TMI Blog1947 (6) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... thin that class of cases in which it is just and equitable that the company should be wound up, within the meaning of the same section, and having regard to the series of cases commonly known as the substratum cases. The facts, so far as material, may be thus summarised : The company was incorporated in the year 1872. It had an original capital of 3,800.000 divided into 380,000 ordinary shares of 10 each. It had the power, which it exercised in the year 1875, to create preference shares, and it seems that by a special resolution duly passed and confirmed in that year it created 70,000 preference shares of 10 each, carrying interest at the rate of 6 per cent. per annum. It is claimed by the petitioners, and for the purposes of this case I am prepared to assume, although I do not think that it is necessary for me to decide the point, that the rights attached to those shares and also to the existing preference stock which replaced those shares, were and are such that while the dividend is a fixed cumulative dividend, the capital rights instead of comprising the usual right of preferential return of capital and nothing more, entitle the preference shares or stock to rank pari pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f participation in assets, might, should the break of value of the assets be anything substantially over the nominal amount of the issued capital, be much more valuable, as one might say, dead than alive, or in other words, much more valuable in a winding-up than it would be if the company continued to exist. Therefore one can appreciate that it might well be greatly to the advantage of the holders of the preference stock to procure an immediate winding-up of the company and division of its assets. Next it is necessary to refer to the object clause in the memorandum of association of the company. As I have said, the company was formed in the year 1872. At that time it was not customary to draft object clauses in the ample, not to say diffuse, form which has since because the rule. The objects were therefore relatively concisely expressed, and so concisely indeed that it is practicable for me to read them in extenso, and in view of what follows I think that it is necessary for me to do so : " The objects for which the company is established are: The acquiring of the undertakings, telegraph lines, property, privileges, effects, obligations, and liabilities of the following four com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... part clearly provides that the company may amalgamate with any other telegraph company or companies and subscribe for and acquire the shares of any telegraph company or companies. It appears that in the year 1928, or thereabouts there was an Imperial Conference on the subject of telecommunication, and as a result of that conference a scheme or agreement for merger between the company and other companies was evolved. That schemes formulated was dated May 14, 1929, and it provided for the acquisition by a new company, which had been formed in the previous April under the name of Cable and Wireless, Ltd., of substantially the whole of the ordinary share capital of the company, the Eastern Extension Australasia and China Telegraph Co., the Western Telegraph Co., and also the preference and ordinary shares of Marconi's Wireless Telegraph Co. It will be noted that the preference stock of the company was not brought into this arrangement. The plan seems to have been duly implemented, with the result that the company then known as Cable and Wireless, Ltd., became the holder of sub-stantially all the ordinary stock of the company and also of substantially all the share capital of the othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the company in associated concerns, and certain other matters, such as cash, book debts, and cheques. Then there is the usual provision about realising book debts, and soon, in clause 5. Clause 6 provides : "The consideration for the said sale shall be the sum of 10,626,601 in satisfaction of which the communications company shall allot and issue to the cable company 10,626,601 ordinary shares of 1 each in the capital of the communications company all credited as fully paid, to be numbered from 8 to 10,626,608 (both inclusive) and to commence to rank for dividend as on April 8, 1929." The next clause to which I need refer is clause 8, to which some importance is attached in connection with the present petition. That clause provides as follows : "( i ) This agreement shall not of itself operate as a transfer of the business carried on by the cable company in the Republic of Portugal (which expression where used in these presents shall be deemed to include the Azores, Madeira and St. Vincent and any other islands or territories owned by the said Republic) or of any of the concessions from or agreements with the Government of that Republic or of any cables, land lines, of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... though f do not think that express provision was necessary, that as regards the assets referred to in sub-clause ( i ) of clause 8 the cable company while it held those assets would be in the position of a fully-paid vendor of property who, for conveyancing reasons, would retain the legal estate in his own hand ; in other words, its position according to the law of this country would be, in effect, that of a trustee. Clause 18 provides: "On completion of the sale and purchase ( a ) the cable company shall covenant with the communications company that it will not at any time thereafter directly or indirectly carry on or (except as a member of the communications company) be concerned or interested in any business of any kind which the communications company is by its present memorandum of association empowered to carry on except (1) (so long as the cable company holds the same) to the extent of the cable company's present investments in present or future telegraph or wireless telegraph companies as the communications company may with the consent of the latter company's advisory committee sanction in writing ; and except (2) as in this agreement otherwise provided." Then there is a pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as to whether the company was going to be effectively saved from this by the purchasing company. In that case it might have been proper to make in the accounts some provision for the possible risk of loss. The merger transaction and sale to Imperial and International Communications, Ltd., which formed part of the scheme which I have now briefly described, is obviously a transaction which was widely canvassed and carefully considered, and it was one of great public importance and public interest. It was carried out in the way that I have described, so far as I am aware, without objection on anybody's part, and the company remained in existence and carried on as a holding company for upwards of seventeen years thereafter. The upshot of all the transaction seems to have been that the company which was originally known as Cable and Wireless, Ltd. but which I should have mentioned changed its name in 1932 to Cable and Wireless (Holding), Ltd., became the holder of substantially the whole of the share capital excepting always the preference stock of the company of the company, the Eastern Extension Co., the Western Co. and, through Eastern and Western respectively, of one subsidiary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nterest on the amount of a company's compensation." The First Schedule sets out the names of the various companies in the group, including the company whose holding ultimately seems to have become, in round figures 10 million shares in Cable and Wireless, Ltd., so that it was the largest single holding in the group. The Second Schedule contains provisions as to the right to be conferred by the stock, the method of transfer, and so forth, the details of which are not, I think, material for the present purpose. Then section 2 contains a provision as to the ascertainment of the amount of compensation, in these terms: "(1) The amount of a company's compensation under the foregoing section shall be such as may be agreed between the company and the Treasury or, in default of agreement, as may be determined, in accordance with the following provisions of this section, by a Tribunal consisting of three members", and then the constitution of the tribunal is set out. In sub-section (2) the tribunal is given certain directions: "The Tribunal shall ascertain the amount which the operating company's undertaking might be expected to realise if sold in the open market on the appointed day as a g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indemnity to the operating company in respect of any reduction in the charges. Then section 6 says this : " It shall be the duty of the operating company ( a ) to afford, without payment, to any company mentioned in the First Schedule to this Act, such facilities as that company may reasonably require in prosecuting its claim to compensation under this Act for the examination of, and the taking of copies of or extracts from, documents relating to the operating company's undertaking; and ( b ) so far as may be reasonably necessary in order to enable to any such company effectually to avail itself of the right conferred by the preceding paragraph and to prosecute its claim, to enter into arrangements for its having, for such period as may be reasonably necessary for that purpose, the services of any person in the employment of the operating company." Then there is a provision that "the appointed day" shall mean such day as the Treasury might by order appoint. I do not think that there is anything else to which I need refer. It is quite plain that the effect of that Act was to sever compulsorily for good and all the connection of the company with the business of cables and telecommu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in consideration of the allotment of the holders of the company's ordinary stock of securities in the said holding company on an agreed basis. (5) The company has not since the year 1929 carried on any business nor since that year has it owned any physical assets of any kind whatsoever and its only assets of any kind have consisted of 10,750,660 shares in Cable and Wireless Ltd., held directly in its own name investments and certain other shares in Cable and Wireless, Ltd., held through the medium of subsidiary or associated companies which in their turn were originally operating companies but which had transferred their physical assets to Cable and Wireless, Ltd., in exchange for shares in that company." Then it sets out the short effect of the Cable and Wireless Act, 1946, and that the shares became vested as from January 1, 1947, in the nominees of His Majesty's Treasury on the terms that the company and its subsidiary and associated companies should receive an amount as compensation (payable in Government stock) to be determined by a tribunal unless otherwise agreed. Then there are these allegations: "(7) By virtue of the premises the substratum of the company has entirely di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f one for another of the various forms of business contemplated by the memorandum. I need not read the whole of the memorandum again, but it will be remembered that it does contain this passage : "the subscribing for and acquiring shares of, or amalgamating with and sharing in the business or undertakings of any other telegraph company or companies, and the making and carrying into effect of working, traffic and other agreements", and so on. So that it says expressly that the company may subscribe for shares of or amalgamate with other telegraph companies. It seems to me that the transaction carried out by the sale agreement of 1929 in conjunction with the arrangements made with the other telegraph companies in the group was exactly an amalgamation. That is a perfectly accurate description of it, and the company carried it out by subscribing for and acquiring shares of Cable and Wireless, Ltd., as it is now called, in exchange for its physical assets, the upshot of the whole transaction being that instead of operating a telegraph or cable business itself, it participated through the medium of its shareholding in the proceeds of operation of a business carried on by Cable and Wirele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... project or speculation. It is a matter on which the individual; consent of every person who will be affected by the change of plan ought to be obtained. Then there was the case of German Date Coffee Co. In re [1882] 51 L.J. Ch. 564; 20 Ch. D. 169 , where the main object of the company was to exploit a German patent for making coffee from dates and the patent was never obtained. It was held, accordingly, that the substratum of the company had failed, and that it was impossible to carry out the objects for which it was formed. Consequently it was just and equitable that the company should be wound up. In the course of the case the limitations placed on general words describing the objects of the company were considered, and I think that the upshot of the discussion was broadly as I have already stated. Then there was the case of Re Red Rock Gold-Mining Co. [1889] 61 L.T. 785. That was a case of a company formed with the object of purchasing and working the Red Rock Mine. Then the headnote says : " There were further projects mentioned in the memorandum, namely, to purchase and otherwise acquire mines and other properties in the colony of New South Wales and elsewhere, and ge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ible effect of a liquidation in the present case on the Portuguese and other concessions. It was said that if the liquidation of the company in the Baku case was thought not to prejudice any possible claim against the Russian Government, therefore, by parity of reasoning the liquidation of the company in this case could not be said to be likely, to prejudice the position in regard, for instance, to the Portuguese concession. It seems to me that the two cases are entirely different. The Baku case was a case of an alleged accrued right to damages, or something of the kind, and a right such as that could no doubt be pursued equally well by a liquidator or by the company in liquidation as it could be a company which was a going concern. I confess that I completely fail to see how one can adduce from that that the position in regard to the foreign concessions here would not be prejudiced if a winding-up supervened. Then there was the case of Re Kitson Co. [1946] 1 All E.R. 435. The question there was whether the substratum of the company had gone. On a consideration of the memorandum and on the facts of that particular case it was held by the Court of Appeal that the substratu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ioner's first ground for claiming a winding-up order. As I have said, it is plain that in the present case the result of the Act of 1946 was to put an end entirely to the company's connection with the business, or businesses, with a view to carrying on which it was formed. Its only connection with those businesses now is that it still has vested in it all or some of the assets refer red to in clause 8 of the 1929 sale agreement. The question is whether it necessarily follows from this that a case has been made out for an immediate order for the compulsory winding-up of the company. I think it is material to remember that in the present case there is no allegation of any improper conduct. There is no allegation that the directors are going to adventure the moneys of the company on some speculative undertaking of which nobody ever thought when the company was formed or when the shares were subscribed for; nor is it a case of the contemplated object failing ab initio ; nor is it a case of confiscation of a foreign concession, or discovery that a believed title to property abroad had no existence. The present case is of a very different character. The company here has been expropriat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is causing anxiety. I have no reason to regard the anxiety as being otherwise than bona fide, and it seems to me that it may be well founded. Therefore, whatever the position may be after the Government stock has been issued and after the outstanding foreign concessions have been got in by Cable and Wireless, Ltd., as to which I say nothing, it does seem to me that as the matter stands at present, the compulsory order would be premature. Counsel for the petitioners challenges that view, and he says that, owing to the particular right attached to the preference stock in this case, it would be inequitable to the preference stockholders to delay the winding-up for one moment, because he says that so long as the company goes on dividends can be paid; the preference stockholders can get only 3 per cent., and the directors will be quite in order in distributing the balance of the profits amongst the ordinary stockholders. With respect to counsel for the petitioners, it does not seem to me that is really a ground for holding that a compulsory order ought to be made. No doubt it provides the motive for presenting the petition, but it seems to me that one has to decide from the point of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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