Just & equitable winding up

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Introduction

At Francis Wilks & Jones we regularly advise shareholders subject to disputes and have been doing so since 2002. For assistance today, speak to one of our team and we will be delighted to help and any aspect of a just and equitable winding up petition.

Winding up on just and equitable grounds

Under Section 122(1)(g) of the Insolvency Act 1986 it is open to the court to wind up a company on just and equitable grounds where there has been a breakdown in mutual trust and confidence which is impeding the management of the company.

What will the court consider?

However, the power of the court to wind up a company on just and equitable grounds is a discretionary remedy and therefore

• the court will consider each application subjectively and weigh up all factors having regard to the equity of the outcome; and
• whether it is appropriate to take such a action which may often be against the interests of one or more of the shareholders.

Who can present a just & equitable winding up petition?

Petitions for winding-up a company on just and equitable grounds may be presented by

• the company;
• the directors of the company pursuant to a board resolution passed by a majority;
• contingent and respective creditors of the company;
• shareholders; and
• other persons liable to contribute to the assets of a company in the event of it becoming insolvent.

The unfair prejudice remedy (referred to below) is often pursued by a minority shareholder in order to protect his/her interest in the relevant company.

A petitioner seeking to bring a winding up petition on just and equitable grounds must either be the only shareholder of the company, an original allottee of shares or have been registered as a member for at least 6 months out of the 18 months preceding the date of presentation of the petition. Furthermore, a petitioner must show an interest in having the relevant company wound-up.

Grounds for bringing the petition

There are a number of situations where it would be just and equitable to wind up a company. These are similar to the grounds for unfair prejudice.

• deadlock between 50/50 shareholders (who will often also be directors of the company);
• mismanagement of the company by one party; and/or
• excluding the proposed petitioner from management.
• 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.

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.

The court will look at other remedies before winding up a company

It is important to note that the Court will not make a winding up order if it deems that there is some other remedy available to the petitioner and it is therefore unreasonable for that petitioner to seek the winding-up of the company.

Such matters are often both legally and factually complex therefore it is important that a petitioner proposing to seek a winding up order on just and equitable grounds seek independent legal advice from specialist legal advisers.

• All parties considering such an action should be aware that the courts will prefer to make an order in terms that one party purchase the other party’s shares for a specific amount (often the subject of expert evidence), rather than the more draconian order for winding-up of the company on just and equitable grounds.
• 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.

Francis Wilks & Jones is one of the leading law firms in the country dealing with shareholder disputes and just & equitable winding up petitions Whatever your enquiry, contact one of our team today for help.

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