COMPANY AMALGAMATION

Evening Post, Volume CVII, Issue 140, 14 June 1924, Page 8

COMPANY AMALGAMATION

THE LEGAL POSITION.

An address upon "The Law Relating to Reconstruction and Amalgamation of Companies" was delivered by Mr. C. G^ White before a well-attended meeting of the Wellington Accountant Students' Society on Wednesday evening. . The lecturer at the outset stated tho objects to be attained by a reconstruc tion of a company, one of the essential features being that' shareholders in the old company acquired a right to obtain shares in the new company. After covering some of the preliminary steps incident to a reconstruction, he outlined the agreement which formed the basis of the changes in the share capital. A shareholder in the old company had a right to assent or dissent in the proposed arrangements, and if a shareholder dissented, the agreement usually . provided for the protection of his " share capital. One of the important principles of a reconstruction was that the assets of the old company must be sold to another company. A common reason for reconstruction was that the objects clause of . the memorandum of association was not wide enough to allow the company to extend its business in an entirely new direction. Although a company could always go to the Court for an order to alter its objects clause, it was often necessary to reconstruct when a company wished to launch out in a new, class of business,) owing to the difficulty of obtaining tjie consent of the Court to this course of action. A reconstruction was often adopted in order to issue preference shares or to alter the capital of the company by returning part of the capital to the shareholders. It sometimes happened that a reconstruction had as its objective the wiping out of uncalled capital or the return of capital to shareholders with the right to call it up again il necessary. The lecturer cited.some practical illustrations of reconstructions, and emphasised the necessity of reconstruction' where a company had used up all its capital. He stressed the principle that, the uncalled capital of the old company could not be handed over to the new company, and furthermore that a clause in the articles .of association negativing the rights of shareholders to dissent from a reconstruction had been held by the Courts to be invalid.

Mr. White dealt at some length with the principles of novation in regard to creditors on a reconstruction. He outlined the rights of dissenting shareholders, and pointed out that in actual practice the'value of their shares was settled by agreement, and, failing that, by arbitration. A compulsory winding-up order might be obtained by minority shareholders, and an important- factor was that the cost of handing over the property and assets of a company might be too heavy to make it worth while. A common form of reconstruction was for one man to purchase practically the whole share capital of the company, with just sufficient shareholders to comply 'with the provisions of the Companies' Act. Mr. White gave a clear exposition of the principles governing amalgamation of companies, and stated that the legal procedure was very ■ simv lar to that of a reconstruction. An amalgamation of two companies was often earned out in order to acquire the goodwill of another company operating in a district where a company wished to extend its business, and sometimes also for the purpose of reducing overhead costs'and expenses.^ It tva's-occa-sionally necessary for'both companies to liquidate and form an entirely new company.