
731, 741 that the claim in that case "falls within the area which section 360(1)(k) seeks to regulate: the protection of creditors by maintaining the capital of the company."
It is therefore quite clear that both the decision and the reasoning of the High Court were dependent upon the same factors as those in the Addlestone case, i.e. the protection of creditors from indirect reductions of capital.
I express no view as to the present law of the United Kingdom where the sum due is in respect of a misrepresentation or breach of contract relating to the issue of shares.
For these reasons, which are substantially the same as those given by the trial judge and the Court of Appeal in their admirable judgments, I am clearly of the opinion that the sum if any due to B.