Charles Mac Naughten Sir Francis Beaufort Palmer.

Company precedents for use in relation to companies: subject to ..., Volume 2 online

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doubt thus worded in order to include all cases not before mentioned ;
but of course it cannot mean that it should be interpreted otherwise
than in reference to matters ejusdem generis as those in the previous
clauses. There must be something in the management and conduct
of the company which shows the Court that it should be no longer
allowed to continue, and that the company ought to be wound up.'*
The same construction was put on sect. 79, sub-s. (5) of the Act of 1862.
See Anglo-Greek Steam Co., 2 Eq. 1. But it was held that misconduct
of directors was not a ground for winding-up. See also European Life
Assurance Society, 9 Eq. 122; Suburban Hotel Co,, 2 Ch. 737; Lang-
ham Skating Bink Co., 5 C. D. 669 ; Wear Engine Works Co., 10
Ch. 188.



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WINDING-UP PETITIONS. 63

The application of the efusdem generis construction was unfortunate,
for it unduly fettered the action of the Courts, and in effect restricted
the wide discretion with which the Legislature apparently intended
to invest them. There are, however, indications that the Court is
disposed to revert to the plain wording of the enactment, or at any
rate to apply the ejusdem generis construction in a very wide and
elastic manner. See Australian Joint Stock Bank, W. N. (1897) 48 ;
Sailing Ship Kentmere Co.^ W. N. (1897) ^8 ; Amalgamated Syndicate^
(1897) 2 Ch. 600.

The following are some of the cases which have been deemed
efuedem generis, and therefore within paragraph (5) of sect. 79 : —

(a) Insolveney. — European Life Assurance Society, 9 Eq. 122; InaolYeiicy.

London and Manchester Industrial Association, 1 C. D. 466 ;
British Alliance Corporation, 9 C. D. 635. And see Wick^s
Patent Syndicate, U 8. J. 743 ; Lyric Cluh, 36 S. J. 801.

In the first of these cases James, Y.-C., said : '^ The Court is
bound to exercise that jurisdiction of winding-up, if it is of
opinion, upon hearing the whole case, that it is just and
equitable— not that it is prudent, but that it is just and
equitable — ^that the company should be wound up. And in
my view of the law of the case it would be just and equitable
to wind up a company like this assurance company if it were
made out to my satisfaction that it is, not in any technical
sense, but plainly and commercially, insolvent — ^that is to say,
that its assets are such and its existing liabilities are such as to
make it reasonably certain — as to make the Court feel satisfied —
that the existing and probable assets would be insufficient to
meet the existing liabilities."

(b) Substratum gone. — ^It was Lord Cairns who first suggested, in Substratum
Suburban Hotel Co. (1867), 2 Ch. 737, that if the substratum of fi^^»®-

a company were gone, that might render it just and equitable to ^[1^^ co,
make a compulsory winding-up order. In that case the objects
of the company were very general: — '*To buy lands within
twenty miles of the General Post Office, to erect and work
hotels, &c." The company had bought land at Hampstead
and erected an hotel ; it did not pay, but the majority of the
shareholders wished to go on, and Lord Cairns held that the
Court could not interfere, for that the contract of the sub-
scribers was that the capital should be applied to the specified
objects until the requisite majority determined to discontinue
the business or one of the tests of insolvency occurred ; that it
was possible that the hotel might be made profitable, or that
it might be sold and another acquired, and that whilst capital
remained it was, looking to the objects specified, '^impossible



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54



Principle.



Extension of
principle.



WINDING-UP BY THE COUBT. [ChAP. III.

to say that the capital may not be made productive of profit
just in the way in which it was expected to be made when
the company was formed. A case might occiir," proceeded the
learned judge, ** where the Court would be willing to give
under the Act to a minority of shareholders the species of relief
that sometimes is given in cases of ordinary partnerships when
it becomes impossible (I use the term * impossible ' in the strict
sense of the term) to carry on the business any longer. [_Baring
V. DiXf 1 Cox, 213; Bailey v. Fordj 13 Sim. 495; Jennings v.
Baddelet/, 3 K. & J. 78.] It is not necessary to decide it ; but
if it were shown to the Court that the whole substratum 6f the
partnership, the whole of the business which the company was
incorporated to carry on, had become impossible, I apprehend
that the Court might either under the Act of Parliament or on
general principles order the company to be wound up."

However, in Langham Skating Rink Co., 5 C. D. 669 (1871),
when an attempt was made to obtain an order on the ground
that the substratum was gone, the Court refused to make an
order, holding that the objects were not confined to the rink,
that the prospectus could not be treated as controlling the
memorandum, that it was possible to carry out some of the
objects, and that it was for the shareholders — or domestic
tribunal established by the Legislature— to determine whether
there should or should not be a winding-up.

Nevertheless, a few years later came the decision in Haven
Gold Mining Co. (1881), 20 C. D. 151. The words of the
memorandum in that case were very wide : — " To purchase, or
otherwise acquire, mines and mineral properties, lands and
hereditaments, in New Zealand, or elsewhere, and more p6ui;i-
cularly to carry out an agreement dated, &c.,'' for the acqui-
sition of a particular mine. The prospectus stated that the
company was formed to acquire and develop a particular mine.
The mine could not be found, and it was held by the Court of
Appeal that the substratum was gone, and that a winding-up
order should be made against the will of the majority. Jessel,
M. E., in the course of his judgment said : — ** No doubt — and
I have not forgotten it — there are general words in the memo-
randum and articles of association extending the right to work
mineral property generally, but the object of the company, or
the special object in the memorandum of association, is to work
this gold mine. . . . Then is not this the case pointed out by
Lord Cairns in Be Suburban Hotel, where it is impossible to
carry on the business for which the company was formed ? It
seems to me it is exactly the case."

It is, however, dear enough, that the facts of the c4se did



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WINDING-UP PETITIONS. 55

not come up to the level laid down by Lord Oaims, for the
objects unquestionably covered much more than the acquisition
of the particular mine : it would have been within the power
of the company to acquire another mine in New Zealand.
Therefore its objects had not all become impossible.

Hence the decision carried the matter one step further, and
established the principle that, however general the words in
the memorandum — however wide the powers — the Court is
entitled to look at the circumstances and the prospectus, and
ascertain what the particular or paramount object is, and that,
if that fails, it may treat the substratum as gone, and make a
winding-up order.

This case was shortly afterwards followed by the decision in Oertnan Date
German Date Coffee Co., 20 0. D. 169. In that case, the ^^^^^^ ^'''
primary object was to acquire and work certain specified inven-
tions, '* for which a patent has been granted by the Empire of
Germany to H." There were other objects, including the
acquisition of inventions for cognate purposes. The primary
object had failed, for a German patent was refused. It was
held that, on the true construction of the memorandum, the
company was formed ** simply to buy the patent, and to work
it either with or without improvements," and that all the other
objects were merely ancillary provisions, and therefore that the
substratum was gone.

The next case was Red Rock Mining Co, (1889), 61 L. T. 785, BedRoek
in which case the objects of the company were — (1) To acquire KayTS.,^
a particular mine in New South Wales; (2) generally to recognizes the
acquire any mines, mining rights, milling, and other works, ^ ^^^°*
in the colony or elsewhere, and to explore and work. The
primary object had failed, and Kay, J., made a winding-up
order on that ground, saying : '' The principle of this Court is,
that when an association is formed for a particular purpose it
does not matter that it has large powers in addition to that
particular purpose; if that particular purpose fails, any share-
holder has a right to say, * put an end to it ; bring me my
money.' " This case, therefore, followed the rule laid down
in Haven Oold Mining Co,^ supra. In Crown Bank (1890),
44 C. D. 634, North, J., treated the company's name as im-
pliedly restricting its objects. In Coolgardie Consolidated Gold Court of
Mines (1897), 76 L. T. 269, the company was formed— (a) To i^^^t ^'act
carry out an agreement for the acquisition of a particular pro- on extension
perty in Western Australia ; (b) to apply for and acquire and ?* principle* ^
hold any mines, mining rights, and to search for, prospect, and lar construo-
explore any property or ground supposed to contain minerals in ^^°\he^^e
West Australia or elsewhere; (c) to work the mines, &c. in within the

principle.



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56



WINDING-UP BY THE OOUBT. [ChAP. III.



Objection to
forcing con-
Btniction of
objects to
bring case
within the
principle.



the agreement mentioned, and any other mineB purchased or
acquired by the company, &c. The mine at Ooolgardie had
been found worthless. It was proposed to acquire a mine in
Victoria. The Court of Appeal made a winding-up order, hold-
ing that the substratum was gone. Lindley, L. J., considered
that the words *' in West Australia or elsewhere" meant in
West Australia, for that to construe the words literally would
be extravagant, and therefore that the company had no power
to acquire the mine in Victoria.* He admitted that the com-
pany could acquire other mines in West Australia. ** What
do they propose to do : not to work some other mine in West
Australia; there is no evidence that anybody wishes to keep

the company going for any purpose of that kind It is a

question for the shareholders. If the majority of the share-
holders had expressed a wish to go on working the old mine,
or some other mine in West Australia, there would be a ques-
tion for us to consider, but nothing of the sort. They say that
they wish to start working the gold reef in Victoria."

See also Thomas Edward Brinsmead and Sons, (1897) 1 Ch.
406; Amaiffamated SyndicatCy {IS97) 2 Gh. 600; eaid. Macdonald
Gold Mines, 14 T. L. B. 204.

Some of the later of the above-mentioned decisions indicate a
disinclination on the part of the Court to recognize the principle
established in Haven Gold Mining Co,, and Red Rock Co,, supra,
and an anxiety, if possible, to bring every case within what
Lord Cairns said, by showing that all the specified objects have
failed, and in the result, the Court was constrained to put a
somewhat forced construction on the memorandum, and to treat
as merely ancillary objects which could not be so regarded
according to the ordinary rules of construction. And in a
recent case this construction was by some strange confusion
extended even to a case where the last paragraph of the objects
dause in the memorandum expressly provided '* that the objects
specified in each paragraph of this clause shall, except when
otherwise expressed in such paragraph, be in nowise limited
or restricted by reference to or inference from the terms of any
other paragraph or the name of the company." Stephens v.
Mysore Reefs Kangundy Mining Co,, (1902) 1 Ch. 745.

It may be just and equitable to wind up a company when
the main purpose for which it was formed, quite apart from
its specified objects, has failed, and Haven Gold Mining Co,,



♦ So also Rigby, L. J., said that ** or elsewhere " did not mean anywhere in the
world. Compare this with the decision of the House of LordB in the Trial of Earl
Russell, (1901) A. 0. 446, that ** England or Ireland or elsewhere " in 24 & 25 Vict.
c. 100. s. 67, plainly included the whole world.



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WINDING-UP PETITIONS. 57

and Bed Rock Co,, show that there Ib jurisdiction to do that;
but it does not seem expedient to make an order on the ground
that all the specified objects have failed, and to justify such an
order by misconstruing the objects.

For cases in which the Court has recently refused to make an
order against the wishes of the majority, on the ground that it
was not shown that the whole of the objects had failed, see
Langham Skating Rink Co,, 5 C. D. 669; Nylstroom Co,, 60
L. T. 478; Electric Arms Co., 35 S. J. 816; Macdonald Gold
Mines (1898), 14 T. L. E. 204 (C. A.) ; Kronand Metal Co.,
W. N. (1899) 15; but the case last cited would probably not
now be followed.

(c) That the company is a bubble : London and County Coal '* Bubble "

Co., 3 Eq. 355 ; but there is no good definition of a bubble ^^l^^^J-
company.

(d) That the company cannot carry on business, and that assets Fraud.
may be recovered from fraudulent promoters. Diamond Fuel

Co., 13 C. Div. 400. Or even that supposed fraud in promotion
demands investigation. General Phosphate Corporation, W. N.
(1893) 142. But mere misconduct of directors is not enough.
Anglo- Greek Steam Co., 2 Eq. 1. And fraud on outsiders in
carrying on the business will not, in general, suffice. Medical
Battery Co., (1894) 1 Ch. 444. After the decision of the House
of Lords in Ex parte Barnes, (1896) A. C. 146, the Court did
not rely much on the ground that an investigation as to fraud
in promotion is required. But the Court has recently shown an
inclination to get rid of fraudulent companies, and to at least
follow the rule that where it is once shown that the substratum
has gone, the facts that the company has been established for
fraudulent purposes, even as regards outsiders, and that winding-
up is the best means to make promoters disgorge, are cogent
reasons for making a compulsory order. Thomas Edward
Brinsmeadand Sons, (1897) 1 Ch. 45; on app., (1897) 1 Ch.
406 ; New Civil Service Co-operative Association of South Africa,
1903, reversing Buckley, J., but now under appeal to the
House of Lords.

Generally speaking, the fact that a company is proceeding to j/^f^^^ ^^^^^
do something which is ultra vires is no ground for a winding-up
order ; but if the substratum is gone, the Court will have regard
to the proposed ultra vires acts. Crown Bank, 44 C. D. 634 ;
Amalgamated Syndicate, (1897) 2 Ch. 600, 606.

Where the Court is of opinion that it is ** just and equit-
able," it is no defence that the company has not been in
existence for a year. German Date Coffee Co., supra ; Thomas
Edward Brinsmead and Sons, supra.



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68



Prevention of
insolvenoj.

Deadlock.



WINDING-UP BY THE COURT. [ChAP. III.

(e) Where insolyency must inevitably ensue unless an order is
made: Australian Joint Stock Bank, W. N. (1897) 48.

(f; When there is a complete deadlock in the management of a
company's affairs: Sailing Ship Kentmere Co,, W. N. (1897) 58.

(jg) By the working capital being insufficient: FromnCa Extract
Co,, Times, Feb. 2, 1901 ; New Civil Service, Sfc, Co,, supra.



(6) Creditor Prejudt^d by Voluntary Winding-up,

Sect. 145 of 1863. — ^The yoluntary winding-up of a oompanj shall not be a bar
to the right of anj creditor of sach company to have the same wound up bj the
Court, if the Court is of opinion that the rights of such creditor wiU be prejudiced
by a voluntary winding-up.



Prejudice to
be shown.



The section only applies to creditors. A voluntary winding-up was
long ago held to be primd facie a bar to a contributory obtaining a
winding-up order {Bank of Gibraltar and Malta, I Oh. 69 ; Gold Co.,
11 Ch. D. 701), although not an absolute legal bar {Fire Annihilator
Co., 32 Beav. 561 ; Haycraft Gold, Sfc. Co., (1900) 2 Ch. 230) ; for,
even before the Companies Act, 1900, in a voluntary winding-up con-
tributories could apply to the Court to decide questions, &c. under
sect. 138 of 1862.

By sect. 25 of 1900, however, " in a voluntary winding-up an appli-
cation under sect. 138 of the Companies Act, 1862, may be made by
any creditor of the company." Creditors are, by the fact that they
can apply under sect. 138, less likely to be prejudiced by the existence
of a voluntary winding-up; but the effect of sect. 25 of 1900 on the
right of a creditor to a compulsory order has not yet been judicially
considered.

The individual creditor who, there being a voluntary winding-up in
progress, asks for a compulsory winding-up order by virtue of sect. 145,
and is imsupported by other creditors, must show that his rights as
mentioned in the section ** will be prejudiced by a voluntary winding-
up." New York Exchange, 39 C. D. 415. And he has to discharge
this onus whether the resolution for winding-up was passed before or
after the filing of his petition. S. C. For example, he should show
that the liquidator appointed is an unfit person, or that he has been
guilty of misconduct in the winding-up, e.g., is not properly realising
the assets and distributing them, is improperly preferring some
creditors to others, is not defending and protecting the company's
interests, improperly refuses information, is shielding persons whom he
ought to proceed against, is speculating with the assets, is carrying on
the business for an unnecessary length of time instead of selling it, is
feathering his own nest at the expense of the company, is protecting
or letting off the shareholders at the expense of the creditors, or is



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WINDING-UP PETITIONS. 59

makmg improper compromises. See Tramway Wheels Sfc. Co.^ W. N.
(1873) 160; Medical Battery Co., (1894) 1 Ch. 444; New York
Exchange Co,, 39 0. D. 415.

But it has been held that the voluntary T^inding-up is no bar to a
compulsory order, even where the petitioning creditor fails to prove
that he is ** prejudiced," if the general body of creditors desire a com-
pulsory order, for in that case the right of the general body to have
their wishes considered under sects. 91, 149 of the Act of 1862, prevails
over the company's rights under sect. 145. Per Farwell, J., in
E. Bishop Sf Sons, Ltd., (1900) 2 Ch. 254. This case has been
approved and followed by Byrne, J.

When a creditor brings himself within sect. 145 he is, it is appre-
hended, primd facie entitled to a winding-up order, but the Court is
not bound to make the order; e,g,y it may at the request of the
company or of the bulk of the creditors make a supervision order.
West Hartlepool Co,, 10 Ch. 618. (Although a supervision order,
since the Act of 1900, gives a creditor little more benefit than that
which he now has under a voluntary winding-up.) And when the
winding-up has been in existence for some time it inclines to this
course, for a compulsory order alters the commencement of the
winding-up, and in the result may detrimentally affect the assets. In
making a supervision order the Court can appoint an additional
liquidator or liquidators. Sect. 150.

(7) Official Receiver's Petition,

Section 14 of 1890. — ^Where a company is being wound up voluntarily or subject OflScial
to the Buperviaion of the Court, the official receiver attached to the Court having ^^^ceiyor
jnziadiction to wind up the company may present a petition that the company be P®""°^^^*
wound up by the Court, and thereupon, if the Court is satisfied that the voluntary
winding-up or winding-up subject to supervision cannot be continued with due
regard to the interests of the creditors or oontributories, it may make an order that
tiie company be wound up by the Court.

Only two compulsory winding-up orders have been made, at any
rate in the High Court, under this section, viz., in 1897 Jubilee Sites
Syndicate, (1899) 2 Ch. 204, and in Industrial Contract Corporation,
28 Nov. 1899. In the former case Wright, J., said that a reasonably
wide construction ought to be given to sect. 14, which included every
case where the powers of the voluntary liquidator were shown to be
insufficient for the purposes of winding-up in so far as the interests of
creditors or contributories were concerned. But in what seemed to be
a very similar case the Official Beceiver refused to file a petition. In
the case of the Industrial Contract Corporation the order was made by
consent under special circumstances.

The one thing needed in the case just cited was a public examination



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60 WINDING-UP BY THE COCmT. [ChAP. III.

of the directors and promoters, and upon the winding-up order being
made they were then and there summoned under sect. 115 of the
Act of 1862, and the examination was by consent at once proceeded
with in Court.



(8) and (9) Default in Filing Report at or Holding
Statutory Meeting,

Section 12 of the Companies Act, 1900, like most other sections of
that legislative monstrosity, is curiously framed. The "statutory
meeting " required by it is only necessary in the case of companies
"limited by shares and registered after the commencement of the
Act" — viz., Jan. 1, 1901 — but apparently it is not confined to com-
panies which invite the public to subscribe for their shares, but applies
also to " private companies," which are limited by shares.

Section 1 2 gives two new grounds for the presentation of a winding-
up petition. The discretion given to the Court, as to what order shall
be made on the petition, is wide, but there would not be much in
ordering the report to be filed unless its distribution amongst the
shareholders and the holding of a meeting to discuss it were also at
the same time ordered.

The order as to the report, and probably as to the meeting also,
would have to be against the directors, who would in all likelihood be
ordered to pay the costs, even if no winding-up order were made.

(B) Unregistered Companies.

Unregistered 8eot. 199 of 1862. — Subject ae hereinafter mentioned, any partnership, association
companies. or company, except railway companies incorporated by Act of Parliament, consisting
of more than seTcn members, and not reg^tered under this Act, and hereinafter
included under the term *' unregistered company,*' may be wound up under this Act,
and all the provisions of this Act with respect to winding-up shall apply to such
company, with the following exceptions and additions : —

(1.) An unregistered company shaU, for the purpose of determining the Court
having jurisdiction in the matter of the winding-up, be deemed to be
reg^tered in that part of the United Kingdom where its principal place of
butdness is situate ; or if it has a principal place of business situate in
more than one part of the United Kingdom, then in each part of the
United Kingdom where it has a principal place of business; moreover,
the principal place of business of an unregistered company, or (where it
has a principal place of business situato in more than one port of the
United Kingdom) such one of its principal places of business as is situate
in that part of the United Kingdom in which proceedings are being
instituted, shall for all the purposes of the winding-up of such company
be deemed to be the reg^istered office of the company : [By sect. 32 (3) of
the Ck)mpanies (Winding-up) Act, 1890, <<For the purposes of this Act
the expression * registered office of a company* shall mean the place which



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WINDING-UP PETITIONS. 61

has been the registered oflSce of the oompany for the greater part of the
pix months immediately preceding the presentation of the petition for
winding-np the oompanv, and shall indode, in the case of an unregistered
company, any place which, in pursnance of section one hundred and
ninety-nine of the Companies Act, 1862, is to be deemed the registered
office of the company for the purpose of the winding-up thereof.**]
(3.) The circumstanced under which an unregistered company may be wound up
are as follow : (that is to say),

(a) Whenever the company is dissolved, or has ceased to carry on business,

or is carrying on business only for the purpose of winding-up its
affairs;

(b) Whenever the company is unable to pay its debts ;

(e) Whenever the Court is of opinion that it is just and equitable that the
company should be wound up :
(4.) An unregistered company shall, for the purposes of this Act, be deemed to be
unable to pay its debts,

(a) Whenever a creditor to whom the company is indebted at law or in



Online LibraryCharles Mac Naughten Sir Francis Beaufort PalmerCompany precedents for use in relation to companies: subject to ..., Volume 2 → online text (page 15 of 152)