Form 624, said Clause 4, and with the old company and its liquidators, for the general performance by it of this agreement. IN WITNESS whereof the parties hereto of the former part have hereunto set their hands and seals, and the said Imperial Credit Company, Limited, hath hereunto affixed its common seal, the day and year first above written. AMALGAMATION. INTRODUCTORY NOTES. THE word " amalgamation is used in several senses. In Parlia- Meaning of word amalgamentary language, and particularly in reference to railway companies, it mation in 26 is commonly used in the technical sense given to it by Part V. of the & 27 Vict. Railway Clauses Act, 1863 (26 & 27 Vict. c. 92). See further supra, p. 70. c. 92. In the following pages the words "amalgamation" and "amalgamate" Meaning of word in folare used indiscriminately to describe two operations :lowing pages. (a.) The transfer of all or some part of the assets and liabilities of two or more existing companies to a new company, of which all It will be observed that (b) excludes a reconstruction as already described [supra, p. 494 et seq.], which is the transfer of the assets of a single existing company to a new company. The word "amalgamation" as used in these pages, moreover, generally involves the notion of the dissolution of the transferring company or companies. A large company is generally in a much better position to carry on Advantages of amalgamabusiness successfully than a small one. The expense of management in tion. a small company is relatively much more burdensome than in a large one, and in order to keep it down a small company is, very commonly, obliged to employ directors and other officers and agents of inferior business capacity. Again, the shares of a small company are, not uncommonly, unsaleable, except perhaps in a local market where the demand may be limited and uncertain. This places a small company at a disadvantage it may, and often does, find considerable difficulty in placing its original capital, and still greater in raising any further share capital. And not only has a small company difficulty in placing share capital, but it has little or no chance of borrowing on debentures. Hence it is that the amalgamation of small undertakings is making considerable progress at the present day. Moreover, there is in many cases another great inducement to amalgamation, namely, the desire to By special Act. Under section 161. Under power in articles. terminate competition. However good competition may be for the public, it is very often ruinous to the parties engaged in it. An amalgamation may be effected : (1.) By special Act of Parliament. This mode is not very often adopted by companies formed under the Acts of 1862 and 1867. See Private Acts, infra. (2.) Under Section 161 of the Companies Act, 1862. This is the mode now generally and successfully adopted. (3.) Possibly under a power contained in the memorandum and articles, but in practice this mode is now seldom or never adopted, and it will therefore not be necessary in this work to describe the course of proceeding, or to dwell on the legal and practical difficulties which are likely to result from its adoption. See supra, p. 70. Two modes of effecting amal gamation under section 161. Mode (a). Mode (b). When above modes adopted. Proceedings on amalgamation. Mole (a). Terms. Amalgamation under Section 161 (supra, p. 494) of the Companies There are two modes of effecting an amalgamation under Section 161 of the Act of 1862. Thus : (a.) Company A. and Company B. desire to amalgamate. Company A. passes a special resolution to wind up, appointing liquidators, and directing them to sell the assets to Company B. in consideration of shares in that company to be allotted to the members of Company A. The liquidators act accordingly, and Company A. is then dissolved. (b.) Company A. and Company B. desire to amalgamate. Company C. is formed to acquire their assets and liabilities, and to carry on the amalgamated business. Each of the old companies then passes a special resolution as in the last case, the liquidators carry the sale into effect, and the old companies are then dissolved. Mode (a) can only be adopted where one of the companies desiring to amalgamate has power to acquire the property and liabilities of the other or others. See supra, p. 68. Mode (b), on the other hand, is available in every case, and is often adopted even where there is an ample power to purchase, for the circumstances of the companies, or the terms of the amalgamation very commonly render the establishment of a new company necessary. It may be convenient here to follow closely the course of proceedings upon an amalgamation in accordance with these two modes. And first, as to mode (a). We will suppose that Company A. and Company B. desire to amalgamate; that the directors of Company B. have full power to purchase the assets of Company A.; and that there are sufficient unallotted shares of Company B. at the disposal of the directors thereof. The first thing is for the directors of the two companies to arrange the terms on which the sale is to be made. They must settle whether the consideration is to consist exclusively of shares, or partly of shares and partly of cash, whether the shares are to be fully or partly paid up, whether Company B. or the liquidator of Company A. is to purchase the interests of dissentients and satisfy the debts of Company A., whether any of the directors of Company A. are to become directors of Company B., and whether Company B. is to compensate any of the officers of Company A. for loss of office, and so forth. When the terms are settled they will be embodied in a conditional Agreement. agreement. See infra, p. 521 et seq. Notice of the arrangement is then given to the members of Company B. by the directors thereof, and meetings called to pass a special resolution to wind up, appointing a liquidator and directing him to adopt the agreement. The special resolution having been passed, the liquidator adopts the agreement and carries it into effect. Company B. will allot the shares as provided by the agreement; the dissentients will be satisfied as arranged. The debts of Company A. will be paid and liquidated by Company B. or the liquidators of Company A. according to the arrangement. As soon as may be Company A. will be dissolved. It will be observed that the proceedings are very similar to those upon a reconstruction. See supra, p. 495. If the amalgamation is to be effected by a sale to a new company Mode (b). according to mode (b), the terms of amalgamation will be settled between the directors of the companies proposing to amalgamate, and embodied in an agreement made with some person on behalf of the intended new company. Each of the single companies then passes a special resolution as above, and the subsequent course will be the same as above upon amalgamation according to mode (a). company to be An amalgamation according to mode (b) closely resembles a reconstruction by means of Section 161, except that it involves the reconstruction of two or more companies instead of one. See supra, p. 495. In every case of amalgamation, the question arises whether the debts, How debts of costs of winding up the selling company, and the obligation of satisfying transferring the dissentient members of that company, are to be borne by the pur- paid." chasing company, or not. The chief advantage of throwing the burden on the purchasing company is that the members of the selling company, who will be called on to sanction the arrangement by special resolution are more likely to do so if they know precisely how many shares in the purchasing company they are to receive, but this cannot be if the selling company is to bear the burden. On the other hand, the purchasing party may not be willing to accept a burden which is more or less indefinite it may prefer to purchase the assets for a fixed sum. : However, in practice the burden is almost always thrown on the purchasing company. Where the burden of paying the debts, costs of winding up, and obli- Where transgation of satisfying dissentient members of the selling company or com- ferring companies is not to be thrown on the purchasing company, the agreement own debts. pany to pay its When special resolution of purchasing company necessary. As to appoint ment of directors of selling company to be directors of purchasing company. Sanction if new shares have to be created. Compensation to officers of selling com pany. Notices prior to special resolution should be sufficient. with the purchasing company will be for the sale of the assets in consideration of a definite number of shares in the purchasing company to be allotted to the liquidators of the selling company or as they direct, and the special resolution of the latter company besides providing for the winding up, appointment of liquidators, and adoption of the agreement, will direct the liquidators to sell so many of the shares as may be necessary to pay the debts, costs of winding up, and to satisfy dissentients, and to apply the proceeds accordingly, and to distribute the remaining shares among the members. Sometimes the agreement provides for the retention by the selling company of sufficient funds to pay its creditors. In some cases the directors of a company can only acquire the assets of another company with the sanction of their own company in general meeting or by special resolution; and where this is the case as regards a company to which a sale by way of amalgamation is proposed to be made under Section 161, the necessary sanction must be obtained; and it ought to be obtained before the selling company is called on to pass the special resolution for winding up, &c., for it would be a serious mishap for the latter company if, after the passing of the resolution to wind up, the agreement fell through. The only course would be to reconstruct or to apply to the court to stay the liquidation. It is very common, upon an amalgamation, to provide that some of the directors of the selling company shall become directors of the purchasing company. Where the amalgamation is effected by means of the formation of and sale to a new company, this is provided for by the articles of the new company; but if the sale is to be to an existing company, it is generally necessary to obtain the sanction of the agreement by special resolution of that company; for the power of appointing directors is almost always vested in the company in general meeting. See Stace and Worth's Case, 4 Ch. 685, and James v. Eve, L. R. 6 H. L. 335. So, too, it may be necessary to get the sanction of a special resolution of the purchasing company where the agreement involves the creation of new shares by that company. Upon an amalgamation it is by no means uncommon to provide for compensation to such of the directors or other officers of the selling company as are not to take office under the purchasing company. Nor is there any objection to such an arrangement provided there is no concealment. Southall v. British Mutual Life Ass. Soc., 6 Ch. 614. Nor is it necessary to call attention to the matter provided that the members are given an opportunity of ascertaining the terms. Ibid. The notices calling general meetings to pass the special resolutions should be sufficiently explicit. They should be accompanied by a circular showing the nature of the plan, and, if no previous communication on the subject has been made to the members, the advantages or necessity which should induce its adoption. The notices ought to contain some reference, direct or indirect, to Section 161 of the Act, particularly if the memorandum or articles con |