made for the manner in which such assets are to be disposed of, the regulations so made must be observed. When no such regulations exist, and when all the members stand on the same footing, the surplus assets are divisible among them according to the number of shares held by them in the Company.

In cases where there are shares having a preference as regards capital, the holders of such shares are entitled to be paid in priority to the ordinary and deferred shareholders.1 Where there are no shares entitled to a preference as regards capital, and when some of the shares are fully paid up and others only partly paid up, the surplus assets are first applied in repaying to the holders of the fully paid-up shares the amount paid by them in excess of the other shareholders, so that all the members may be placed in a position of equality. If the surplus assets are not sufficient for this purpose, the liquidator is justified in making a call upon the partly paid-up holders of partly paid-up shares for the purpose of adjusting the rights between them and the fully paid-up shareholders.2 When the shareholders have been placed in a position of equality, and there are still surplus assets, such assets are divided among all the shareholders in proportion to the number of shares held by them, irrespective of the amount paid up on their shares at the date of the winding up.

Reserve Fund. As to the application of money standing at the credit of reserve fund account, see Reserve Fund.

PROCEDURE WHEN AFFAIRS OF COMPANY WOUND UP. In Liquidation by Court. When the affairs of the Company have been completely wound up, the Court makes an order that the Company be dissolved from the date of such order, and the Company is dissolved accordingly.3

In voluntary Winding up.-The procedure in this case is regulated by secs. 142 and 143 of the Act of 1862.

1 Monkland Iron and Coal Co. v. Henderson, 1883, 10 R. 494.

2 In re Anglesea Colliery Co., 1866, 1 Ch. App. 555, followed; Paterson v. Buchanan, 1875, 2 R. 490.

3 Act 1862, secs. 111, 112.

Disposal of Books, Accounts, and Documents of the Company. -When any Company has been wound up, and is about to be dissolved, the books, accounts, and documents of the Company and of the liquidators may be disposed of in the manner directed by sec. 155 of the Act of 1862.

CHAPTER XIV

RECONSTRUCTION OF COMPANIES

1

WHILE extensive powers are now conferred upon a Company, with the sanction of the Court, to alter its Memorandum of Association and so extend the objects for which it was originally formed, there are circumstances which arise in the development of the business of a Company, either financially or otherwise, which cannot competently be dealt with by means of the machinery provided by the Act just referred to. Το attain the desired end, resort is had to reconstruction.

The following are the ways by which the reconstruction of a Company can be accomplished:

1. By special Act of Parliament.

2. In terms of sec. 161 of the Act of 1862.

3. By proceedings under the Joint Stock Companies Arrangement Act of 1870.

4. Reconstruction without a winding up.

By special Act of Parliament.-Every person-and this includes a Company as well as an individual has the right to apply to Parliament with reference to any subject in which he is interested. In the case of ordinary joint stock trading Companies the intervention of Parliament is seldom sought, but the affairs of a Company may become so involved that a rearrangement thereof is impossible by means of a winding up and reconstruction, and extrication from the difficulties can only be satisfactorily accomplished by means of a special Act of 1 Act 1890, for which see Appendix.

Parliament. This course is so full of technicalities that it is impossible in a work like the present to do more than mention the competency of obtaining a special Act.

Unless power to apply to Parliament is contained in the Memorandum of Association, the directors or other persons promoting a Bill run the risk of becoming personally liable for the expenses incurred should the Bill not become law, as it has been decided that the Court will, at the instance of a single dissentient shareholder, prohibit the application of the Company's funds in promoting a Bill in Parliament altering the constitution of the Company. Of course, if the Bill pass, the Act of Parliament will contain a clause providing for the payment of the expenses incurred in the promotion of it.

Reconstruction under sec. 161 of the Act of 1862.1-Reconstructions under this section are of frequent occurrence, and may with advantage be resorted to in a variety of circumstances, of which the following are fair examples :

1. Where a Company proposes to carry on some business not covered by its Memorandum of Association, and proceedings under the Act of 1890 are deemed inexpedient.

2. Where it is desired to regulate the priority of shares, and to take power to issue shares having a preference over existing shares.

3. Where it is desired to make alterations on the capital of the Company, whether by return of a portion thereof to the shareholders, cancelling lost capital, or otherwise, without the necessity of complying with the statutory provisions with regard to a reduction of capital.2

Course to be adopted. The first thing essential is that the Company is about to be, or is in the course of being, wound up voluntarily. This applies to a winding up under the supervision of the Court as well as to a purely voluntary winding up.

1 See Appendix.

2 See Reduction of Capital.

not pass.

Two special resolutions are necessary, and these must be strictly carried out in terms of the Acts.1 The one resolution is for the winding up of the Company, and the other for a sale or arrangement under sec. 161. The two resolutions should run concurrently, for the reason that although the resolution which would in ordinary circumstances be first submitted, namely, that to wind up the Company, is passed, the second resolution authorising the sale or arrangement might No special resolution is deemed invalid for the purposes of the section by reason that it is passed antecedently to or concurrently with any resolution for winding up the Company or for appointing liquidators. If at the time the special resolution authorising the sale or arrangement is confirmed the voluntary winding up is proceeding under the supervision of the Court, the arrangement must receive the sanction of the Court. Again, if an order is made within a year for winding up the Company by or under the supervision of the Court, a resolution passed by a Company being wound up altogether voluntarily is not of any validity unless it is sanctioned by the Court.

The circular convening the meeting at which the transaction is to be submitted to the shareholders must contain distinct notice that the arrangement is to be carried out by the liquidators under sec. 161.2

The resolution may confer either a general authority on the liquidators to carry through the transaction, or to carry it out in a particular way, as by the adoption by the meeting of a specific scheme of arrangement, or the approval of a draft minute of agreement submitted along with the resolution.

The Statute requires that the transfer or sale is to be by the liquidators of the old Company, with the sanction of a special resolution of the Company by which they were appointed, to another Company. Hence a sale to a person about to form a

1 See Resolutions of Company.

2 Imperial Bank of China, India, and Japan v. Bank of Hindustan, China, and Japan, L. R. 9 Eq. 91.