1947 (6) TMI 7 - HC - Companies Law

Circumstances in which a company may be wound up and Winding up Company when deemed unable to pay its debts

Summary

Issues Involved:
1. Compulsory winding-up of the company based on cessation of business.
2. Compulsory winding-up of the company based on the disappearance of the company's substratum.

Detailed Analysis:

1. Compulsory winding-up of the company based on cessation of business:
The petitioners, preference stockholders of the Eastern Telegraph Co., sought a compulsory winding-up order, alleging that the company had ceased to carry on its business for over a year. This claim was grounded on section 168 of the Companies Act, 1929. The company, incorporated in 1872, had transformed over the years, notably through a 1929 agreement where it sold its physical assets to Imperial and International Communications, Ltd. (later Cable and Wireless, Ltd.), in exchange for shares, effectively becoming a holding company. The petitioners argued that this transformation meant the company ceased its original business operations. However, the judgment clarified that the company's memorandum of association explicitly allowed for subscribing to and acquiring shares of other telegraph companies and amalgamations. The 1929 transaction was deemed an amalgamation, and the company continued to carry on its business in a different form, as a holding company. Thus, the court concluded that the company had not ceased to carry on its business.

2. Compulsory winding-up of the company based on the disappearance of the company's substratum:
The petitioners also argued that the company's substratum had disappeared, making it just and equitable for the company to be wound up. They cited several cases, such as Re Haven Gold Mining Co., German Date Coffee Co., and Re Red Rock Gold-Mining Co., to support their claim. These cases established that if the primary object of a company fails, it is just and equitable to wind it up. However, the court found that although the 1946 Cable and Wireless Act resulted in the compulsory acquisition of the company's shares in Cable and Wireless, Ltd., and severed its connection with the telegraph business, the company was still entitled to compensation. The court emphasized that the company was expropriated by a supervening Act of the Legislature, which it had to comply with. The compensation process was ongoing, and the directors were best suited to handle it. The court also considered potential detriment to the company's foreign concessions if it were wound up prematurely. The court concluded that while difficult questions about the company's future might arise after compensation is received, it was not just and equitable to order a winding-up at this stage. The petition was deemed premature and dismissed with costs.