In re THOMAS EDWARD BRINSMEAD

[1897] Chancery Division 406 C.A. 1897 Feb 11, 12, 20.	In re THOMAS EDWARD BRINSMEAD & SONS. [00200 of 1896.] Company - Winding-up ----" Just and Equitable " - Substratum gone -Fraud ---. Companies Act, 1862 (25 & 26 Vict. c. 89), s. 79, sub-s. 5. A company fraudulent in its inception, carrying on a small business at a loss, having no capital of its own-all the subscribed capital having found its way into the hands of the real, though not the ostensible, promoters-and hopelessly embarrassed by numerous actions brought by shareholders on the ground of fraud, was ordered by the Court of Appeal (affirming Vaughan Williams J.) to be wound up, the Court holding that the case was one in which it was "just and equitable," within s. 79, sub-s. 5, of the Companies Act, 1862, to make the order, that being the most effective means for recovering for the shareholders the money dishonestly retained by the real promoters. APPEAL from Vaughan Williams J. For the purpose of the present report it is necessary to supplement the statement in the former report with the following additional facts. On July 1, 1896, the three Brinsmeads (Thomas Edward and his two sons) agreed to sell their business to Joseph Henry Davies, deceased, as "of 28, Finsbury Circus," for £6000, £1000 being payable in cash and £5000 in shares in the then proposed company, "Thomas Edward Brinsmead & Sons, Limited." On the same day Francis William Jordan and Henry William Allabone, as joint lessees for the Brinsmeads of the premises in Ferdinand Street, St. Pancras (mentioned in the former report), agreed to sell those premises to Davies for £9000. in cash and shares. By an agreement dated the following day and made between Davies, as "the vendor" of the proposed company, of the one part, and Stephenson Wilson, as "trustee" for the company, of the other part, Davies agreed to sell to the company all the premises, machinery and tools, and benefits of contracts and business of the company for the sum of £76,650. to be paid, as to £66,650. in cash, and, as to £10,000., in deferred shares of the proposed company. By clause 7 Davies covenanted with Wilson that the dividend for the first three years on the subscribed capital of the company should not be less than 8 per cent. per annum, and, in order to secure the payment J thereof, to lodge with the company the sum of £9000. After the order for the winding-up of the company was made on December 3, 1896, as already reported, inquiries were instituted in the winding-up by Mr. G. S. Barnes, the Senior Official Receiver, acting under the Companies (Winding-up) Act, 1890, with a view to ascertaining the circumstances under which the company had been promoted and floated. The result of those inquiries was shortly as follows. In the beginning of the year 1896, Thomas Edward Brinsmead, who was then admittedly insolvent, procured the assistance of the above-named Francis William Jordan and another person named Eli in promoting the first company of "Thomas Edward Brinsmead & Sons, Limited" (mentioned in the former report), for taking over the business which had been carried on by T. E. Brinsmead and his partners. This company was registered in March, 1896, the price payable by the company for the business being £6000. in shares of which 3850 were to go to Jordan, 2000 to Eli, and the remaining 150 to T. E. Brinsmead and his partners. In the following month, April, the company passed resolutions for a voluntary winding-up, and Jordan was appointed liquidator. Then followed the various devices for forming and introducing to the public the present company of "Thomas Edward Brinsmead & Sons, Limited," among those devices being the two agreements of July 1, and the agreement of July 2, 1896. The property comprised in the two agreements of July 1, 1896, was, it appeared, under £1000 in value, but yet by those agreements it purported to be sold to Davies for a total sum of £15,000, while by the agreement of July 2 this same property was, as above stated, expressed to be sold by Davies to the present company for £76,650. Then came the issue of the prospectus, which expressly called attention to the fact that Davies had guaranteed an 8 per cent. dividend for a minimum period of three years, and would lodge with trustees for the shareholders a sufficient sum of cash to secure the due payment thereof. By this prospectus 513 persons were induced to take shares to the amount of £58,325, of which £30,835 was paid up in the four months between July 22, the date of the registration of the company, and December 3, the date of the winding-up order. Davies received, on account of the purchase-money, shares to the amount of £40,000 and large sums of cash. By this means the sum of £9000 was lodged in the joint names of Dr. Jacob Bradford, a director and the chairman of the board, and Mr. Thomson, the solicitor of the company, to answer Davies's guarantee of the 8 per cent. dividend. Davies, it now turned out, was a person of no means whatever, occupying one room in a small house in Clerkenwell at a rent of 5s. a week. He had since disappeared, and Stephenson Wilson, the "trustee" under the agreement of July 2, 1896, who had figured as the secretary of the company, had also disappeared. The real promoters of the company were, it was elicited, another company called the "Consolidated Contract Corporation, Limited," Davies being a mere "dummy" employed by them in the promotion of the present Brinsmead Company. Again, the directors named in the prospectus of the Brinsmead Company were, it appeared, simply puppets of the Contract Corporation. They comprised the three Brinsmeads, who were persons of no means, and Dr. Jacob Bradford, the chairman, whose qualification shares were paid for by the Contract Corporation, and another was an undischarged bankrupt. None of the money subscribed by the shareholders of the Brinsmead Company ever found its way into the coffers of that company, but practically the whole of it passed to the Contract Corporation, through their "dummy," Davies; and it was said that, so far as the investigations had gone, a sum of at least £35,000. properly belonging to the Brinsmead Company had been traced as having gone to the Contract Corporation. During the four months from August 11, 1896, when the injunction was granted by North J., to December 3, 1896, the date of the winding-up order, the Brinsmead Company continued to carry on business, but at a loss of upwards of £700, and before the presentation of the winding-up petition no less than eighty six shareholders had commenced actions against the company for the removal of their names from the register on the ground of fraudulent misrepresentation in the prospectus, and those actions were still pending. The present appeal was by the company, and also by two shareholders, one being Dr. Bradford, who, as already mentioned, was a mere puppet of the Contract Corporation, and the other being one George Tomlin, who had applied for 100 shares but had never paid anything on them, not even his application money. The circumstances attending the formation of the company, its history during its brief existence, and the facts brought to light in the winding-up proceedings, are fully stated in the judgment of the Court of Appeal. Sir R. T. Reid, Q.C., Eve, Q.C., and Mark L. Romer, for the appellants. The three reasons given by the learned judge below for making a winding-up order are, we submit, insufficient. First, he says that a material part of the substratum of the business which the company was to carry on is gone. But North J. has said that the business of manufacturing pianos can be carried on notwithstanding the injunction. To justify a winding-up order the whole substratum must have gone. Secondly, the learned judge says that there was fraud in the inception of the company, though he does not say against whom the fraud has been committed, If against the firm of John Brinsmead & Sons, they have their remedy; if against the shareholders, that is not a ground for winding-up, for they may waive the fraud: In re Haven Gold Mining Co.; and they have waived it. And thirdly, the learned judge says that, taken with the other circumstances of the case, the increased facilities for litigation to persons who considered they had been wronged were a ground for making a winding-up order, though he admits that "standing alone" that would not be a sufficient ground. The learned judge goes so far as to say, at the very end of his judgment, that he thinks "the majority of the shareholders have a good business capable of being carried on," and yet he makes a winding-up order because a minority of shareholders do not want the company to go on. His decision is thus based on several distinct grounds each of which is insufficient of itself, and, taken together, do not support each other. The petition is based upon s. 79, sub-s. 5, of the Companies Act, 1862, which says that a company may be wound up by the Court "whenever the Court is of opinion that it is just and equitable that the company should be wound up." The words "just and equitable" have always been interpreted as confined to matters ejusdem generis as those mentioned in the previous sub-sections, none of which apply here. Sect. 80, which defines what is meant by a company being unable to pay its debts, does not include the possible result of a company continuing its business when, as has been found here, the company has a business which it can carry on, and which a majority of the shareholders wish to be carried on. The doctrine of "just and equitable" must not be extended beyond what has now been settled by a long series of authorities commencing with Ex parte Spackman, cited with approval in In re Suburban Hotel Co. The result of these authorities is that, to obtain a winding-up order, you must shew that the whole-not part only-of the substratum of the company is gone, so that persons cannot be compelled to remain in it, or that the company is a bubble company, that is, a company formed for some other purpose than the ostensible one. Here it is sought to extend the doctrine to a case in which the whole substratum is not gone, and in which the company is not a bubble company. Neither is it by any means clear that an examination could be had under s. 8 of the Companies (Winding-up) Act, 1890: In re General Phosphate Corporation; Ex parte Barnes. The limitation of the use of the name "Brinsmead & Sons" does not destroy the company's substratum: its name may be modified by special resolution, with the approval of the Board of Trade, under s. 13 of the Companies Act, 1862, and that name, even when modified, the learned judge below has found to be a valuable asset. [RIGBY L.J. How can a fraudulent user by a workman of the name of his employer be a "valuable asset"? I do not see how any one who knew, as we now know, how the name of B "Brinsmead" came to be used by this company, could consider it a "valuable asset."] The company has been allowed by an order of the Court to retain the name, but with a qualification, and if they have the name, they have an essential element towards carrying on the business successfully: therefore the whole substratum has not gone. We do not deny the fraud in the promotion of the company, but, as we have said, that is not a sufficient ground for a winding-up order, when the shareholders have waived the fraud. It should be left to those concerned, namely, the shareholders, to say whether they will go on or not. The Court will not interfere in matters which can be dealt with by a domestic forum and may be decided by the will of the majority, unless the majority has not acted bona fide: In re Langham Skating Rink Co. Warmington, Q.C., and C. Lyttelton Chubb, for the respondent, J. W. Richardson, the petitioner. It is now apparent from the proceedings in the winding-up that this company was fraudulent in its inception; that, as to the position of the appellants, the company has no money, and is really the creature of the Consolidated Contract Corporation; that Bradford is not an independent shareholder, but had his shares provided for him by the Contract Corporation, and that the remaining appellant, Tomlin, has not paid a penny upon his shares. This is, in fact, not a bona fide appeal: it is, in truth, instigated by the Contract Corporation, and is intended to prevent the arm of the law from reaching the persons who have, it turns out, got some £35,000 of the shareholders' money. In short, this company was formed to commit a fraud, and the real appellants are the Contract Corporation and no one else. The whole of the circumstances in this case shew that it is "just and equitable" that a winding-up order should be made. It is an extraordinary thing if a company which was formed to rob the public by using a name to which they were not entitled could not be stopped. The law is stated in In re London and County Coal Co. where Page Wood V.-C. held, the case being that of a company which had been fraudulently formed, that if there had been a bong fide intention to carry on business a winding-up order would not have been made. Here this company was conceived in fraud, and the appellants have no bona fide object in view. [RIGBY L.J. referred to In re Diamond Fuel Co.] As in that case, there is here a "reasonable probability," if a winding-up order is made, of something being recovered for the shareholders. When a company is unable to carry on the business for which it was ostensibly formed, a winding-up is the proper course, for the substratum is gone: In re German Date Coffee Co. What the petitioner in the present case was asked to do was to take shares in a company entitled to carry on business under the name mentioned in the prospectus, and to participate in a business which the directors said was worth £76,650. But this company is not the thing he bargained for, inasmuch as it cannot carry on business under the name mentioned in the prospectus, unless it is modified, and the business is worth practically nothing. [They also referred to the judgment of Lord Cottenham L.C. in Ex parte Spackman, and to the judgment of Thesiger L.J. in In re Diamond Fuel Co.] Stokes and Duka, for shareholders in opposition to the appeal and in support of the winding-up order. Eve, Q.C., in reply. Cur. adv. vult. Feb. 20. The judgment of the Court (Lindley, A. L. Smith, and Rigby L.JJ.) was delivered by A. L. SMITH L.J. The question we have to decide in this case is whether, within the meaning of s. 79, sub-s. 5, of the Companies Act, 1862, it is just and equitable that a company called "Thomas Edward Brinsmead & Sons, Limited," should be wound up by the Court. Vaughan Williams J. came to the conclusion that it was, and upon December 3, 1896, he made the order. We do not propose to recapitulate the circumstances which led to the formation of the company. This Court went fully into them upon an appeal brought against an injunction granted by North J. on August 11, 1896, restraining the company from using the name of Thomas Edward Brinsmead & Sons, Limited, or the name of Brinsmead in connection with the manufacture, sale, or hire of pianos, without adding thereto an express statement that the company were distinct from and had no connection with the old firm of John Brinsmead & Sons, which injunction we upheld. We then pointed out in unmistakable language the fraud which this company was brought into existence to continue to perpetrate; and Sir Robert Reid, who appeared for the appellants, stated that he did not dispute the accuracy of any of the statements we then made; and what we have heard upon this appeal satisfies us that we were unquestionably right in the conclusion at which we then arrived. But other circumstances have now been brought to light which are very material upon this question of winding-up. We will begin with the date of July 1, 1896, on which day a contract was entered into between Thomas Edward Brinsmead, the father, Edward George Stanley Brinsmead and Sydney Walter Brinsmead, his two sons, of the one part, and Joseph Henry Davies, described as of 28, Finsbury Circus, of the other part, whereby the Brinsmeads agreed to sell to Davies their business of pianoforte makers and all the plant, machinery, and tools belonging to them, in consideration of the sum of £6000, payable, £1000 in cash and £5000 in shares of the company then about to be brought out under the title of "Thomas Edward Brinsmead & Sons, Limited." The Brinsmeads mentioned in this agreement had, up to October, 1894, when they left, been employed by the old firm of John Brinsmead & Sons at weekly wages. They then set to work to fraudulently represent, as best they could, that the pianos which they made, though few in number, were pianos manufactured by the old, well-known firm. The Joseph Henry Davies, of 28, Finsbury Circus, mentioned in this agreement, as it now appears and is not now disputed, is a person of no means whatever, occupying one room in a small house in Clerkenwell at the rent of 5s. a week. Upon the next day, July 2, 1896, an agreement in writing was entered into between the above-named Joseph Henry Davies, therein called "the vendor," and Stephenson Wilson, described as trustee for Thomas Edward Brinsmead & Sons, Limited, therein called "the company," whereby Davies agreed to sell to the company all the premises, plant, machinery, and tools, and benefits of contracts and business of Thomas Edward Brinsmead & Sons for the sum of £76,650, to be paid, as to £66,650, in cash, and, as to £10,000, in deferred shares of the proposed company. By clause 7 of this agreement Davies, the vendor, covenanted with Wilson, as trustee for the company, that the dividend for the first three years on the subscribed capital of the company should not be less than 8 per cent. per annum, and, to secure the payment thereof, to lodge with the company (to state it shortly) the sum of £9000, which was afterwards done by some one, and we shall hereafter see who lodged it. Davies, it will be noticed, was to do all this. Upon what hypothesis the value of the small and comparatively insignificant business and plant of the Brinsmeads could be honestly fixed at the sum of £76,650 we do not know, nor has any endeavour been made by the appellants' counsel at the Bar to shew that it was its honest value, or to explain why it was fixed at this exorbitant sum. It has now been discovered that a company called the Consolidated Contract Corporation were the real promoters of this company (i.e., of Thomas Edward Brinsmead & Sons, Limited), and a strong prima facie case has been made out that these contracts of July 1 and 2, 1896, were merely devices to cloak the part this corporation, with or without confederates, were taking and about to take in the matter. Thomas Edward Brinsmead & Sons, Limited, was registered upon July 22, 1896. The next thing which was done was to issue a prospectus. It is evident to us that the directors named in this prospectus were mere puppets of this Consolidated Contract Corporation, who were working the scheme to bring out the new company to thereby secure to themselves or their nominees what has been called at the Bar the "plunder" to be made thereout. We do not stop to point out in detail the individual personal qualifications of these gentlemen; it is sufficient to say that one was an undischarged bankrupt. The three Brinsmeads were, as one would expect, upon the board, and Dr. Jacob Bradford was also a director and chairman of the board of the new company. He was the principal witness before Vaughan Williams J. in opposition to the winding-up order, and he made an affidavit which was used before the learned judge, in which he swore that he and each of the other directors "had out of their own moneys subscribed and paid for £250 worth of shares in the said company-the directors' qualification." This gentleman, however, has since made a clean breast of it, and has told how it was that the Consolidated Contract Corporation gave him the money to subscribe for shares so as to become qualified as a director, and that he understood the said corporation were the promoters, and he assumed (which we have little doubt is the case) that they would have the bulk of the purchase-money as the promoters. The signed statement of Dr. Bradford made to the official receiver, which counsel for the appellants admitted in evidence and did not seek to contradict, has only to be read to shew that Thomas Edward Brinsmead & Sons, Limited, and its directors were the creatures of the Consolidated Contract Corporation and utilised by them for their own purposes. Then there is a letter of July 1, 1896, from Thomas Edward Brinsmead, the father, to the Consolidated Contract Corporation which is peculiarly significant upon this point. In the prospectus before mentioned the share capital of the new company is declared to be £100,000, divided into ordinary and deferred shares of £5 each, and it is stated that the price to be paid for the property of the Brinsmeads had been fixed at £76,650, leaving £23,350 available for working capital. Here comes out the purpose for which the price of the Brinsmeads' business and plant was fixed at the dishonest sum of £76,650. It was to make the public believe that the company was acquiring a property of that value, and that the £76,650 was to be expended in the purchase thereof, the truth being that only £1000 in cash, together with £5000 in shares of the company, was to be paid for the property, and the difference was to go into the coffers of the promoters of the company. Out of this they and not Davies, who had not £1 to put down, might well lodge the £9000 before mentioned. The prospectus stated in leaded type-" The vendor" (that is, Davies of the one room in Clerkenwell at 5s. a week rent) "was so satisfied as to the expansion of the business with the additional capital and new works that he guarantees that the dividend shall not be less than 8 per cent. per annum for a minimum period of three years, and will lodge with trustees on behalf of the shareholders, on and before the completion of the purchase, a sufficient amount in cash to secure the due payment thereof." We will not proceed further with the statements in this prospectus, though the truth of many others is impeached. By means of this prospectus 513 persons were induced to become shareholders, subscribing to the amount of £58,325, of which amount £30,835 has been paid up. Now, what has become of this £30,835 paid up at different times in the short interval between July 22, 1896, when the company was registered, and December 3, 1896, when it was ordered to be wound up? On August 12, 1896, Richardson brought an action against the company to prevent it from parting with its assets. This was defeated by the company asserting that the contract had already been completed by payment before August 19 to Davies; but if this were so it must have been paid by the authority of the directors, and a more conclusive proof of their subservience to the real promoters could hardly have been forthcoming. Can it be doubted that the money was paid to and received by the Consolidated Contract Corporation or their confederates? This sum, too, was paid before it was due, it not being due by the contract entered into between Davies and the company until September 1, when the purchase was to be completed. On August 26, 1896, Mr. Richardson, who on July 30, 1896, had become the holder of twenty-five shares in the company and had paid £125 for them, petitioned the Court to wind up the company. By that time all the subscriptions for shares had disappeared with the exception of the £9000 which has been lodged. Has the bulk of them gone into the coffers of the Consolidated Contract Corporation, and, if so, how did it honestly get there? We have little doubt that upon inquiry this will be found to be the case, and the appellants do not even make a suggestion to whom else it could have gone. Before, however, Mr. Richardson took this step to wind up the company, no less than eighty-six shareholders had brought actions to have their names removed from the register and to have their money returned to them upon the ground that they had been defrauded into becoming shareholders of the company by fraudulent misstatements in the prospectus. Vaughan Williams J., when the petition came before him, not knowing what we know now and legitimately believing the affidavit Dr. Bradford had made, ordered that a meeting of shareholders should take place to ascertain what were the wishes of the shareholders as to whether the company should be wound up or not. This meeting took place upon November 23, 1896, with the Senior Official Receiver, Mr. Barnes, in the chair. Of the 513 shareholders only 36 attended in person and 121 by proxy. Of these the 36 attending in person and 114 by proxy (i.e., 150 in all) voted against the company being wound up, and seven by proxy voted in favour of a winding-up order. How many of the 150 were the nominees of the promoters we have no present means of knowing; certain it is that the promoters had plenty of shares to dispose of. Mr. Barnes with remarkable lucidity laid before those present what he knew of the position of affairs. A discussion then took place, in which Dr. Bradford, now known to have been the tool of the Consolidated Contract Corporation, took a prominent part, and he pointed out to the shareholders present that they had interest upon their shares at 8 per cent. per annum secured to them for the period of three years, and this was true, for it had been secured by the deposit of the £9000, which was one great lure held out by the promoters to induce would-be shareholders to part with their money, without which the scheme could not be carried into effect. We cannot doubt that the Consolidated Contract Corporation were the real providers of this £9000, though the hand employed may have been the hand of Davies, and, indeed, there was no one else in the transaction but the corporation who had the money with which to do so. At this meeting Mr. Ball, a shareholder, during the discussion significantly stated "that he was thoroughly at a loss to understand where the £9000 had come from," to which Mr. Thomson, the solicitor to the company, made answer "that it was extremely simple, the £9000 was paid by the vendor out of his own pocket to the trustees upon certain trusts." That this is a palpable falsehood is clear. If he had told the truth and stated that the money had been found by the Consolidated Contract Corporation, who had possessed themselves of the bulk of the money subscribed by the shareholders, those who afterwards voted would have been in a very different position when they did so to what they then were. Dr. Bradford also stated that the company had a "good balance" at its bankers, but would not produce the pass-book. The "good balance" now turns out to have been £79. How can it be said in this case, as it was said in the case of In re Haven Gold Mining Co. that the majority of shareholders had waived the fraud and confirmed the transaction? With these statements before them the votes of the thirty-six shareholders who were present in person coupled with the proxies were taken. Such a vote as this, taken under the circumstances it was, and without the true facts of the case being known, can have and ought to have no weight with the Court when considering whether it was just and equitable that the company should be wound up. Such a vote manifestly does not express the real preponderating wish of the majority. If such a wish is in reality expressed, we do not doubt that it takes "a very strong case" to justify the Court taking upon itself to interfere with the domestic forum which has been established for the management of the affairs of the company: In re Lanyhaim Skating Rink Co. But in the present case, in our judgment, no such wish has been expressed, and, what is more, a very strong ease for the interference of the Court has been made out. When the petition came again before Vaughan Williams J., the learned judge arrived, upon the materials then before him, at the conclusion that the company should be wound up; and as we are agreeing with him, it is not necessary to deal with all the difficulties which the learned judge felt in making the order; but there are two matters to which we wish to allude. We do not agree with the learned judge that it is obvious that Mr. Richardson's petition was presented in the interest of John Brinsmead & Sons, for, if the affidavits of Mr. Richardson, Mr. Maskell, and Mr. Brinsmead had been brought to his attention, which we are told they were not, we do not think that he would have come to this conclusion, although, undoubtedly, there would be a suspicion that it was, unless the matter was explained, as we think it is, by the affidavits above mentioned. We also do not agree with the learned judge that it is shewn that, after the company was restrained by injunction upon August 11, 1896, by North J., there was a valuable business which could be carried on consistently with the injunction; for Mr. Lyttelton Chubb pointed out to us that, although after North J.'s order eighty-nine orders for pianos-so it was stated - were given to the company, yet no less than fifty of these orders were given by a firm trading under the name and style of Edward Mayer & Co. upon one day-namely, October 15, 1896 - which certainly requires investigation; and Sir Robert Reid has admitted that, during that period-that is, between August 11, 1896, and December 3, 1896 (four months) - the business was carried on at a loss of at least £700. It is said that this appeal is brought bona fide on behalf of the company and its shareholders. We do not believe it. We have already pointed out the relation of the Consolidated Contract Corporation to the company and its board of directors, who are the persons originally appointed by the promoters. The two shareholders who appear as appellants with the company are Dr. Jacob Bradford and Mr. George Tomlin. Dr. Bradford's position to the Consolidated Contract Corporation has been established, as above pointed out; Mr. Tomlin is a shareholder, but he has paid, we are told, nothing upon his shares. On the evidence now before us it is apparent to us that this appeal is really brought on behalf of the Consolidated Contract Corporation to prevent a winding-up order being made, under which the corporation will be forced to hand back what it has dishonestly placed in its coffers, or paid to its confederates, of the moneys subscribed by the shareholders; and, in our judgment, a winding-up order is by far the most effective, if not the only effective, means by which this result for the benefit of the shareholders can be attained. To use the words of Thesiger L.J. in In re Diamond Fuel Co., this order of Vaughan Williams J. "may be supported not merely on one isolated fact which may be impeached by the appellants, but by a combination of circumstances which, taken together, make a very strong case in favour of the order." In our judgment it has been proved that this company-i.e., Thomas Edward Brinsmead & Sons, Limited-was initiated to carry out a fraud, and that, until restrained by injunction, it continued therein; and that a strong prima facie case has been. made out that the Consolidated Contract Corporation are at the present moment dishonestly keeping the shareholders' money to which the shareholders, and not they, are entitled, and are resisting the petition to wind up in order to continue to do so. If the sums which they have improperly obtained from the company can be recovered from them, there will probably be something to distribute among the shareholders, and, although the petitioner is a fully paid-up shareholder, he cannot be said to have no locus standi. The company is hopelessly embarrassed by the actions already brought against it, and there will, no doubt, be many more of the same sort if this petition is dismissed; and if it is not wound up the £35,000 obtained from it by its promoters will remain in their hands. Although the words "just and equitable" have had a narrow construction put upon them, they have never been construed so narrowly as to exclude such a case as this. If ever there was a case in which it was just and equitable that a company should be wound up by the Court, we cannot doubt that that case is this case. For the reasons above, we dismiss this appeal with costs. Solicitors: Thomson & Co.; W. Maskell; Pownall & Co.; J. H. Moggridge. G. I. F. C.

[1897] Chancery Division 406

C.A.

1897

Feb 11, 12, 20.

In re THOMAS EDWARD BRINSMEAD & SONS.

[00200 of 1896.]

Company - Winding-up ----" Just and Equitable " - Substratum gone -Fraud ---. Companies Act, 1862 (25 & 26 Vict. c. 89), s. 79, sub-s. 5.

A company fraudulent in its inception, carrying on a small business at a loss, having no capital of its own-all the subscribed capital having found its way into the hands of the real, though not the ostensible, promoters-and hopelessly embarrassed by numerous actions brought by shareholders on the ground of fraud, was ordered by the Court of Appeal (affirming Vaughan Williams J.) to be wound up, the Court holding that the case was one in which it was "just and equitable," within s. 79, sub-s. 5, of the Companies Act, 1862, to make the order, that being the most effective means for recovering for the shareholders the money dishonestly retained by the real promoters.

APPEAL from Vaughan Williams J.

For the purpose of the present report it is necessary to supplement the statement in the former report with the following additional facts.

On July 1, 1896, the three Brinsmeads (Thomas Edward and his two sons) agreed to sell their business to Joseph Henry Davies, deceased, as "of 28, Finsbury Circus," for £6000, £1000 being payable in cash and £5000 in shares in the then proposed company, "Thomas Edward Brinsmead & Sons, Limited." On the same day Francis William Jordan and Henry William Allabone, as joint lessees for the Brinsmeads of the premises in Ferdinand Street, St. Pancras (mentioned in the former report), agreed to sell those premises to Davies for £9000. in cash and shares.

By an agreement dated the following day and made between Davies, as "the vendor" of the proposed company, of the one part, and Stephenson Wilson, as "trustee" for the company, of the other part, Davies agreed to sell to the company all the premises, machinery and tools, and benefits of contracts and business of the company for the sum of £76,650. to be paid, as to £66,650. in cash, and, as to £10,000., in deferred shares of the proposed company. By clause 7 Davies covenanted with Wilson that the dividend for the first three years on the subscribed capital of the company should not be less than 8 per cent. per annum, and, in order to secure the payment J thereof, to lodge with the company the sum of £9000.

After the order for the winding-up of the company was made on December 3, 1896, as already reported, inquiries were instituted in the winding-up by Mr. G. S. Barnes, the Senior Official Receiver, acting under the Companies (Winding-up) Act, 1890, with a view to ascertaining the circumstances under which the company had been promoted and floated. The result of those inquiries was shortly as follows.

In the beginning of the year 1896, Thomas Edward Brinsmead, who was then admittedly insolvent, procured the assistance of the above-named Francis William Jordan and another person named Eli in promoting the first company of "Thomas Edward Brinsmead & Sons, Limited" (mentioned in the former report), for taking over the business which had been carried on by T. E. Brinsmead and his partners. This company was registered in March, 1896, the price payable by the company for the business being £6000. in shares of which 3850 were to go to Jordan, 2000 to Eli, and the remaining 150 to T. E. Brinsmead and his partners. In the following month, April, the company passed resolutions for a voluntary winding-up, and Jordan was appointed liquidator. Then followed the various devices for forming and introducing to the public the present company of "Thomas Edward Brinsmead & Sons, Limited," among those devices being the two agreements of July 1, and the agreement of July 2, 1896.

The property comprised in the two agreements of July 1, 1896, was, it appeared, under £1000 in value, but yet by those agreements it purported to be sold to Davies for a total sum of £15,000, while by the agreement of July 2 this same property was, as above stated, expressed to be sold by Davies to the present company for £76,650.

Then came the issue of the prospectus, which expressly called attention to the fact that Davies had guaranteed an 8 per cent. dividend for a minimum period of three years, and would lodge with trustees for the shareholders a sufficient sum of cash to secure the due payment thereof. By this prospectus 513 persons were induced to take shares to the amount of £58,325, of which £30,835 was paid up in the four months between July 22, the date of the registration of the company, and December 3, the date of the winding-up order. Davies received, on account of the purchase-money, shares to the amount of £40,000 and large sums of cash. By this means the sum of £9000 was lodged in the joint names of Dr. Jacob Bradford, a director and the chairman of the board, and Mr. Thomson, the solicitor of the company, to answer Davies's guarantee of the 8 per cent. dividend. Davies, it now turned out, was a person of no means whatever, occupying one room in a small house in Clerkenwell at a rent of 5s. a week. He had since disappeared, and Stephenson Wilson, the "trustee" under the agreement of July 2, 1896, who had figured as the secretary of the company, had also disappeared. The real promoters of the company were, it was elicited, another company called the "Consolidated Contract Corporation, Limited," Davies being a mere "dummy" employed by them in the promotion of the present Brinsmead Company. Again, the directors named in the prospectus of the Brinsmead Company were, it appeared, simply puppets of the Contract Corporation. They comprised the three Brinsmeads, who were persons of no means, and Dr. Jacob Bradford, the chairman, whose qualification shares were paid for by the Contract Corporation, and another was an undischarged bankrupt. None of the money subscribed by the shareholders of the Brinsmead Company ever found its way into the coffers of that company, but practically the whole of it passed to the Contract Corporation, through their "dummy," Davies; and it was said that, so far as the investigations had gone, a sum of at least £35,000. properly belonging to the Brinsmead Company had been traced as having gone to the Contract Corporation.

During the four months from August 11, 1896, when the injunction was granted by North J., to December 3, 1896, the date of the winding-up order, the Brinsmead Company continued to carry on business, but at a loss of upwards of £700, and before the presentation of the winding-up petition no less than eighty six shareholders had commenced actions against the company for the removal of their names from the register on the ground of fraudulent misrepresentation in the prospectus, and those actions were still pending.

The present appeal was by the company, and also by two shareholders, one being Dr. Bradford, who, as already mentioned, was a mere puppet of the Contract Corporation, and the other being one George Tomlin, who had applied for 100 shares but had never paid anything on them, not even his application money.

The circumstances attending the formation of the company, its history during its brief existence, and the facts brought to light in the winding-up proceedings, are fully stated in the judgment of the Court of Appeal.

Sir R. T. Reid, Q.C., Eve, Q.C., and Mark L. Romer, for the appellants. The three reasons given by the learned judge below for making a winding-up order are, we submit, insufficient. First, he says that a material part of the substratum of the business which the company was to carry on is gone. But North J. has said that the business of manufacturing pianos can be carried on notwithstanding the injunction. To justify a winding-up order the whole substratum must have gone. Secondly, the learned judge says that there was fraud in the inception of the company, though he does not say against whom the fraud has been committed, If against the firm of John Brinsmead & Sons, they have their remedy; if against the shareholders, that is not a ground for winding-up, for they may waive the fraud: In re Haven Gold Mining Co.; and they have waived it. And thirdly, the learned judge says that, taken with the other circumstances of the case, the increased facilities for litigation to persons who considered they had been wronged were a ground for making a winding-up order, though he admits that "standing alone" that would not be a sufficient ground. The learned judge goes so far as to say, at the very end of his judgment, that he thinks "the majority of the shareholders have a good business capable of being carried on," and yet he makes a winding-up order because a minority of shareholders do not want the company to go on. His decision is thus based on several distinct grounds each of which is insufficient of itself, and, taken together, do not support each other. The petition is based upon s. 79, sub-s. 5, of the Companies Act, 1862, which says that a company may be wound up by the Court "whenever the Court is of opinion that it is just and equitable that the company should be wound up." The words "just and equitable" have always been interpreted as confined to matters ejusdem generis as those mentioned in the previous sub-sections, none of which apply here. Sect. 80, which defines what is meant by a company being unable to pay its debts, does not include the possible result of a company continuing its business when, as has been found here, the company has a business which it can carry on, and which a majority of the shareholders wish to be carried on. The doctrine of "just and equitable" must not be extended beyond what has now been settled by a long series of authorities commencing with Ex parte Spackman, cited with approval in In re Suburban Hotel Co. The result of these authorities is that, to obtain a winding-up order, you must shew that the whole-not part only-of the substratum of the company is gone, so that persons cannot be compelled to remain in it, or that the company is a bubble company, that is, a company formed for some other purpose than the ostensible one. Here it is sought to extend the doctrine to a case in which the whole substratum is not gone, and in which the company is not a bubble company. Neither is it by any means clear that an examination could be had under s. 8 of the Companies (Winding-up) Act, 1890: In re General Phosphate Corporation; Ex parte Barnes. The limitation of the use of the name "Brinsmead & Sons" does not destroy the company's substratum: its name may be modified by special resolution, with the approval of the Board of Trade, under s. 13 of the Companies Act, 1862, and that name, even when modified, the learned judge below has found to be a valuable asset.

[RIGBY L.J. How can a fraudulent user by a workman of the name of his employer be a "valuable asset"? I do not see how any one who knew, as we now know, how the name of B "Brinsmead" came to be used by this company, could consider it a "valuable asset."]

The company has been allowed by an order of the Court to retain the name, but with a qualification, and if they have the name, they have an essential element towards carrying on the business successfully: therefore the whole substratum has not gone. We do not deny the fraud in the promotion of the company, but, as we have said, that is not a sufficient ground for a winding-up order, when the shareholders have waived the fraud. It should be left to those concerned, namely, the shareholders, to say whether they will go on or not. The Court will not interfere in matters which can be dealt with by a domestic forum and may be decided by the will of the majority, unless the majority has not acted bona fide: In re Langham Skating Rink Co.

Warmington, Q.C., and C. Lyttelton Chubb, for the respondent, J. W. Richardson, the petitioner. It is now apparent from the proceedings in the winding-up that this company was fraudulent in its inception; that, as to the position of the appellants, the company has no money, and is really the creature of the Consolidated Contract Corporation; that Bradford is not an independent shareholder, but had his shares provided for him by the Contract Corporation, and that the remaining appellant, Tomlin, has not paid a penny upon his shares. This is, in fact, not a bona fide appeal: it is, in truth, instigated by the Contract Corporation, and is intended to prevent the arm of the law from reaching the persons who have, it turns out, got some £35,000 of the shareholders' money. In short, this company was formed to commit a fraud, and the real appellants are the Contract Corporation and no one else. The whole of the circumstances in this case shew that it is "just and equitable" that a winding-up order should be made. It is an extraordinary thing if a company which was formed to rob the public by using a name to which they were not entitled could not be stopped.

The law is stated in In re London and County Coal Co. where Page Wood V.-C. held, the case being that of a company which had been fraudulently formed, that if there had been a bong fide intention to carry on business a winding-up order would not have been made. Here this company was conceived in fraud, and the appellants have no bona fide object in view.

[RIGBY L.J. referred to In re Diamond Fuel Co.]

As in that case, there is here a "reasonable probability," if a winding-up order is made, of something being recovered for the shareholders. When a company is unable to carry on the business for which it was ostensibly formed, a winding-up is the proper course, for the substratum is gone: In re German Date Coffee Co. What the petitioner in the present case was asked to do was to take shares in a company entitled to carry on business under the name mentioned in the prospectus, and to participate in a business which the directors said was worth £76,650. But this company is not the thing he bargained for, inasmuch as it cannot carry on business under the name mentioned in the prospectus, unless it is modified, and the business is worth practically nothing.

[They also referred to the judgment of Lord Cottenham L.C. in Ex parte Spackman, and to the judgment of Thesiger L.J. in In re Diamond Fuel Co.]

Stokes and Duka, for shareholders in opposition to the appeal and in support of the winding-up order.

Eve, Q.C., in reply.

Cur. adv. vult.

Feb. 20. The judgment of the Court (Lindley, A. L. Smith, and Rigby L.JJ.) was delivered by

A. L. SMITH L.J. The question we have to decide in this case is whether, within the meaning of s. 79, sub-s. 5, of the Companies Act, 1862, it is just and equitable that a company called "Thomas Edward Brinsmead & Sons, Limited," should be wound up by the Court. Vaughan Williams J. came to the conclusion that it was, and upon December 3, 1896, he made the order. We do not propose to recapitulate the circumstances which led to the formation of the company. This Court went fully into them upon an appeal brought against an injunction granted by North J. on August 11, 1896, restraining the company from using the name of Thomas Edward Brinsmead & Sons, Limited, or the name of Brinsmead in connection with the manufacture, sale, or hire of pianos, without adding thereto an express statement that the company were distinct from and had no connection with the old firm of John Brinsmead & Sons, which injunction we upheld. We then pointed out in unmistakable language the fraud which this company was brought into existence to continue to perpetrate; and Sir Robert Reid, who appeared for the appellants, stated that he did not dispute the accuracy of any of the statements we then made; and what we have heard upon this appeal satisfies us that we were unquestionably right in the conclusion at which we then arrived.

But other circumstances have now been brought to light which are very material upon this question of winding-up. We will begin with the date of July 1, 1896, on which day a contract was entered into between Thomas Edward Brinsmead, the father, Edward George Stanley Brinsmead and Sydney Walter Brinsmead, his two sons, of the one part, and Joseph Henry Davies, described as of 28, Finsbury Circus, of the other part, whereby the Brinsmeads agreed to sell to Davies their business of pianoforte makers and all the plant, machinery, and tools belonging to them, in consideration of the sum of £6000, payable, £1000 in cash and £5000 in shares of the company then about to be brought out under the title of "Thomas Edward Brinsmead & Sons, Limited." The Brinsmeads mentioned in this agreement had, up to October, 1894, when they left, been employed by the old firm of John Brinsmead & Sons at weekly wages. They then set to work to fraudulently represent, as best they could, that the pianos which they made, though few in number, were pianos manufactured by the old, well-known firm. The Joseph Henry Davies, of 28, Finsbury Circus, mentioned in this agreement, as it now appears and is not now disputed, is a person of no means whatever, occupying one room in a small house in Clerkenwell at the rent of 5s. a week. Upon the next day, July 2, 1896, an agreement in writing was entered into between the above-named Joseph Henry Davies, therein called "the vendor," and Stephenson Wilson, described as trustee for Thomas Edward Brinsmead & Sons, Limited, therein called "the company," whereby Davies agreed to sell to the company all the premises, plant, machinery, and tools, and benefits of contracts and business of Thomas Edward Brinsmead & Sons for the sum of £76,650, to be paid, as to £66,650, in cash, and, as to £10,000, in deferred shares of the proposed company. By clause 7 of this agreement Davies, the vendor, covenanted with Wilson, as trustee for the company, that the dividend for the first three years on the subscribed capital of the company should not be less than 8 per cent. per annum, and, to secure the payment thereof, to lodge with the company (to state it shortly) the sum of £9000, which was afterwards done by some one, and we shall hereafter see who lodged it. Davies, it will be noticed, was to do all this. Upon what hypothesis the value of the small and comparatively insignificant business and plant of the Brinsmeads could be honestly fixed at the sum of £76,650 we do not know, nor has any endeavour been made by the appellants' counsel at the Bar to shew that it was its honest value, or to explain why it was fixed at this exorbitant sum. It has now been discovered that a company called the Consolidated Contract Corporation were the real promoters of this company (i.e., of Thomas Edward Brinsmead & Sons, Limited), and a strong prima facie case has been made out that these contracts of July 1 and 2, 1896, were merely devices to cloak the part this corporation, with or without confederates, were taking and about to take in the matter.

Thomas Edward Brinsmead & Sons, Limited, was registered upon July 22, 1896. The next thing which was done was to issue a prospectus. It is evident to us that the directors named in this prospectus were mere puppets of this Consolidated Contract Corporation, who were working the scheme to bring out the new company to thereby secure to themselves or their nominees what has been called at the Bar the "plunder" to be made thereout. We do not stop to point out in detail the individual personal qualifications of these gentlemen; it is sufficient to say that one was an undischarged bankrupt. The three Brinsmeads were, as one would expect, upon the board, and Dr. Jacob Bradford was also a director and chairman of the board of the new company. He was the principal witness before Vaughan Williams J. in opposition to the winding-up order, and he made an affidavit which was used before the learned judge, in which he swore that he and each of the other directors "had out of their own moneys subscribed and paid for £250 worth of shares in the said company-the directors' qualification." This gentleman, however, has since made a clean breast of it, and has told how it was that the Consolidated Contract Corporation gave him the money to subscribe for shares so as to become qualified as a director, and that he understood the said corporation were the promoters, and he assumed (which we have little doubt is the case) that they would have the bulk of the purchase-money as the promoters. The signed statement of Dr. Bradford made to the official receiver, which counsel for the appellants admitted in evidence and did not seek to contradict, has only to be read to shew that Thomas Edward Brinsmead & Sons, Limited, and its directors were the creatures of the Consolidated Contract Corporation and utilised by them for their own purposes.

Then there is a letter of July 1, 1896, from Thomas Edward Brinsmead, the father, to the Consolidated Contract Corporation which is peculiarly significant upon this point. In the prospectus before mentioned the share capital of the new company is declared to be £100,000, divided into ordinary and deferred shares of £5 each, and it is stated that the price to be paid for the property of the Brinsmeads had been fixed at £76,650, leaving £23,350 available for working capital. Here comes out the purpose for which the price of the Brinsmeads' business and plant was fixed at the dishonest sum of £76,650. It was to make the public believe that the company was acquiring a property of that value, and that the £76,650 was to be expended in the purchase thereof, the truth being that only £1000 in cash, together with £5000 in shares of the company, was to be paid for the property, and the difference was to go into the coffers of the promoters of the company. Out of this they and not Davies, who had not £1 to put down, might well lodge the £9000 before mentioned. The prospectus stated in leaded type-" The vendor" (that is, Davies of the one room in Clerkenwell at 5s. a week rent) "was so satisfied as to the expansion of the business with the additional capital and new works that he guarantees that the dividend shall not be less than 8 per cent. per annum for a minimum period of three years, and will lodge with trustees on behalf of the shareholders, on and before the completion of the purchase, a sufficient amount in cash to secure the due payment thereof." We will not proceed further with the statements in this prospectus, though the truth of many others is impeached. By means of this prospectus 513 persons were induced to become shareholders, subscribing to the amount of £58,325, of which amount £30,835 has been paid up.

Now, what has become of this £30,835 paid up at different times in the short interval between July 22, 1896, when the company was registered, and December 3, 1896, when it was ordered to be wound up? On August 12, 1896, Richardson brought an action against the company to prevent it from parting with its assets. This was defeated by the company asserting that the contract had already been completed by payment before August 19 to Davies; but if this were so it must have been paid by the authority of the directors, and a more conclusive proof of their subservience to the real promoters could hardly have been forthcoming. Can it be doubted that the money was paid to and received by the Consolidated Contract Corporation or their confederates? This sum, too, was paid before it was due, it not being due by the contract entered into between Davies and the company until September 1, when the purchase was to be completed.

On August 26, 1896, Mr. Richardson, who on July 30, 1896, had become the holder of twenty-five shares in the company and had paid £125 for them, petitioned the Court to wind up the company. By that time all the subscriptions for shares had disappeared with the exception of the £9000 which has been lodged. Has the bulk of them gone into the coffers of the Consolidated Contract Corporation, and, if so, how did it honestly get there? We have little doubt that upon inquiry this will be found to be the case, and the appellants do not even make a suggestion to whom else it could have gone. Before, however, Mr. Richardson took this step to wind up the company, no less than eighty-six shareholders had brought actions to have their names removed from the register and to have their money returned to them upon the ground that they had been defrauded into becoming shareholders of the company by fraudulent misstatements in the prospectus. Vaughan Williams J., when the petition came before him, not knowing what we know now and legitimately believing the affidavit Dr. Bradford had made, ordered that a meeting of shareholders should take place to ascertain what were the wishes of the shareholders as to whether the company should be wound up or not. This meeting took place upon November 23, 1896, with the Senior Official Receiver, Mr. Barnes, in the chair. Of the 513 shareholders only 36 attended in person and 121 by proxy. Of these the 36 attending in person and 114 by proxy (i.e., 150 in all) voted against the company being wound up, and seven by proxy voted in favour of a winding-up order. How many of the 150 were the nominees of the promoters we have no present means of knowing; certain it is that the promoters had plenty of shares to dispose of. Mr. Barnes with remarkable lucidity laid before those present what he knew of the position of affairs. A discussion then took place, in which Dr. Bradford, now known to have been the tool of the Consolidated Contract Corporation, took a prominent part, and he pointed out to the shareholders present that they had interest upon their shares at 8 per cent. per annum secured to them for the period of three years, and this was true, for it had been secured by the deposit of the £9000, which was one great lure held out by the promoters to induce would-be shareholders to part with their money, without which the scheme could not be carried into effect. We cannot doubt that the Consolidated Contract Corporation were the real providers of this £9000, though the hand employed may have been the hand of Davies, and, indeed, there was no one else in the transaction but the corporation who had the money with which to do so. At this meeting Mr. Ball, a shareholder, during the discussion significantly stated "that he was thoroughly at a loss to understand where the £9000 had come from," to which Mr. Thomson, the solicitor to the company, made answer "that it was extremely simple, the £9000 was paid by the vendor out of his own pocket to the trustees upon certain trusts." That this is a palpable falsehood is clear. If he had told the truth and stated that the money had been found by the Consolidated Contract Corporation, who had possessed themselves of the bulk of the money subscribed by the shareholders, those who afterwards voted would have been in a very different position when they did so to what they then were. Dr. Bradford also stated that the company had a "good balance" at its bankers, but would not produce the pass-book. The "good balance" now turns out to have been £79.

How can it be said in this case, as it was said in the case of In re Haven Gold Mining Co. that the majority of shareholders had waived the fraud and confirmed the transaction? With these statements before them the votes of the thirty-six shareholders who were present in person coupled with the proxies were taken. Such a vote as this, taken under the circumstances it was, and without the true facts of the case being known, can have and ought to have no weight with the Court when considering whether it was just and equitable that the company should be wound up. Such a vote manifestly does not express the real preponderating wish of the majority. If such a wish is in reality expressed, we do not doubt that it takes "a very strong case" to justify the Court taking upon itself to interfere with the domestic forum which has been established for the management of the affairs of the company: In re Lanyhaim Skating Rink Co. But in the present case, in our judgment, no such wish has been expressed, and, what is more, a very strong ease for the interference of the Court has been made out.

When the petition came again before Vaughan Williams J., the learned judge arrived, upon the materials then before him, at the conclusion that the company should be wound up; and as we are agreeing with him, it is not necessary to deal with all the difficulties which the learned judge felt in making the order; but there are two matters to which we wish to allude. We do not agree with the learned judge that it is obvious that Mr. Richardson's petition was presented in the interest of John Brinsmead & Sons, for, if the affidavits of Mr. Richardson, Mr. Maskell, and Mr. Brinsmead had been brought to his attention, which we are told they were not, we do not think that he would have come to this conclusion, although, undoubtedly, there would be a suspicion that it was, unless the matter was explained, as we think it is, by the affidavits above mentioned. We also do not agree with the learned judge that it is shewn that, after the company was restrained by injunction upon August 11, 1896, by North J., there was a valuable business which could be carried on consistently with the injunction; for Mr. Lyttelton Chubb pointed out to us that, although after North J.'s order eighty-nine orders for pianos-so it was stated - were given to the company, yet no less than fifty of these orders were given by a firm trading under the name and style of Edward Mayer & Co. upon one day-namely, October 15, 1896 - which certainly requires investigation; and Sir Robert Reid has admitted that, during that period-that is, between August 11, 1896, and December 3, 1896 (four months) - the business was carried on at a loss of at least £700.

It is said that this appeal is brought bona fide on behalf of the company and its shareholders. We do not believe it. We have already pointed out the relation of the Consolidated Contract Corporation to the company and its board of directors, who are the persons originally appointed by the promoters. The two shareholders who appear as appellants with the company are Dr. Jacob Bradford and Mr. George Tomlin. Dr. Bradford's position to the Consolidated Contract Corporation has been established, as above pointed out; Mr. Tomlin is a shareholder, but he has paid, we are told, nothing upon his shares. On the evidence now before us it is apparent to us that this appeal is really brought on behalf of the Consolidated Contract Corporation to prevent a winding-up order being made, under which the corporation will be forced to hand back what it has dishonestly placed in its coffers, or paid to its confederates, of the moneys subscribed by the shareholders; and, in our judgment, a winding-up order is by far the most effective, if not the only effective, means by which this result for the benefit of the shareholders can be attained. To use the words of Thesiger L.J. in In re Diamond Fuel Co., this order of Vaughan Williams J. "may be supported not merely on one isolated fact which may be impeached by the appellants, but by a combination of circumstances which, taken together, make a very strong case in favour of the order."

In our judgment it has been proved that this company-i.e., Thomas Edward Brinsmead & Sons, Limited-was initiated to carry out a fraud, and that, until restrained by injunction, it continued therein; and that a strong prima facie case has been. made out that the Consolidated Contract Corporation are at the present moment dishonestly keeping the shareholders' money to which the shareholders, and not they, are entitled, and are resisting the petition to wind up in order to continue to do so. If the sums which they have improperly obtained from the company can be recovered from them, there will probably be something to distribute among the shareholders, and, although the petitioner is a fully paid-up shareholder, he cannot be said to have no locus standi. The company is hopelessly embarrassed by the actions already brought against it, and there will, no doubt, be many more of the same sort if this petition is dismissed; and if it is not wound up the £35,000 obtained from it by its promoters will remain in their hands.

Although the words "just and equitable" have had a narrow construction put upon them, they have never been construed so narrowly as to exclude such a case as this. If ever there was a case in which it was just and equitable that a company should be wound up by the Court, we cannot doubt that that case is this case. For the reasons above, we dismiss this appeal with costs.

Solicitors: Thomson & Co.; W. Maskell; Pownall & Co.; J. H. Moggridge.

G. I. F. C.