When certain conditions are satisfied, a shareholder of a company (amongst others) has the right to petition for the winding-up of the company on the ground that it would be just and equitable to do so. This is a useful tool for a minority shareholder.
Who can present a winding-up petition on this ground?
Anyone wanting to bring a winding-up petition on this ground must demonstrate that a tangible benefit will be derived from the winding-up of the company. This means that the company will need to be solvent. The petitioner will need to demonstrate to the court that there is a surplus within the company.
The court will not grant a winding-up petition where it believes there is another remedy available to the petitioner and that it is unreasonable to seek the winding-up of the company, rather than pursuing the other remedy.
One of the below conditions must be met for a shareholder to be able to petition on this ground:
The company has at all times had a single shareholder, or the number of shareholders has fallen below two;
The shares were originally allotted to the petitioning shareholder;
The shares have been held by the petitioning shareholder and registered in his / her name for at least 18 months preceding the presentation of the petition; or
The shares developed upon the petitioning shareholder following the death of a former shareholder.
The circumstances in which it would be just and equitable to wind a company up are not closed. Some common circumstances are –
Loss of substratum: where the original purposes of the company have been fully achieved, or can no longer be pursued.
Deadlock: where there is a complete breakdown in the relationship between the parties.
Mismanagement: where the directors’ conduct in managing the company leads to a justifiable loss of confidence on the part of a shareholder.
Exclusion from management: where the court finds that there is an understanding the petitioning shareholder will participate in the management of the company, exclusion from management may justify the winding-up of the company on the just and equitable ground.
Shareholders who are unhappy with the current running of the company have other options available to them, as long as they satisfy certain criteria.
Bearing in mind that the winding-up of a company on the just and equitable ground will only be granted where the petitioner is not unreasonably refusing another viable option, it should be examined whether either of the above options are available.
If you are a shareholder, feeling disgruntled with the management of your company and would like advice on the options available to you, or a director faced with one of the above claims / petitions, it’s important to take early advice and assess your position legally.
For a free, no obligation discussion, contact with Farleys’ insolvency team on 0333 331 4949.Request A Call Back