The taxpayers were shareholders of a company (the "old company") who effectively converted its assets to cash through a series of transactions: those assets were sold to a related company owned in essentially the same manner (the "new company") in consideration for a promissory note; the note was paid-off through bank borrowings of the new company; the old company used those cash proceeds to invest in preference shares of two unrelated companies (the "dividend-stripping companies"); and the taxpayers sold the shares of the old company to the dividend-stripping companies for a cash amount based on the old company's net asset value. A portion of the cash proceeds of the sale were reinvested by the taxpayers in debentures of the new company. In finding that these transactions were governed by s. 81(1) of the pre-1972 Act, with the result that the taxpayers were deemed to receive a dividend, Judson J. stated (p. 5364) that:
"There was a winding-up and a discontinuance of the business of the old company, although it is apparent that there was no formal liquidation under the Winding-Up Act or the winding-up provisions of the Ontario Companies Act."
Judson J also found that the purported sale of the shares of the old company to the dividend-stripping companies should be disregarded.