Topic Category: Company - Essentials
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Reading and comparing the judgments in the two related cases -Broderip v Salomon 2 Ch 323 ( Chancery Division and Court of Appeal) and Salomon v A Salomon& Co Ltd  AC 22 (House of Lords), is vital to a full understanding of one of the most significant "inventions" of all time- the company. These cases concern a fight between a now impoverished businessman ( and former director of A Salomon & Co Ltd) and the Liquidator of that company seeking to protect the company's unsecured trade creditors who had supplied goods or services to the company but who had not been paid by it at the time of its insolvency ( liquidation). Earlier, Mr Salomon had in effect lent the company £10,000 ( which was acknowledged by a debenture issued to him by the company i.e. a security device that would give his debt priority of repayment over other debts of the company). When the company got into financial difficulties Mr Salomon assigned the debenture to Mr Broderip as security for a loan from that man to the company of £5000. The company, despite the additional funds ,could not survive in business and went into liquidation. There were enough company assets to sell to pay off Mr Broderip's claim (£5000) upon which, he reassigned the debenture to Mr Salomon .So the original £10,000 loan was still owing under the debenture to Mr Salomon as , of course, were the debts owed by the company to the trade creditors. The Liquidator's sale of the remaining company assets produced enough money to pay some of what was owed to pay Mr Salomon but would leave nothing for the trade creditors or, if Mr Salomon's claim had no legal substance to it , then the trade creditors could be paid leaving nothing ( or virtually nothing) for Mr Salomon. Who should be entitled to that money or a share of it? That was the issue. Different, conflicting views were expressed in the trial court, Court of Appeal and House of Lords. These views , the conclusion or finding of each court and the reasoning given need to be read if anyone is to fully understand what the final appeal decided and the momentous significance of that decision for the economic prosperity of Britain but also for every nation of the world. The significance may be obvious, but the implications are not often so clear and continue to raise further issues today. Read the two cases carefully.
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