Just and Equitable Winding Up

A petition to wind up a company on just and equitable grounds can be brought by a shareholder or director of a company (among others).

The winding up of a company will, generally, be a matter of last resort - the court will not order winding up if it considers that there is a more appropriate remedy available - but, where a dispute has arisen in relation to the management of a company and unfair prejudice and derivative actions are not considered appropriate, the court may view winding up as the best option.

JMW’s experienced boardroom dispute solicitors can advise on the bringing of a petition for the winding up of a company on just and equitable grounds. To speak to a solicitor, call us on 0345 872 6666, or complete our online enquiry form to request a call back.

How JMW Can Help

Our solicitors have many years of experience in advising shareholders and companies in disputes, and will help you to find the most suitable remedy available to resolve matters effectively and efficiently. If the best option is to wind up the company on just and equitable grounds, we can advise on the process and your chances of success if proceedings are brought.

What is a Just and Equitable Winding Up Petition?

As its name suggests, it is a petition that can be presented to the court to wind up a company upon the grounds that it would be just and equitable to do so.

It is a form of relief designed to deal with a range of disputes in a company. An example is if there has been a breakdown in trust and confidence in relation to the management of a company. In these circumstances, a relevant person may petition to have the company wound up.

Once a petition has been applied for, the court will consider and decide whether a just and equitable winding up petition is appropriate to close a business down.

Grounds for Bringing a Just and Equitable Winding Up Petition

While shareholders agree to become members of companies on the basis of formal documents - for example, Articles of Association and shareholder agreements - the court can impose additional equitable considerations in respect of those arrangements in certain circumstances.

The grounds upon which such equitable considerations will arise are not exhaustive but, typically they include one or more of the following elements:

• A business association formed on the basis of a personal relationship involving mutual confidence
• An agreement or understanding that some or all shareholders will be entitled to participate in the conduct of the business
• Restrictions upon the transfer of shares that prevent a shareholder leaving when confidence is lost

Anyone who brings a petition must demonstrate that a tangible benefit will be brought as a result of winding up the company, i.e. the company will need to be solvent.

Who Can Present a Winding Up Petition?

Parties that can bring a winding up petition on just and equitable grounds include:

• The company
• The board of directors of a company
• Contingent and prospective creditors of the company
• Shareholders and other persons liable to contribute to the assets of a company in the event of it being wound up (subject to satisfying a number of conditions)

However, due to the grounds upon which a just and equitable winding up petition can be brought, a petition will generally be brought by a minority shareholder.

Often when one party seeks an order that the other shareholder(s) buy out its interest within an unfair prejudice petition, a winding up of the business on a just and equitable basis is sought as an alternative outcome.

How Does the Court Consider Just and Equitable Winding Up?

Whether or not a court will consider it just and equitable to wind up a company will depend upon the circumstances of the case. However, the following are examples of cases where the court has considered it appropriate to order just and equitable winding up:

• Where a company had been formed for a particular purpose, which purpose had been fulfilled
• Where a company had been formed for a particular purpose, which purpose had become impossible to pursue
• Where a deadlock situation arose among the board of directors rendering management of the company untenable
• Where a company was formed upon the basis of personal relationships involving mutual trust and confidence, which trust and confidence had been lost
• Where an agreement that all shareholders would be entitled to participate in the conduct of the business was broken by excluding certain shareholders from management
• Where a company was acting illegally

If a petitioner delays in seeking a petition, or their conduct is below standard during the course of proceedings, the court might refuse to grant their application.