Re Kitson & Co Ltd

 

Re Kitson & Co Ltd

COMPANY; Insolvency, Shareholders

COURT OF APPEAL

LORD GREENE MR, MORTON AND TUCKER LJJ

11, 13, 14, 15 FEBRUARY 1946

Companies – Winding up – Shareholders’ petition – Company formed to take over a business – Business sold after 46 years – Construction of memorandum of

association – Whether substratum gone – Just and equitable – Companies Act, 1929 (c 23), s 168(6).

The appellant company (K & Co) was incorporated in 1899. By the memorandum of association the objects of the company were stated in wide terms to be as

follows: (i) to acquire and take over as a going concern a business, carried on elsewhere, under the style of K & Co; (ii) to carry on the business of general

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Preamble

engineering. On 10 July 1945, the appellant company agreed to sell the business of K & Co its goodwill and all its assets. The company had, at the same

time, a subsidiary, B & Co carrying on a similar type of business, but the premises were under requisition to the Admiralty. By reason of the sale of K & Co

certain shareholders presented a petition, alleging that the substratum of the appellant company had failed and that it was just and equitable to wind it up. At

the time of the sale of K & Co the then directors of the appellant company passed a resolution in which it was contemplated to discontinue the engineering

business and to use the money of the appellant company to purchase shares in a group of companies more or less insolvent. In proceedings against the

appellant company and its then directors, an affidavit to this effect was filed, as a result of which the resolution was withdrawn. At the time of the hearing of

the petition those directors, with one exception, were replaced and an affidavit was filed by one of the present directors of the appellant company stating that it

was the intention of the company to continue with the engineering business and to acquire 􀂭 435􀀉 the assets and undertaking of B & Co for the appellant

company. The affidavit which formed part of previous proceedings was introduced in support of the petition for the purpose of showing that the appellant

company had no intention of carrying on the business of engineering, and on those facts an order to wind up the appellant company was made. From that

order, the appellant company appealed:—

Held – (i) since the main and paramount object of the appellant company was to carry on an engineering buiness of a general nature the disposal of the

business of K & Co which had been acquired about 46 years before, did not amount to a destruction of the substratum of the appellant company.

Re German Date Coffee Co explained and distinguished.

(ii) the intention of the board of directors, at a given moment, to discontinue the business of engineering had no effect on the determination of the

question whether the substratum had gone.

Notes

It is held that where a company is formed to carry on a particular type of business and, inter alia, to acquire an existing business, the subsequent disposal of

the business acquired is not necessarily a failure of the substratum so as to be a ground for compulsory winding up. So long as the company can continue to

carry on a similar type of business the position is distinguishable from that existing where the company is formed to acquire and work a particular mine, or a

patent as in the German Date Coffee case. The material time for consideration is the date of the winding up petition, and if the company is then in a position

to carry on a business within the principle object of its memorandum, it is quite irrelevant that the directors held a different intention at some earlier date.

As to Winding-Up where Whole Substratum Gone, see Halsbury, Hailsham Edn, Vol 5, pp 545–548, para 885; and for Cases, see Digest, Vol 10, pp

821–826, Nos 5353–5383.

Cases referred to in judgments

Re German Date Coffee Co (1882), 20 Ch D 169, 10 Digest 823, 5361, 51 LJCh 564, 46 LT 327.

Re Suburban Hotel Co (1867), 2 Ch App 737, 10 Digest 821, 5354, 36 LJCh 710, 17 LT 22.

Cotman v Brougham [1918] AC 514, 9 Digest 78, 286, 87 LJCh 379, 119 LT 162, affg SC sub nom Re Anglo-Cuban Oil, Bitumen & Asphalt Co Ltd [1917] 1

Ch 477.

Appeal

Appeal by the respondents, Kitson & Co Ltd from a winding up order made by Uthwatt J and dated 17 December 1945. The petition was presented by certain

shareholders on the ground that the substratum of the company had gone. The facts are sufficiently set out in the judgment of Lord Greene MR.

J B Lindon KC and T M Shelford for the appellants.

G R Upjohn KC and C G A Cowan for the respondents.

15 February 1946. The following judgments were delivered.

LORD GREENE MR. This is an appeal from an order of Uthwatt J as he then was, directing the compulsory winding-up of the company under the

Companies Act, 1929, s 168(6), on the ground that it was just and equitable that the company should be wound up. I do not propose to go into the facts which

gave rise to this litigation or which emerged in the course of it, save so far as may be necessary to explain the conclusions to which I have come. The ground

upon which the respondents sought to have the company wound up is set out in the petition in para 12:

‘By reason of the aforesaid matters the company has disposed of its assets, has ceased to carry on the principal objects for which the said moneys

were provided, the whole substratum of the company has gone and it is not possible to carry out at a profit the essential purpose for which the company

was formed; and it is just and equitable that the company should be wound up.’

That combination of words means, in my view, nothing more or less than that the substratum had gone.

Before us, counsel for the respondents wished to introduce a further ground on which he said it was just and equitable that the company should be wound

up. That ground, to use his own words, was that the directors had so behaved that the shareholders had justifiably lost confidence in them. I express no

opinion as to the sufficiency or insufficiency of such a ground to justify the winding up of a company, ie, whether those bare facts would be sufficient in any

given set of circumstances or whether something in addition, like bad faith or oppression, 􀂭 436􀀉 might be required; I do not go into it. It has not been

argued, for this reason: counsel for the respondents set out some facts which he said could be collected from the evidence before the court and upon which he

proposed to build that reason for winding up. We refused to allow him to go beyond the statements contained in his petition. It was quite manifest that the

inference he was asking us to draw from the facts which he called to our attention was one which we should not be justified in drawing on the material which

was before the court, for this very simple reason, that, had it been put forward as a specific ground for winding up in the petition, it would have been possible

for the company to have gone into the matter with great fullness and a great deal more evidence might have been filed and, indeed, there might have been

cross-examination, particularly as the inference which counsel for the respondents said he was going to ask us to draw involved in one branch of it an

inference of fraud. In those circumstances, it appeared to us to be quite impossible to allow him in this court, on the meagre material to be found in the

affidavits, on an issue which had never been raised before, to go into that question. As the result of this ruling of the court he confined himself loyally to the

matters alleged in his petition.

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The company was incorporated on 30 December 1899: that is forty-six years ago. Its name is Kitson & Co Ltd and under cl 3(1) of the memorandum of

association the objects for which the company was established are thus described:

‘(1) To acquire and take over as a going concern the business now carried on at Airedale Foundry, Hunslet, in the city of Leeds, under the style or

firm of “Kitson & Co.”, and all or any of the assets and liabilities [and] to enter into the agreement.’

Cl 3(2) begins:

‘To carry on the business of locomotive engine manufacturers, ironfounders, mechanical engineers and manufacturers of agricultural implements

and other machinery, tool makers, brass founders, metal workers, boiler makers … ’

Cl 3(3) is:

‘To carry on any business relating to the winning and working of minerals, the production and working of metals, and the production, manufacture

and preparation of any other materials which may be usefully or conveniently combined with the engineering or manufacturing business of the

company, or any contracts undertaken by the company …’

The first argument which counsel for the respondents put before us—and I think it is right to take this first, because it is logically first—is that the

predominant object of the company was to acquire and take over and presumably to carry on the business of Kitson & Co mentioned in cl 3(1) of the

memorandum. The objects mentioned in cl 3(2) he said were merely subsidiary to that. We have no real information as to what the business of Kitson & Co

was in 1899, save what appears in para 4 of one of the director’s affidavit sworn on 30 November 1945, in which it is said:

‘The business of the company is and has been since its incorporation that of engineers and manufacturers of engineering produce. Until 1938 the

company was chiefly engaged in manufacturing locomotives but it has also from time to time (as conditions in the trade required) manufactured such

things as machine tools, winders and mining machinery, …’

In this case what happened was this with regard to Kitson & Co putting it quite shortly: On 10 July 1945, the company, which was still carrying on

business under the name of Kitson & Co at the Airedale works, entered into an agreement to procure the carrying out of a sale and purchase, but, in effect,

subject to the confirmation of the shareholders, it would be an agreement for sale by the company, and for convenience I may so refer to it, because it was in

fact sanctioned by the shareholders. Under it the business of Kitson & Co was agreed to be sold to a purchaser, its goodwill and all its assets, with one or two

minor exceptions, and, so far as the business of Kitson & Co was concerned, or what was left of it in 1945, it was assigned to a purchaser. That says counsel

for the respondents, destroyed the substratum of the company, and he turns to the memorandum of association and says that it is in that sense that the

memorandum of association must be construed, because the purchase of Kitson’s business in 1899 was expressed to be the first in sequence of the company’s

objects and all other powers and objects specified in the memorandum must 􀂭 437􀀉 be regarded as ancillary to the carrying on of that business. In my

opinion, that construction of the memorandum will really not bear examination. First of all, the form of the memorandum is the common form where a

business is being acquired. It sets out in the usual way the acquisition of the business as the first step which the company is going to undertake. We are not

considering now whether failure in 1899 to acquire the business of Kitson & Co would have destroyed the substratum of the company. It might possibly have

been thought that unless it got this business it was not really starting its career in the way in which the shareholders bargained it should be started; but the

question we have to decide is whether, that business having been acquired 46 years ago, the disposal of it last year amounted to a destruction of the

substratum. In my opinion, the main and paramount object of this company was to carry on an engineering business of a general kind. It was such a business

that was carried on by Kitson & Co and I cannot bring myself to construe this memorandum as limiting the paramount object and restricting the contemplated

adventure of the shareholders to the carrying on of what could be called the business of Kitson & Co. The impossibility of applying such a construction seems

to me to be manifest when one remembers that a business is a thing which changes. It grows or it contracts. It changes; it disposes of the whole of its plant; it

moves its factory; it entirely changes its range of products, and so forth. It is more like an organic thing. Counsel for the respondents quoted to us a number of

very well know authorities on which it has been held that on particular facts the substratum of particular companies had gone. I do not propose to examine

those authorities, because they do not assist me in construing this particular memorandum. It must be remembered in these substratum cases that there is every

difference between a company which on the true construction of its memorandum is formed for the paramount purpose of dealing with some specific

subject-matter and a company which is formed with wider and more comprehensive objects. I will explain what I mean. With regard to a company which is

formed to acquire and exploit a mine, when you come to construe its memorandum of association you must construe the language used in reference to the

subject-matter, namely, a mine, and, accordingly, if the mine cannot be acquired or if the mine turns out to be no mine at all, the object of the company is

frustrated, because the subject-matter which the company was formed to exploit has ceased to exist. It is exactly the same way with a patent, as, in the well

known German Date Coffee case. A patent is a defined subject-matter, and, if the main object of a company is to acquire and work a patent and it fails to

acquire that patent, to compel the shareholders to remain bound together in order to work some other patent or make some unpatented article is to force them

into a different adventure to that which they contracted to engage in together; but, when you come to subject-matter of a totally different kind like the carrying

on of a type of business, then, so long as the company can carry on that type of business, it seems to me that prima facie at any rate it is impossible to say that

its substratum has gone. So far as this stage of the argument is concerned, it is to my mind quite impossible upon the true construction of this memorandum of

association to limit the paramount object of this company to the specific business of Kitson & Co so as to a lead to the result that as soon as Kitson & Co’s

business was sold the substratum of the company had gone.

The position must be looked at, therefore, on the footing that the main and paramount object of the company is to carry on an engineering business. The

company had a subsidiary—what is commonly called a 100 per cent subsidiary—a company called Balmforth, carrying on a similar type of business, but for

the moment having its factory and premises apparently under requisition to the Admiralty, who were said to have used them as a warehouse. I am not quite

clear about that, but I do not think it matters; it was possessed of a factory and machinery. A question might have arisen, if the sole activity of the company

was the holding of shares in the subsidiary, whether or not a case could be made out for winding up the company. I must not be taken as expressing the view

that such a case could have been made out; but what happened was that while the petition was pending, and in between two adjournments, an agreement was

entered into for the purpose of the company acquiring and taking over to itself the business of Balmforth. I have deliberately omitted 􀂭 438􀀉 at this stage the

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earlier history; all that I am concerned to examine for the moment is what the position of the company was at the date of the winding up order. This agreement

was entered into subject to the consent of the shareholders. It seems to me that, if the agreement had gone through and this company had proceeded to carry

on the business of Balmforth which it would acquire under the agreement, a business of the same nature as that which Kitson’s had carried on, it would have

been quite impossible to say that the substratum of the company had gone. It might have been a good or a bad transaction for the company to enter into from a

business point of view; but that is the last sort of thing that this court is concerned with in winding up cases. I think that the well known observations of Lord

Cairns LJ in Re Suburban Hotel Co (2 Ch App 737, at p 750) might usefully be cited in reference to a great deal of the argument which has been presented to

us on behalf of the respondents:

‘But what I am prepared to hold is this, that this court, and the winding up process of the court, cannot be used, and ought not to be used, as the

means of evoking a judicial decision as to the probable success or non-success of a company as a commercial speculation. This company may become

successful, or may continue to be unprofitable, as I believe it has hitherto been; and it may, therefore, hereafter re-appear in this court under different

circumstances, but it is not for this court now to pronounce, and above all, not for this court to pronounce on opinion-evidence, that this is likely to be an

unprofitable speculation; and that, therefore, at the wish of a minority of shareholders, against the will of a large majority, the company should be

wound up and put an end to.’

It is not for us to say whether this venture is one which would be successful or would not be successful. That is a business matter for the shareholders to

decide whether or not they would engage in it. It so happens that the shareholders never had an opportunity of pronouncing their wishes with regard to the

carrying out of that arrangement, and the reason was, that the winding up order was made.

The judge, subject to one matter which I am about to mention, as I read his judgment, would quite clearly have refused to make a winding up order.

Down to this point he did not comment adversely, and it seems to me he had no material for commenting adversely on the question whether there was a real

and bona fide intention to re-embark in the engineering business at the time the matter was before him. Subject again to what I mentioned a moment ago, it is

quite clear he was not prepared to question that. I myself would go further than that, because this question of intention on which counsel for the respondents

laid very great stress is, I must confess, on the facts in this case, one which does not impress me. To say that the question whether substratum has gone or has

not gone can be affected by the intention that happens to exist in the minds of the board at a given moment appears to me to be going into irrelevant

considerations. First of all, the board is not the company. Let it be supposed that at the time of the sale of the Kitson business, so far as the board was

concerned they thought that there was no chance and that it was not desirable for the company ever to start again into engineering. It certainly is not proved

nor was it proved that the shareholders had any such intention; but assume that it was. A little time afterwards something might happen to make them change

their minds. They might see a profitable opportunity of using the company’s money again in the engineering business. What has intention to do with it? We

are dealing with the question of substratum, and to say that the substratum can exist at one moment and cease to exist a moment later, or vice versa simply

through a change of intention of the board or of the shareholders (I know not which) seems to me to lead into a morass.

The situation as it appeared, without going into more detail, at the date when the hearing first began was put in general terms by one of the directors, in

para 18 of the affidavit which says this:

‘Although at the date of the circular of July 20, 1945, and of the general meeting on July 30, 1945 [the circular and the general meeting related to

obtaining the approval of the shareholders to the sale agreement of Kitson’s business] the possibility of the company being would up was contemplated,

the unexpected conclusion of the Japanese war and the prospect of the early de-requisitioning of the Luton works [that was the Balmforth works] has

completely altered the company’s prospects. The company 􀂭 439􀀉 proposes to continue its engineering and manufacturing business and it is now

considered to be in an advantageous position to do so. Broadly speaking, it is the intention of the board to re-open the Luton works upon their being

de-requisitioned, to instal there the company’s plant and machinery removed from the Airedale Foundry, to continue the business of the company and its

subsidiary, the Balmforth Co., on this site and, if found convenient, to liquidate the Balmforth Co., and transfer its assets and undertaking to the

company.’

If that was the intention at the time, and it was made more concrete as the result of what happened during the trial, namely, by making the provisional

agreement for the taking over of the Balmforth business it seems to me quite impossible to say that in the circumstances stated in that paragraph the substratum

of the company had gone. I should add this by way of supplement: It is not really argued nor is there any fact to justify the proposition that this proposal for

carrying on the Balmforth business was a wild cat scheme which had no prospect at all of financial success. If you have such a case as that, for instance, of the

bank which has only £250 left, it is not a question of expressing an opinion on a question of business, for the court to say that you cannot carry on a bank with

£250, nor would it be expressing an opinion on a matter of business if the court should say you cannot carry on an engineering business unless you have got at

any rate a little working capital. That is quite a different thing altogether. Financial disability might be relevant. That is not the question here; there is no

financial disability which would prevent the company carrying out those proposals. In my opinion the question of intention in this case has no real bearing on

what we have to determine; but, assuming that it has, here is the intention of the directors set out and they would have been able to test the wishes of the

shareholders if the proposal for taking over the Balmforth Co had been allowed to go to a general meeting. As I have said, the winding up order intervened.

The judge, down to this point and on those facts which I have shortly stated, would quite clearly have refused to make the order, but something happened

on the last day of the hearing, namely, 17 December. On that date an affidavit was produced which had been sworn in some proceedings in the Chancery

Division brought by a shareholder in the company against the company and its then directors, who, with one exception, are not, we are told, the directors now.

The affidavit referred to the draft minutes of a resolution of the board which, it was said, had been passed, under which the money of the company, including

the money it acquired from the sale of the Kitson business, was to be used in purchasing a number of shares in a variety of companies. It was stated in the

affidavit that those companies were all more or less insolvent, indeed some of them were said to be in or about to go into liquidation, and that the prices to be

paid for those shares were a gross overpayment. Indeed, if you took that affidavit at its face value, it raised a very serious case against the then directors. I do

not wish in any way to discount that, but the use that was made of it, and junior counsel, who was then appearing alone for the present respondents, quite

properly told us, that he introduced that affidavit, feeling it was his duty to do so as soon as he discovered it, for the purpose and the purpose only of showing

that at the time when this proposed share purchase was resolved upon by the directors, as appeared from the draft minute, namely in July 1945, the directors

had no intention of carrying on an engineering business. What the relevance and weight of that argument as bearing on the question of substratum may have

been I do not propose to go into. I have already indicated my views as to the real bearing of these questions of intention; but that was the sole purpose for

which he introduced it. The judge, we are told, as soon as this was introduced expressed the opinion that the company had not treated the court with frankness.

That would appear to mean this, that the company ought to have informed the court that in July the board had had this intention of buying these shares. With

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all respect, I am not sure whether I can quite appreciate what is meant by a lack of frankness, because the matter on the company’s argument was entirely

irrelevant to any question before the court. The company was saying, as they have said here, that on the question of substratum at the date of the petition the

intention of the board, whether it may have been good or bad, honest or fraudulent, in July, six months before, was entirely irrelevant; their intention now is

what is stated. The judge may very well 􀂭 440􀀉 have thought: This is a matter of some suspicion and I do not like it. What he failed to observe, I think, was

this, that the board now—I do not know whether he was so informed—is quite different, with one exception, to what it then was, and, what is more important,

he did not have before him the affidavit sworn in those Chancery proceedings in answer to the one which I have mentioned. That affidavit deposed to two

matters. First of all, it said that the draft minute on which the accusing affidavit had been based was a draft only and was inaccurate in that the proposed

purchase of these blocks of shares was to be subject to the consent of the shareholders. This was a matter of considerable importance, because it was referring

the transaction to the proper tribunal to consider it. The other matter was that the directors, in view of the affidavit, had decided not to go on with the proposal.

All that comes to is this, that in July the then directors had an intention to carry out a particular purchase with the company’s money. That intention they

abandoned, and indeed an undertaking was given on motion in the action that it would not be carried out. Subsequently to that, in the present proceedings a

proposal to acquire the Balmforth Co’s business was made and reached the stage of the provisional contract I have mentioned. The judge did not have before

him that second affidavit, and, indeed, he even declined to allow an adjournment to enable counsel for the appellants to produce evidence. Counsel for the

appellants tells us he did at that time know of the existence of that second affidavit; it was not before Uthwatt J and is not read accordingly in the order which

he made. It is perfectly clear to my mind that, if Uthwatt J had had before him that second affidavit he could not possibly have formed the view of the

circumstances which he did, because in effect what he said was that the affidavit in the Chancery action, what I have called the accusing affidavit, made him

think that the real intention of the company was not to carry out the suggested purchase of Balmforth, but was directed to something quite different. But what

was before him was at the highest the intention in July of the then directors. He did not know that even that intention was to be submitted to the shareholders

and he did not know it had been abandoned. It seems to me, therefore, that it would have been quite impossible for him to have said that the substratum of this

company had gone—in spite of all the considerations which he mentioned in the earlier part of his judgment, all of which pointed the other way—on the

ground that six months ago the then board of the company decided to apply the assets of the company in a way which did not involve the carrying on of the

business and which indeed, as is quite clear from reading the judgment, the judge thought was very suspicious. It is to be remembered that the winding up

procedure does not exist for the purpose of keeping boards of directors in order, or indeed of preventing them from misapplying the funds of the company. It

may very well be (I express no opinion) that in cases where directors have complete control of the company and are impossible to control, those

circumstances, coupled perhaps with others, may make it just and equitable for a company to be wound up, although in these days of minority actions it would

not seem that winding up proceedings in order to prevent that kind of thing are likely to be so necessary as before minority actions became common. But,

apart from that, it seems to me that the winding up procedure ought not to be used for regulating the internal affairs of the company. If directors are

misbehaving themselves, there lies a remedy to the shareholders to stop it, and it would be quite wrong to my mind that the partnership between shareholders,

so to speak, should be dissolved merely because the persons carrying on the business on behalf of the company, namely the directors, are misbehaving

themselves. It is for the shareholders to stop them. They can get rid of the directors or stop them by means of an injunction if they are doing anything

improper, and, therefore, I do not think it is putting it too high to say that in the ordinary way of things winding up is not the proper procedure for dealing with

that type of situation.

We have, therefore, this position: a winding up petition based on alleged disappearance of substratum, supported by a minority of votes but a majority in

money, based on the allegation primarily, with which I have disagreed, that the paramount object of the company was the carrying on of a business called

Kitson & Co or, alternatively, based on the proposition that the intention of the company was not to carry on a business. The paramount object is much

􀂭 441􀀉 more general and is not confined to Kitson & Co’s business. I have said on this question of intention that it is not, in my opinion, relevant, and,

secondly, that whatever the intention of the board was some months before, it was always competent for the directors or the shareholders, whoever were

expressing the wishes of the company, to change their minds if a suitable opportunity offered, and that we are told they did.

Having regard to that, the case for dismissing this petition seems to me to be clear; I cannot find that the judge was justified in declining to take the

course, which it is quite clear he would have taken because of the introduction into the proceedings of the Chancery litigation and the affidavit. He placed

upon that a reliance and gave to it a weight and effect which he never would have given it if he had had before him the affidavit in reply, and he therefore

came to the conclusion on the subject without having before him the proper material. In my opinion, the Chancery matter must not be allowed to affect our

minds in this case, because I cannot see in it anything relevant to this issue. In my opinion the appeal must be allowed.

MORTON LJ. I agree that this appeal must be allowed and have very little to add. Although counsel for the respondents gave us an admirable survey of the

facts and argument, I think he found himself in rather a difficult position. A great deal of the case which he would have liked to present to us really depends

on alleged bad faith on the part of one or more of the directors. In this petition there is no allegation at all of bad faith or improper conduct on the part of the

directors. In the course of the proceedings before Uthwatt J certain matters came to light which, so long as they were unexplained, bore a somewhat serious

aspect; but they may be capable of a perfectly convincing explanation, and the directors have never had a chance of giving that explanation. Not only was no

charge made against them in the petition, but, when at the last hearing before the judge application was made for an adjournment to enable the affidavit

accusing the directors to be answered, he refused such an adjournment. It was, therefore, clear that, unless and until the petition was amended, counsel for the

respondents could not invite us to deal with the matter upon the footing that the directors’ conduct was improper, and thereupon he asked leave to amend the

petition. We did not think it right to give such leave at this stage. The matters desired to be raised would clearly be matters on which further evidence would

have to be filed; I think it would have been almost inevitable that there should be cross-examination of the deponents, and this court would have had to

determine an issue of fact which had never been before the judge at all. In these circumstances, we refused the application of counsel for the respondents.

There is, of course, nothing to prevent the petitioner from presenting another petition tomorrow based upon other allegations and relying upon other facts. I do

not wish to be taken as encouraging him to do so, or as expressing any view as to the prospects of success or failure of that petition.

On this petition we have to deal with an allegation of loss of substratum, based upon the matters to which Lord Greene MR has already referred. I do not

propose to go though them again. It is said, and it may be quite true, that this idea of taking over the Balmforth Co’s works represented a last minute change

of mind on the part of the directors. Be it so; what was the position of the company immediately before that last minute change of mind? The company was

perfectly solvent; it had a large sum of cash in hand; it had a certain amount of plant and machinery, and it was in a position to take over other works if it

thought fit and to continue the business which, in my view, was within the primary object defined in its memorandum of association. I entirely and

respectfully agree with the construction placed by Lord Greene MR on the memorandum of association in this case. As has been said by Lord Parker of

Waddington in Cotman v Brougham ([1918] AC 514, at p 520):

‘The truth is that the statement of a company’s objects in its memorandum is intended to serve a double purpose. In the first place, it gives

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protection to subscribers, who learn from it the purposes to which their money can be applied.’

Lord Wrenbury said (ibid, at p 522):

‘The purpose, I apprehend, is twofold. The first is that the intending corporator 􀂭 442􀀉 who contemplates the investment of his capital shall know

within what field it is to be put at risk.’

Supposing the company affirms this scheme for taking over the Balmforth works, it seems to me that the business carried on by the Balmforth Co so far as it is

revealed by that company’s memorandum of association and by the evidence before us, comes within the field in which these corporators have put their

money at risk. According to para 8 of the first affidavit of one of the directors, sworn on 30 November 1945, the Balmforth Co are “a well known firm of

engineers specialising in the manufacture of industrial boilers, calorifiers and mechanical stoking equipment,” and again in the memorandum of association of

the Balmforth Co I find these words, “To acquire and take over as a going concern the business of boiler makers, engineers … heretofore carried on by T

Balmforth & Co at Luton, and to carry on the said business.” Under these circumstances, it does not seem to me that the allegation that the substratum of this

company has gone has been borne out by the evidence on this petition. I do not think that the case comes within the Companies Act, 1929, s 168(6).

I only want to refer to one other matter. At the conclusion of his judgment the judge said this:

‘It is sheer nonsense for this company to say it has any present intention to try to carry on any object for which the company was formed, and you

may read your objects as widely as you like, but included among them is not the spending of its money in the way of finding part of the purchase price

payable for a lot of shares in what looks to me, as referred to here, a group of companies.’

It is clear, I think, that the judge has been influenced in his decision by the proposal which the directors had in mind in July, 1945, to expend the moneys

of the company in purchasing a number of shares in other companies. If he had gone on to read, as apparently he did not, the affidavit of the directors on the

motion for injunction in a shareholders’ action, he would have seen that these deponents first of all say that the proposed arrangement was subject to the

sanction of the company, and, secondly, that the directors had decided not to proceed with the purchase of these shares. If Uthwatt J had considered only the

facts alleged in the petition and the evidence in support of those facts and in the light of all the facts had exercised his discretion in the way of making a

winding up order, it may be I should have felt great hesitation in differing from him; but I think it is quite plain from his judgment that he has taken into

account matters which were past history, and which should not, in my view have influenced his decision of this petition, founded as it was simply upon the

allegation that by reason of the sale of the company’s existing business the substratum had gone.

I agree that this appeal must be allowed and that there should be no winding up order.

TUCKER LJ. Counsel for the respondents in the course of his argument laid considerable stress on the question of the intention of the company or its

directors. I only desire to say a word or two with regard to that aspect of the case. Lord Greene MR has read para 18 of the affidavit of one of the directors, in

which it is stated that:

‘The company proposes to continue its engineering and manufacturing business and it is now considered to be in an advantageous position to do so.

Broadly speaking it is the intention of the board to reopen the Luton works upon their being de-requisitioned, to instal there the company’s plant and

machinery removed from the Airedale Foundry, to continue the business of the company and its subsidiary, the Balmforth Co., on this site and, if found

convenient, to liquidate the Balmforth Co., and transfer its assets and undertaking to the company.’

%counsel for the respondents concedes that he is not in a position to deny that at the date of the winding up order and the date when this affidavit was sworn

those statements are correct, that it was then the intention of the company so to act; but he argues that, because at some prior date there was a contrary

intention on the part of the then directors of the company, he is entitled to rely upon that in support of his submission that the substratum of this company has

gone. It was in regard to that argument of his that I listened with all the attention and care I could to the authorities he cited; but I am unable to find anything

in those authorities in support of that proposition. It seems to me 􀂭 443􀀉 that, whatever may be the relevance of the intention, if at the time of the making of

the winding up order it is beyond dispute that it is the intention of the company to carry on a business which is within the principal object of its memorandum

of association, it is impossible to say that the substratum of that company has gone.

Appeal allowed with costs.

Solicitors: Capel Cure, Glynn Barton & Co (for the appellants); Hicks, Arnold & Co (for the respondents).

F Guttman Esq Barrister.

[1946] 1 All ER 444