A shareholder who is aggrieved has a remedy to apply to wind up the company on just and equitable grounds under insolvency legislation. This is also referred to as a ‘contributory petition’ as it is brought by a shareholder.
The only remedy available, should an order be granted, is for the company to be wound up.
Despite this remedy being found under the Insolvency Act, the company should not actually be insolvent, and in fact anyone bringing a claim would need to show that there will be a substantial surplus on a winding up.
Circumstances for winding up
The circumstances for bringing a petition are similar to those of bringing an unfair prejudice petition under Section 994. Often the two remedies are bought at the same time and put as alternatives.
Because this amounts to such a draconian remedy for a company, effectively putting it out of business immediately, other remedies should be pursued before a claim for the just and equitable winding up of the company is pursued. A court will need to be very sure before it orders that a company be wound up following a dispute within the company.
Grounds for bringing the petition
These are similar to the grounds for unfair prejudice.
A claim may be brought if there has been a material failure of the company to abide by the Articles or a shareholders agreement, and this failure has amounted to unfairness by the majority against the minority.
Alternatively, the majority of the company may have been constrained by an equitable consideration that isn’t contained within the company’s paperwork but were part of general reasonable expectations of the shareholder, and the company has acted inequitably against these expectations and as a result has caused prejudice to the minority.
Examples of unfair prejudice or conduct that might lead to a just and equitable winding up are:-
- material breaches of directors’ duties that cause an unfair prejudice to minority shareholders.
- a lack of probity in the conduct of the company’s affairs.
- shares being transferred or allotted without complying with rights of pre-emption therefore prejudicing minority shareholders.
- minority shareholders who had a reasonable expectation to take some role in the management of the company being excluded from this.
- incompetence or commercial mis-judgement on the part of the board that prejudices the minority shareholders.
- decisions not to declare dividends as a matter of policy (not just because money needs to be used for the benefit of the company or that no profits have been declared).
- there is a deadlock where the minority holds 50% of the voting rights.
- there has been an overall breakdown of trust and confidence between quasi-partners. Note however that if this is down to conduct of the petitioner, then they are unlikely to succeed. Other remedies may be available in order for the shareholder to exit the company in these circumstances.
If a petitioner delays in seeking this remedy, or their conduct is below standard during the course of the proceedings, the court might refuse to grant this relief.
Remedies for breach
The only remedy that the court can give if the petitioner’s case is made out is for the company to be wound up.
If this petition is bought at the same time as an application for unfair prejudice, then it may be that the court will follow that route as an alternative, and therefore will have wider powers to make whatever order they think is fit in the circumstances.
At Francis Wilks & Jones we have many years of experience in advising minority shareholders and companies in shareholder disputes. There are many remedies available to consider. If you are a shareholder who believes that you have been unfairly prejudiced and you want the company to be wound up as a result, then speak to one of our expert team who can advise on the chances of success if proceedings are bought or provide alternatives to consider. Contact us today for a friendly expert consultation.
Francis Wilks & Jones were responsive, available at all times to deal with any of my queries and very reassuring. I would definitely recommend them to deal with proceedings brought on behalf of shareholders – they understood our practical needs.A shareholder we helped bring unfair prejudice proceedings against a fellow shareholder who had been interfering with the management of the company and damaging its value