1932 (11) TMI 9 - HC - Companies Law

Summary

Issues Involved:
1. Interpretation of "surplus assets" in the context of company liquidation.
2. Rights of preference shareholders versus ordinary shareholders in surplus assets.
3. Construction of the memorandum and articles of association regarding shareholder rights.

Issue-wise Detailed Analysis:

1. Interpretation of "surplus assets" in the context of company liquidation:
The judgment clarifies that "surplus assets" are distinct from "capital." Surplus assets refer to the property of the company not required for discharging liabilities or returning paid-up capital to shareholders. These assets are part of the joint stock or common fund representing the company's capital at the date of winding up but are not part of the repayable capital. The judgment emphasizes that surplus assets are distributable among the contributories according to their contractual rights.

2. Rights of preference shareholders versus ordinary shareholders in surplus assets:
The primary issue was whether preference shareholders renounced their rights to participate in surplus assets in exchange for priority in dividends and capital repayment. The judgment states, "Preference shareholders are members of the company and as much shareholders in it as the ordinary shareholders are, and they must be treated as having all the rights of shareholders, except so far as they renounced those rights on their admission to the company." The judgment concludes that there are no sufficient grounds to hold that preference shareholders renounced their rights to participate in surplus assets. It asserts that the contract did not explicitly bar preference shareholders from participating in surplus assets, and any such exclusion should have been clearly stated in the memorandum or articles of association.

3. Construction of the memorandum and articles of association regarding shareholder rights:
The judgment extensively analyzes the memorandum and articles of association to determine the rights of shareholders. It notes that the preference shareholders' rights to a fixed cumulative preferential dividend and priority in capital repayment do not imply exclusion from surplus assets. The judgment highlights that the terms of the memorandum and articles should be construed to determine the true nature of shareholder rights. It states, "The short point which we have to determine is: what are the rights of the ordinary and preference shareholders in the winding up of this company... in respect of a surplus which remains after discharging all the liabilities of the company and returning the share capital which has been subscribed by the members of the company?"

Separate Judgments:

Lord Hanworth, M.R.:
Lord Hanworth concurs with Eve, J.'s judgment, emphasizing that the rights of preference shareholders are not limited to the preferential dividend and capital repayment. He states, "I find it impossible, as Eve, J., has found it impossible, to say that the words are sufficient to displace that parity as between members of the company whose voting power is equal and who are to regard themselves all as corporators in this concern."

Lawrence, L.J.:
Lawrence, L.J. agrees with the judgment, stating, "It plainly appears from all the cases cited by counsel that the question to be determined on this appeal depends upon the true construction of the memorandum and articles of the company." He concurs with Eve, J.'s reasoning and conclusion that both preference and ordinary shareholders are entitled to share in the surplus assets.

Romer, L.J.:
Romer, L.J. also agrees with Eve, J.'s judgment, adding that the construction of the memorandum and articles should not be influenced by preconceived notions of shareholder equality. He states, "All shareholders are entitled to equal treatment unless and to the extent that their rights in this respect are modified by the contract under which they hold their shares." He disagrees with the view that the express gift of preferential rights to preference shares negates any further rights.

Conclusion:
The judgment concludes that both preference and ordinary shareholders are entitled to share in the surplus assets of the company upon winding up, as there is no explicit exclusion of preference shareholders from such participation in the memorandum and articles of association. The appeal is dismissed with costs, affirming the decision of Eve, J.