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THE HONGKONG WEEKLY PŘESS AND
judgments, I take
mean that they were held to be invalid because they did not conform to that section: not, it is true, in that particular which I have been con- sidering, because the Court by holding the arrangemente invalid destroyed the necessity for applying the aruitration clause. In another very important group of cases of which Cotton's case is typical there was a power to sell for shares in new company contained in the Memorandum of Association. The argu- ment which Chitty, Justice, was at a loss to understand was that this was ultru vires; because obviously people who come together to form a company can include what they will in their Memorandum of Association. A resolution had been passed to sell under this pro- vision and the winding up.resolution came some time afterwards. Chitty, Justice, remarked that the shares so bought became part of the assets of the old company which, he added, the liquidator might dispose of under section 161. Doughty's case follows that decision, Buckley, Justice, considering that the sale under in- the Memorandum of Association was dependent of the winding up. One last group of cases remain to be mentioned, though the facts need not be gone into, as the principle laid down is BO clear, Baring Gould's case, and Payne v. the Cork Company. Where there is a sale of an old company's assets for shares in the new company a dissentient share- holder cannot be deprived of his rights under section 161. This principle was also laid down in Fox's case. The scope and meaning of section 161 is now clear. There may be many osea in which a transfer of an old business is effected for shares in a new company, and whenever this happens in virtue of special resolutions the dissentient shareholders cannot be deprived of the protection which the law gives them. Further, if, as I think, reconstruction involves of itself the transfer for shares, these rights of the dissentients are preserved whenever there is a reconstruction. It will be convenient to means, consider now what reconstruction because while admitting that there was reconstruction, the company says it was car. ried out by means, first, of a sale for cash : secondly, by a grant of an option to the old shareholders to take shares in the new company. A number of authorities were cited to show that reconstruction is not a term of art, and has no special meaning: from which argument it might be sup, osed that the defendant means that anything is a reconstruction so long as the people who are in control of the business choose to call it by that name. But whatever may have been said in general terms as to reconstructio. having no definite meaning, in one case Chitty, Justice, was expressly called 8 scheme was # upon to decide whether reconstruction or not: Hooper v. Western Counties Telephone Company (41 W. R. 84). be By an agreement something was t done in the event of a reconstruction: The plaintiff claimed that what had happened was a reconstruction, and therefore he was entitled to what the agreement provided in that event. Chitty, Justice, held that what had been done was not reconstruction but an out- and-out sale: This therefore is perfectly clear, that although perhaps many things may be included in the term "reconstruction," an out- and-out sale for cash is not one of them. I shall add this without any diffidence, that the word, as well as the cognate word amalgama tion connote the continued existence of the old company until the instant of its merger into the new company, and therefore that any scheme which involves the cesser of that existence before the actual transfer of the old undertaking to the new company, is neither reconstruction nor amalgamation. And sa the old entity must merge bodily into the new entity; the shareholders of the old company must become ipso facto shareholders in the new company though obviously not necessarily holders of all the shares. It matters little that their exact holding may not have been precised, so long as the person who represents them, the liquidator, holds shares in the new company an their behalf, which he will, and is empowered by section 201 to do, subsequently divide amongst them. Then comes the proviso of the section for the protection of dissentient shareholders, which is a safeguard in the words of Chitty, Justice, against imposing
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[April 2, 1906.
This 90-
8 member of was not till I read the agreement that the trus possibly a liability upon the company which is being wound up by nature of the scheme dawned upon me, « It seeking to force upon him shares which was an out-and-out sale for cash. The were not fully paid up,” to which may be added | reason for emphasising the nature of 44 which he does not desire to have." There the Bale in this⋅ way・ arises · from the was in this case an out-and-out sale for cash argument that in every reconstruction there the option of taking shares in the new company must be a sale from the old company to the now: and it seemed to be suggested that as a¦ really amounts to nothing at all. The oll shareholder may invest his 8200 per share in sale is essential, if you start with a sale you the new company if he likes; and he may also may ultimately get to a reconstruction. My
answer is not in the case of an out-and-out. invest any other money he may wish to in the new company, which is a right he pssesses with sale for cash, but only in the case of a sale for other members of the public, if the new company shares. What puzzled me at fist puzzles me. is put upon the market, as this company was to still. Reconstruction being intended, and the be. His so-called priority amounts to nothing statute having provided the method of carrying at all except in the event of there being more sub-it out, why should that method not have been scriptions than were necessary to float the new adopted? The reason is supplied by the argu- company. But, and I now come to the crux of ment': in order that the dissentient shareholders the case, the company says it has not transferred should not have the benefit of the arbitration its business to the new company for shares, and proviso in sections 201 and 202. The quez ion therefore that the cise does not fall within the therefore comes out clearly-Is it possible that interpretation of section 201 which I have given with noticed and resolutions framed with a view to reconstruction, and reconstruction alone, the above. The technical argument that the notios referred to the meeting as having been called majority can deliberately oust the disentient under article 101 of the Articles of Asociation, shareholders of what the law gives them for and that therefore that of itself put the question their protection? This is not a technical ques
tion as to the form of the notice, but one which outside the operation of section 241, may be disposed of by this observation: article involv a ite true meaning. Reconstruction was 101 is the only article by which a meeting intended and proposed to the shareholders. for winding up for any purpose could have been Resolutions were framed with a view to carrying out reconstruction and were adopted in that called; it is impossible that that fact should
sense: there was not the shadow of a suggestion destroy the rights of dissentients, if they possess any, under section 20. Now, looking at the that there ever was any idea of winding up so point in the abstract, the question arises whe. prosperous a concern except for the purpose indicated in the circular; and it must be noted ther a company can transfer its business to a new com, any for sash, winding itselt up for that the form of the resolations adopted was that purpose, and the transaction not being taken from Palmer's prece·lents, and is one of within the express terms of the sect on, the the forms given for reconstruction under dissentient shareholders, do not get the pro-section 161. The agreement carrying out the The argument in resolutions was an out-and-out sale for cash, it tection of the section.
was incompatible with reconstruction, and the favour of such a transaction is this: the sale of the undertaking is a part of the rights of dissentients under section 201 were not respected, I am therefore of opinion that winding up, and is within the power of the liquidator even without any special sanction the resolution by which those rights were from the shareholders: more especially, I think ignored is invalid. It was said that arbitra- it was put as an a fortiori, is it within his tion had in fact been offered. power if he has such sanction: that is to say, dilled offer was contained in a letter in he can act with more safety if he has such which there was an extraordinary confusion sanction. But this is an inversion of the between the words "contend” and “contest,“ so used that one did not know whether the what " contended " " contested
or original argument that there is here in fact a winding up pure and simple, and it has no Company more weight in its inverted than in its original followed. But even taking the interpretation form. Directly the essential difference between which the defendant's Counsel put upon the letter, there was certainly no offer to & voluntary winding up and a winding up for a
argu- arbitrate under sections 201 and 202, but only special purpose is established this ment becomes B petitio principii. The in some other way which seemed preferable to judgment of James, Lord Justios, in Bird v. the liquidators: the request for arbitration Bird's Company (L. R. 9, Ch. at p. 363) is, I under the Companies Act was always refused. think, strongly against such a transaction being This letter of 27th October is not very com valid. He says, discussing the validity of the prehensible because giving the sentence a definite original agreement in that case, which was to meaning, that is to say, reading the doubtful be carriet into effect by means of the re-
word as "contest," it purports to say that solution for winding up-"Under section 161 the company has not "coutested" the plaintiff's not have sold the right to have his interest purchased in pursu. the liquidator could property, and that section is the only one
ance of section 201, which is virtually an admis sion of the plaintiff's case: for, if he has a which gives power to bind dissautient share. holders by a transfer of the Company's business. right under section 201, he also has the right a dissentient shareholder has a right to which follows in section 202. The question of something more than what he gets under this arbitration under the Articles of Association The case was quoted to show that does not arise. The case was argued, however, agreement." there cannot be a transfer to a company not independently of that letter, or rather on the basis that the word "contand" was really yet in existence. That of itself is an importan
already said meant, but that the remainder of the sentence principle, for, as I have
was wrong. As to the actual prios offered there is no guarantee that the new company
it and would have raised enough capital to start for the old shares I have very little to do, business. I cannot help thinking, however, that But some emphasis was laid on the Lord Justices were enunciating a much evidence given to show that it was a fair wider principle which would be entirely in price. It was in fact based on the last sale of But the shares. This, with all deference to the views favour of the plaintiff in this case. judgment is short and this question not fully of the majority who werb, willing to let their threshed out; and as this case can be decided shares go at that, price, seems to me an altoge- a broader ground, I do not pursue the ther arbitrary conclusion. Supposing there enquiry, but assume that the resolutions apart had been no such sale. It can only have been from the circular would be valid, always sup- fortuitous. If it had not occurred some other posing that such a scheme had been definitely basis of valuation would have had to be found. It put before the shareholders, and had been is clear to me that the time for estimating the adopted at the meeting. Bat the scheme value of the shares has not yet arrived, and I 80 put forward. It was put feel the force of the argument which Mr. never was
reconstruction, and again Pollock addressed to this point. Nobody forward
amalgamation: and everything in knows at present what the; new company, the letter of 22 May was based on that hypothesis. if it is floated, may do with its concession now it has got it. It is not an impossibility And the resolutions were intended to carry out a reconstruction or amalgamation. I intimated that things may be so satisfactorily arranged that after five days' argument the terms of the that the old shares may rise in vaine perhaps 4th resolution still seemed to me very vague, temporarily. It is true that I have nothing to and possibly to bear the meaning that a do with the price to be ultimately paid: but ard which the reconstruction was intended in the proper sufficient has been said to show me the immense sense of the word as I have explained it. It importance of the
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