Case: In re South African Supply and Cold Storage Co [1904] 2 Ch 268
Outcome: discussed
The expressions 'reconstruction' and 'amalgamation' were considered in In re South African Supply and Cold Storage Co [1904] 2 Ch 268 (' South African Supply '). In that case, the words occurred in the memoranda of association of two companies. The questions before the Court related to the rights of preference shareholders and debenture stockholders on the winding up of the two companies, and the issue was whether, in each case, the winding up was 'for the purpose of reconstruction or amalgamation'. 73 Buckley J observed that neither word had any definite legal meaning; that each was a commercial and not a legal term; and that even as a commercial term neither bore an exact definite meaning. His Lordship said that it was necessary, in each case, to determine whether, in the minds of commercial people, the transaction was comprehended by the term 'reconstruction' or 'amalgamation' (at 281-2). I need not relate the facts. His Lordship stated (at 286-7): 'What does "reconstruction" mean? To my mind it means this. An undertaking of some definite kind is being carried on, and the conclusion is arrived at that it is not desirable to kill that undertaking, but that it is desirable to preserve it in some form, and to do so, not by selling it to an outsider who shall carry it on that would be a mere sale but in some altered form to continue the undertaking in such a manner as that the persons now carrying it on will substantially continue to carry it on. It involves, I think, that substantially the same business shall be carried on and substantially the same persons shall carry it on. But it does not involve that all the assets shall pass to the new company or resuscitated company, or that all the shareholders of the old company shall be shareholders in the new company or resuscitated company. Substantially the business and the persons interested must be the same. ... Now what is an amalgamation? An amalgamation involves, I think, a different idea. There you must have the rolling, somehow or other, of two concerns into one. You must weld two things together and arrive at an amalgam a blending of two undertakings. It does not necessarily follow that the whole of the two undertakings should pass substantially they must pass nor need all the corporators be parties, although substantially all must be parties. The difference between reconstruction and amalgamation is that in the latter is involved the blending of two concerns one with the other, but not merely the continuance of one concern. An amalgamation may take place, it seems to me, either by the transfer of undertakings A and B to a new corporation, C, or by the continuance of A and B by B upon terms that the shareholders of A shall become shareholders in B. It is not necessary that you should have a new company. You may have a continuance of one of the two companies upon the terms that the undertakings of both corporations shall substantially be merged in one corporation only.' 77 In my view, the arrangement as proposed is a reconstruction. The whole of the undertaking, property and liabilities of Stork ICM is to be transferred to and vest in Stork FSA. These circumstances fall within Buckley J's description of a 'reconstruction' in South African Supply . Although the run off activity of Stork ICM can hardly be called the 'carrying on' of an undertaking, that business-related activity will be taken over by Stork FSA, and will continue to be, indirectly, an activity of the parent company, Stork NV, as it is at present. It will, however, be an activity distinct from the trading activity of Stork FSA. Stork FSA will receive particulars of claims made by the potential claimants, and will deal with insurers and CMS in relation to them. That is to say, Stork FSA will continue to do what Stork ICM does now, but its activity in this respect will not form part of its trading activity. 78 To my mind, the word 'amalgamation' does not so easily lend itself to the proposed arrangement, because there will be no 'blending' of the two activities, even though they will both be carried on by Stork FSA. 79 Section 413 of the Act has its genesis in s 54 of the Companies Act 1928 (UK) which did not come into force, although the provision later appeared as s 154 of the Companies Act 1929 (UK). The present English provision is s 427 of the Companies Act 1985 (UK).