Paterson v. R. Paterson & Sons, Ltd [1916] ScotLR 404 (17 February 1916)

Paterson v. R. Paterson & Sons, Ltd [1916] ScotLR 404 (17 February 1916)

Article 12 of the company's articles of association is a mandatory provision requiring all profits, after allowing for charges, to be distributed as dividends among shareholders, thereby impliedly excluding article 99 of Table A and precluding the directors from allocating profits to a reserve fund.

Citation
[1916] ScotLR 404
Parties
Pursuer: Campbell Paterson; Defender: R. Paterson & Sons, Limited; Defender: Robert Paterson; Defender: James Davidson Paterson
Jurisdiction
Scotland
Judgment Date
17 February 1916
Procedural Posture
Civil (company Law) / Appeal (reclaiming Note) From Lord Ordinary's Interlocutor
Outcome
Appeal (reclaiming note) refused; Lord Ordinary's interlocutor affirmed.
Legal Topics
Articles of Association, Powers of Directors, Dividend Distribution, Reserve Fund, Construction of Company Constitution
Company Law Articles of Association Powers of Directors Dividend Distribution Reserve Fund Construction of Company Constitution

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Parties

Campbell Paterson

Pursuer

R. Paterson & Sons, Limited

Defender

Robert Paterson

Defender

James Davidson Paterson

Defender

Procedural Posture

Civil (company Law) / Appeal (reclaiming Note) From Lord Ordinary's Interlocutor

Legal Issues

  1. 1 Whether directors of a private limited company can allocate profits to a reserve fund in light of a mandatory article directing distribution of all profits as dividends
  2. 2 Whether article 99 of Table A of the Companies (Consolidation) Act 1908 is excluded by the company's own articles

Ratio Decidendi

Article 12 of the company's articles of association is a mandatory provision requiring all profits, after allowing for charges, to be distributed as dividends among shareholders, thereby impliedly excluding article 99 of Table A and precluding the directors from allocating profits to a reserve fund.

Court Disposition

Appeal (reclaiming note) refused; Lord Ordinary's interlocutor affirmed.

Orders

  • Reduction of the directors' report and general meeting minute in so far as they proposed to transfer £3000 to reserve instead of distributing as dividends.
  • Declaration that profits after charges must be distributed as dividends per article 12.