RECONSTRUCTION

217

their existing debentures, and arrangements can be made
for a sufficient amount of debentures of the new company to
be underwritten to pay off those who object. As regards
unsecured creditors, they may be asked to accept the liability
of the new company instead of that of the old company. As
a rule the scheme will provide for the new company taking
over the liabilities of the old company, and any creditors who
do not accept the new company as their debtor, will be paid.

A shareholder who is injured may apply for an injunction
to restrain the carrying out of the scheme [Clinch v. Financial
Corporation (1868), 4 Ch. App. 117]; but when the agreement
has been executed the unfairness of the scheme is not a ground
on which the Court will make an order for winding-up though
it may adjourn the hearing of the petition to give the share-
holder an opportunity of challenging the validity of the
scheme by an action [Imperial Bank of China (1866), 1 Ch.
App. 339]. If, however, the agreement has not been executed
and the scheme is unfair, a compulsory order may be made
{Consolidated South Rand Mines Deep (1909), I Ch. 491].

In a reconstruction under s. 234 a practical difficulty
arises where the shares, or some of them, upon which it is
desired to make an assessment, are represented by warrants
to bearer. In a case of this kind, extensive advertisement is
necessary, and a much longer period must be allowed, during
which a shareholder is to be entitled to claim his allotment,
than where the shares are all registered.

Seeing that a reconstruction of this kind almost invariably
involves the allotment of shares, either wholly or partly paid,
the provisions of s. 42 of the Act must be complied with, and
within one month after the allotment the written contract
constituting the title of the allottee to the allotment must be
delivered to the Registrar, and the other returns prescribed by
the section made. This appears to necessitate the execution
of a contract between the new company and a trustee for the
allottees, which, together with the reconstruction agreement,
will have to be filed. If, however, the reconstruction agree-
ment provides for the allotment to the liquidator of the shares
in the new company, no supplementary contract will b-
necessary.

Where the object of the reconstruction is to obtain fresh
working capital, it is frequently necessary to resort to under-
writing. Under the Act of 1900 the payment of underwriting
commission on a reconstruction was held to be illegal as such
commission could only be paid on shares offered to the public
for subscription. Under the Act of 1908 and under s. 43
of the Act of 1929 there was and is no such difficulty. It

Under-
writing on
Reconstruc-
tion.