The Facts
Just and equitable winding up
The Court considered the remedy of a just and equitable winding up. It noted that the starting point is section 121(1)(g) of the Insolvency Act 1986 which provides that a company may be wound up by the court if "it is just and equitable that the company should be wound up" and
Section 125 Insolvency Act which makes it clear that if another remedy is available and the petitioner is acting unreasonably in not pursuing that other remedy, then the court does not have to make an order to wind up a company on just and equitable grounds. Where there is a dispute between shareholders, then a petition under section 994 Companies Act 2006 on the grounds of unfair prejudice may be more appropriate.
The judge noted that in Lau v Chu [2020] UKPC 24, the
The judge noted that recognised grounds for seeking a winding up on the just and equitable ground included:
-
quasi-partnership,
- where a petitioner was removed as a director in breach of an implied agreement or understanding that he was to have a seat on the board,
- where the respondents had entered into an agreement or understanding with the petitioners that the company will be wound up.
It was standard practice where the court was considering whether to grant discretionary relief of an equitable nature for the court to consider all relevant matters as at the date of the hearing. Apart from the question of alternative remedies, discretionary matters could include considerations such as the wishes of other members of the company, the financial consequences to the company of making a winding up order, and the conduct of the petitioner.
Loss of substratum
The judge found that following the sale of the business and assets of
The judge felt that the question as to why the loss of substratum ought to provide a basis for a shareholder to seek to wind up a company is fundamentally a question of equity between the company and its shareholders. The court held that it may be just and equitable to wind up a company if its directors cause it to embark upon acts which are different from what can be regarded as the general intention and common understanding of the shareholders when they became shareholders. This was so even if the company could still pursue its original objects as set out in the memorandum of association. The judge noted that
The judge went on to consider the position under section 125(2) Insolvency Act which concerns the powers of the court where a petition for a just and equitable winding up has been presented by a shareholder. He noted that the effect of section 125(2) is that the burden of proof is on the petitioner to establish his entitlement to a just and equitable winding up if no other remedies were available and that where the petitioner has established this, the burden of proof shifts to the respondent to prove that the petitioner has unreasonably failed to pursue some other available remedy rather than seeking to wind up the company.
The judge held that the loss of substratum was sufficient grounds for the court to wind up
Comment
The judgment is a useful reminder of the factors which a court will take into account when considering a petition to wind up a company on just and equitable grounds. It is important for the petitioner to have considered the contractual rights of shareholders and whether other remedies were available before considering whether it is equitable for the company to be wound up. The option of a just and equitable winding up is one that the courts will be slow to use without appropriate grounds being made out and where the burden of proof has been satisfied.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Mr
High
HP11 2EE
Tel: 203814 2020
E-mail: jar@blasermills.co.uk
URL: www.blasermills.co.uk
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