Just and Equitable Petition: Legal Remedy for Company Disputes
Company disputes can be complex and disruptive. In England and Wales, one powerful legal remedy is the just and equitable winding up of a company. In this article, our expert lawyers explain the grounds, legal framework, case law, and processes involved, providing actionable steps and expert advice.
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What is Just and Equitable Winding Up?
Just and equitable winding up is a legal remedy under the Insolvency Act 1986 that allows for the dissolution of a company based on fairness and justice rather than financial insolvency.
Section 122(1)(g) of the Insolvency Act 1986 provides that:
“A company may be wound up by the court if the court is of the opinion that it is just and equitable that the company should be wound up.“
This remedy is invoked when it is just and equitable to wind up a company due to underlying issues affecting stakeholders.
Grounds for Just and Equitable Winding Up
There are several grounds which could form the basis of a just and equitable winding up petition to dissolve the company including:
- Failure of Company Purpose: When the original purpose of the company can no longer be achieved.
- Deadlock: When the company’s management is in a stalemate, preventing decision-making.
- Lack of Confidence in Management: Due to misconduct or severe mismanagement by the directors.
- Exclusion from Management: Particularly in quasi-partnerships where one party is excluded from decision-making.
- Breakdown of Trust and Confidence: Among shareholders or in the company’s operations.
Example: A company established to develop a specific technology finds that the technology is no longer viable. The directors are in constant conflict, making management impossible. One director seeks just and equitable winding up as the company’s purpose cannot be fulfilled.
For advice on whether just and equitable winding up is right for your situation, contact Go Legal at 0207 459 4037.
Who Can Present a Just and Equitable Winding Up Petition?
Section 124 of the Insolvency Act 1986 provides that:
“An application to the court for the winding up of a company shall be by petition presented either by the company, the directors, any creditor or creditors (including any contingent or prospective creditor or creditors), [or] any contributory or contributories.”
Therefore, the following parties will usually present a winding-up petition:
- Company Directors: They can file if they believe the company cannot continue its business.
- Shareholders: They can file if they hold at least 10% of the company’s shares.
- Creditors: They can file if the company owes them money.
Legal Framework and Detailed Case Law Analysis
The application of just and equitable winding up petitions is discretionary and based on the facts but its application has been shaped by various significant cases:
| Case | Key Principle | Facts and Principles | Significance | Outcome |
| Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 | Quasi-partnership, unfair exclusion from management | Ebrahimi and Nazar were partners in a rug business. They incorporated the business with Nazar’s son, and tensions arose, leading to Ebrahimi’s exclusion from management. The court emphasised the importance of mutual trust and confidence in quasi-partnerships and allowed winding up on the grounds of unfair exclusion from management. | Personal relationships and expectations of participation in management are crucial in just and equitable winding up. | The court ordered the company to be wound up. |
| Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426 | Management deadlock | Two equal shareholders, who were also directors, had a complete deadlock over the company’s operations. The court held that a deadlock, preventing the company from functioning, justified winding up on just and equitable grounds. | Deadlock in management can be a valid ground for winding up. | The court ordered the company to be wound up. |
| Re German Date Coffee Co [1882] 20 Ch D 169 | Failure of company purpose | The company was formed to exploit a German patent that became useless. The company had no business prospects. The court ordered winding up as the company’s primary objective could not be achieved. | Failure of the company’s main purpose is a ground for winding up. | The court ordered the company to be wound up. |
| Re Zinotty Properties Ltd [1984] BCLC 211 | Exclusion from management | A property company where one director excluded the other from management decisions. The court found that exclusion from management in a quasi-partnership justified winding up. | Exclusion from management can justify winding up. | The court ordered the company to be wound up. |
| Re Elgindata Ltd [1991] BCLC 959 | Breakdown of trust and confidence | Disputes arose over company management, and there was a breakdown of mutual trust. The court held that a breakdown in mutual trust and confidence among directors justified winding up. | Loss of trust and confidence among stakeholders can lead to winding up. | The court ordered the company to be wound up. |
| Loveridge v Loveridge [2020] EWCA Civ 1104 | Deadlock | The court reaffirmed that a breakdown in relations absent a deadlock is insufficient for winding up. | Highlights that mere relational breakdown is not enough; deadlock is required. | The court dismissed the petition for winding up. |
| Badyal v Badyal and Others [2019] EWCA Civ 1644 | Mismanagement | The court considered serious instances of mismanagement as grounds for justifiable loss of confidence leading to winding up. | Emphasises the significance of serious mismanagement in justifying winding up. | The court ordered the company to be wound up. |
| Evoy v Key Choice Financial Planning Ltd [2020] EWHC 3772 (Ch) | Mismanagement | The court found mismanagement and lack of probity as valid grounds for loss of confidence justifying winding up. | Underlines the importance of managerial conduct in these cases. | The court ordered the company to be wound up. |
| Davidson, Petitioner [2024] CSOH 42 | Functional deadlock | The court found functional deadlock justifying winding up. | Demonstrates the applicability of deadlock as grounds for winding up in recent cases. | The court ordered the company to be wound up. |
Just and Equitable Winding Up – Examples and Case Studies
Technology Startup Deadlock
A technology startup, founded by two friends, experiences severe disagreements over business strategy. Both hold equal shares and have veto power, resulting in a management deadlock. With no resolution in sight and the company’s operations at a standstill, one founder petitions for just and equitable winding up, arguing that the deadlock prevents the company from functioning.
Family Business Trust Breakdown
A family-owned retail business is managed by two siblings. Over time, personal conflicts escalate, leading to one sibling excluding the other from key decisions. The excluded sibling files for just and equitable winding up, citing a breakdown of mutual trust and confidence as the grounds.
Real Estate Company Purpose Failure
A real estate development company was formed to develop a specific property. Due to regulatory changes, the project becomes unfeasible. The shareholders agree that the company’s primary purpose has failed and petition for winding up on just and equitable grounds.
Filing a Just and Equitable Winding Up Petition
Filing a petition for just and equitable winding up requires thorough preparation:
- Assess Grounds: Determine if your situation fits the grounds for just and equitable winding up.
- Gather Evidence: Collect all necessary documentation and evidence to support your claim.
- Draft Petition: Prepare the petition, clearly outlining the grounds and supporting evidence.
- File with Court: Submit the petition to the appropriate court.
- Serve Petition: Ensure all relevant parties are served with the petition.
- Court Hearing: Attend the court hearing where the judge will consider the merits of the petition.
Need help filing a just and equitable winding-up petition? Contact Go Legal at 0207 459 4037 for a Free Consultation or complete our enquiry form for a call back today.
Defending Against a Just and Equitable Winding Up Petition
Understanding how to defend against such a petition is crucial if you believe the petition is unjustified.
- Challenge the Grounds: Argue that the grounds cited for winding up are not met.
- Offer Alternative Solutions: Propose alternative remedies such as buying out the petitioner’s shares.
- Demonstrate Company Viability: Show that the company can continue to operate successfully despite the disputes.
Common Defences to Just and Equitable Winding Up Petition
- No Deadlock: Demonstrate that the company can function without major issues.
- No Failure of Purpose: Show the company’s primary purpose can be achieved.
- Good Management Practices: Provide evidence of sound management and dispute resolution mechanisms.
A company facing a winding up petition might argue that the alleged management deadlock is overstated and that recent efforts to resolve disputes internally have been successful. By providing evidence of effective dispute resolution, the company can argue against the necessity of winding up.
FAQs for Just and Equitable Winding-up Petitions
What is the difference between insolvency and just and equitable winding up?
Insolvency relates to the financial state of the company, where it cannot pay its debts. Just and equitable winding up, on the other hand, is based on fairness and justice, addressing issues like management disputes and the failure of the company’s purpose.
Who can file a just and equitable winding up petition?
Typically, shareholders or creditors who have an interest in the company can file the petition. However, specifics can vary, and it’s advisable to consult with a legal expert to understand eligibility.
How long does the winding up process take?
The duration can vary based on the complexity of the case and court schedules. On average, it can take several months from filing the petition to the court’s decision.
What are the costs involved in filing a winding up petition?
Costs include court fees, legal fees, and any additional expenses related to gathering evidence and serving the petition. It’s crucial to budget for these expenses and seek detailed cost estimates from your legal advisor.
Can a winding up petition be withdrawn?
Yes, a petition can be withdrawn if the parties reach an amicable settlement or if the court is convinced that the grounds for the petition no longer exist.
Free Consultation – Get Expert Legal Help to Resolve Your Company Disputes Today
Just and equitable winding up is a powerful legal remedy for resolving company disputes. Understanding the legal framework, case law, and procedural steps is essential for navigating this process effectively. Whether you are considering filing a petition or defending against one, expert legal guidance is crucial.
For professional legal advice on just and equitable winding up, contact our expert lawyers at Go Legal today on 0207 459 4037 or through our online booking form. Our experienced team is here to help you achieve a fair resolution.
