What are Just and Equitable Grounds for a Winding Up Petition?

We usually associate a winding up petition with a petition presented by a creditor who wishes to wind a company to enforce the repayment of a debt. However, there are also other circumstances when a winding up petition can be used.

A winding up petition on ‘just and equitable grounds’ it is a different matter altogether. In this case, in the event of a shareholder dispute, for example, if a shareholder believes a company is being mismanaged, they may choose to take action using this type of petition.

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Reasonable Grounds for a Just and Equitable Winding up Petition

What is a Just and Equitable Winding up Petition?

A ‘just and equitable winding up petition’ is a bespoke petition that is designed to deal with a range of shareholder disputes in a company.

If there has been a breakdown in mutual trust and confidence which is impeding the management of a company, a shareholder may petition to have the company wound up. It is then down to the court to consider the application and decide whether it is appropriate to close a company down when such an action may be against the interests of one or more of the company’s shareholders.  

Winding up on Just and Equitable Grounds under the Insolvency Act 1986 and the Companies Act 2006

The relevant laws are found in Section 122(1)(g) of the Insolvency Act 1986 and Section 994 of the Companies Act 2006.

Who can Present a Winding up Petition on Just and Equitable Grounds?

Petitions to wind up a company on just and equitable grounds can be presented by the directors of a company, the company shareholders or any other persons who may be liable to contribute to the company’s assets if it is made insolvent.

The petitioner must be the only shareholder of the company, an original shareholder of the company or a registered shareholder of the company for at least six of the 18 months before the petition is presented. They must also have an interest in winding the company up.

Can Minority Shareholders Wind Up a Company?

Yes, where there is evidence that minority sharehlders have been excluded from the management of the company, for example, or where minority shareholder rights have been ignored, it is within their rights to petition the court.

When Might a Just and Equitable Winding Up Petition be presented?

There are a number of different situations when it might be just and equitable to wind up a company. This includes instances where a deadlock has been reached by 50/50 shareholders and they cannot agree on the management of the company or on matters relating to its future governance.

Alternatively, if the purpose for which the company was formed is no longer being pursued, or where the company pursues a different path to that originally envisaged, a shareholder may also petition to have the company wound up.

How does the court reach a decision?

The decision whether to wind up a company on just and equitable grounds is discretionary, so the court will consider all the factors involved before making a winding up order. If the court believes there is some other remedy, such as one party purchasing the other party’s shares for a specific amount, it will usually prefer to go down that route.

Being threatened with a winding up petition?

We can help, but the likelihood of us being able to help you successfully defend your company against a winding up petition very much depends on how quickly we can act after you receive the petition. Call Sue Collins for a no-obligation discussion on 020 8444 2000 or email sc@aabrs.com.

Written by Simon Renshaw

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