Just & Equitable winding up – the last resort?

9 May, 2014

Where there is a complete breakdown in shareholder relations an alternative to petitioning under s.994 of the Companies Act is to seek the winding up of the company under s.122(1)(g) of the Insolvency Act.  This will normally be on the basis that the company is no longer a viable entity in light of the disputes between the shareholders.  It is generally considered the last resort. 

The power of the court to wind up a company on “just & equitable” grounds is a discretionary remedy.  In other words, the court will weigh up all factors and decide, having regard to the equity of the outcome, whether it is appropriate to take such a draconian measure against the wishes of one or more of the shareholders.

A recent case (In the matter of Brand & Harding Ltd) has shown that this last resort remedy is still very much available and helpfully sets out the process the court should go through in deciding whether to exercise its discretion in this respect.

The Judge identified a five stage process:

1.  was the company intended to be run as a quasi-partnership?

2.  was it in fact run as a quasi-partnership?

3.  was there a substantive reason for intervening in the company’s affairs?

4.  was there another solution available?

5.  is it just and equitable to exercise the court’s discretion?

By carefully going through these steps the Judge came to the clear conclusion that the company in question should be wound up and the proceeds then distributed between the shareholders.

It is not often that a company will find itself in such dire straits in terms of shareholder conflict that winding up is the preferred option but where the conflict seems insoluble then it is an important option to consider.