Just and Equitable Winding Up Petition Advice

Shareholders or Directors may petition for a company’s winding up if there’s a breakdown in mutual trust and confidence that hinders the company’s management. It may be the case, especially in a deadlocked 50/50 company that compulsory liquidation is the just and equitable solution for the company to cease trading. The s.122 Insolvency Act 1986 petition process is complex and requires the court to be persuaded by cogent evidence that it is just and equitable that the company should be wound up.

If you are considering making a petition, seeking expert legal guidance is critical as the petition process is complex and needs to be conducted accurately. We are leading experts specialising in insolvency proceedings. Our experienced City of London solicitors and barristers regularly assist shareholders and directors in contentious insolvency litigation; individuals served a statutory demand; or those wishing to issue a winding up petition. 

What is a just and equitable winding up petition?

Shareholders of companies incorporated under the Companies Acts 1985 and the Companies Act 2006 (CA 2006) can petition for their company’s winding up. The court holds the discretion to grant the petition and will evaluate each application based on its merits, considering all relevant factors and the equity of the outcome before deciding on such a drastic action.

A petition to wind up a company on a just and equitable ground is a discretionary statutory remedy provided by sections 122–125 of the Insolvency Act 1986 (IA 1986). Shareholders of a company may petition for the winding up of a company incorporated under the Companies Acts 1985 and Companies Act 2006 (CA 2006).

It should be noted that the power of the Court to wind up a company on just and equitable grounds is a discretionary remedy and as such, the Court will consider each application on its own merits. The Court will weigh up all the relevant factors whilst having regard to the equity of the outcome and decide whether it is appropriate.

What is the legal basis for a just and equitable winding up petition?

This is a statutory remedy and the primary statutory source is IA 1986, s 122(1)(g), which states:

(1) A company may be wound up by the court if –

(g) the court is of the opinion that it is just and equitable that the company should be wound up.’

IA 1986, s 122(1)(g)

Who can present a Just & Equitable Winding-up petition?

Pursuant to IA 1986, s 124, the winding up of a company on the just and equitable ground may be presented by:

• The company; although this needs to be handled very carefully and many less experienced solicitors fall into the trap of representing the company as well as a shareholder resulting in them becoming conflicted thereafter in a contentious dispute.
• The directors of the company (pursuant to a board resolution passed by a majority) or
• By all of the directors acting unanimously (in the absence of a board resolution pass by the majority).
• By any creditor or creditors of the company (including any contingent or prospective creditor or creditors).
• Shareholders and other persons liable to contribute to the assets of a company in the event of it being wound up so long as the number of members is reduced below two.

Grounds for a just and equitable winding up petition

While a just and equitable winding up petition is a discretionary remedy, the Court may consider whether the petitioner has suffered unfair prejudice, such as the company’s material failure to abide by its articles or the breach of a further contractual agreement. 

Although the categories of just and equitable grounds are not closed, commonly petitions rely upon one or more of the following bases:

Commonly used Just & Equitable Petition Grounds

• Breakdown of mutual trust and confidence between ‘quasi-partners’: This refers to companies resembling partnerships where there’s a personal relationship of mutual confidence between shareholders.
• Deadlock: Occurs when decisions cannot be made, for example, when the minority holds 50% of the voting rights.
• Mismanagement by directors or other members
• Exclusion from management: For example, when company directors fail to consult the minority on company management or provide timely and adequate management information.

Delay in Petitioning on the Just & Equitable Ground

Any delay by the petitioner may be seen as a waiver or acquiescence by acceptance of changes in how the majority conducts the company’s affairs. Thus, seeking legal guidance as soon as possible is crucial when considering a petition. If you are considering making a petition, it’s a good idea to seek legal guidance on how to do so as soon as practicable otherwise your legal rights may fall away.

Factors Considered by the Court

To determine if a Just and Equitable Winding Up is appropriate, the Court will consider several factors, including:

• The company’s governance and the relationship between shareholders1718
• Whether alternative remedies have been considered or exhausted1718
• The overall impact on the company, employees, creditors, and other stakeholders
• The Court will ultimately exercise its discretion and consider all circumstances to decide if a winding up is in the company’s best interests.

Potential Outcomes of a Petition

The potential outcomes of a Just and Equitable Winding Up petition may involve:

• Dissolution of the company and sale of its assets
• Distribution of remaining assets among shareholders after settling debts and liabilities
• A Court order for a buy-out of the aggrieved shareholder’s interests

Alternative Remedies

Before pursuing Just and Equitable Winding Up, directors and shareholders may consider alternative remedies to resolve disputes, such as:

• Mediation: A neutral third party assists parties in reaching a mutually agreeable settlement.
• Buy-Out: An arrangement where majority shareholders purchase the shares of the aggrieved minority shareholder.
• Restructuring: This may involve changing the board composition, amending the articles of association, or creating new shareholder agreements.

Steps Involved in the Just and Equitable Winding Up Process

The typical steps in this process are:

• Filing a Petition: The petition outlines the reasons for winding up the company.
• Serving the Petition: Formal service of the petition to the company and interested parties, including creditors.
• Opposing evidence: The opponent has the opportunity to respond to the application, typically through witness statement evidence.
• Court Hearing: Both parties present evidence and arguments, and the court makes a decision based on the merits of the case and the interests of all parties.

Time Frame for Application

There is no specific statutory time frame for making a “Just and Equitable Winding Up” application. However, prompt action is strongly advised as delays can lead to complications such as the dissipation of company assets or increased liabilities, potentially harming the interests of shareholders and creditors. Furthermore delay can lead to certain legal rights falling away due to acquiescence.

Appeal Challenges to the Court’s Decision

A director or shareholder can challenge a Court order for a just and equitable winding up of a company through an appeal. However, appeals are difficult due to the discretionary nature of the application. The court has broad discretion when deciding whether to grant the petition for winding up, considering if it is just and equitable for all parties involved.

Appeals must be based on valid legal grounds. The appeals process is complex. It is crucial to have expert legal assistance to ensure the grounds for appeal are valid and clearly presented. These grounds include:

Incorrect application of the law: The court may have misapplied the legal principles relating to just and equitable winding up.

Unreasonable decision based on evidence: The court’s decision may be considered unreasonable given the evidence presented during the hearing.

The court’s broad discretion in just and equitable winding up cases is a key reason why appeals are seldom successful. The court considers a wide range of factors, including the company’s governance, shareholder relationships, alternative remedies, and the impact on stakeholders. This makes it difficult to argue that the judge acted unreasonably or incorrectly applied the law.

A just and equitable winding up is a remedy of last resort, used only when other solutions have failed or are not viable. This further reinforces the court’s discretion in these matters.

Costs and Risks

Pursuing a Just and Equitable Winding Up petition is a costly process and therefore seeking to resolve the matter via Alternative Dispute Resolution is often favoured by both parties. Sometimes though it is necessary to start legal action to force the opponent to settle amicably – our lawyers know how and when to litigate.

Legal Costs: Expenses for legal representation, court fees, and potentially expert fees.

Risks: Potential liability for the other party’s costs if the case is lost. The process can be lengthy, potentially eroding the company’s value. There’s also reputational risk for the company and its directors.

Importance of Expert Legal Representation

Legal representation is crucial in navigating these complex applications. Experienced lawyers can:

• Advise on the merits of the case and potential outcomes
• Assist in negotiations
• Prepare and file necessary documentation
• Represent the client’s interests in court

Opposing a Petition

A director or shareholder can oppose a Just and Equitable Winding Up petition filed by others. Grounds for opposition can include:

• Alternative remedies available to the petitioning party
• The company’s continued viability
• Issues cited not warranting such an extreme measure

Alternative Dispute Resolution (ADR)

ADR methods, such as mediation, arbitration, and negotiation, can be explored to resolve director and shareholder disputes without winding up the company. These methods are generally less costly, quicker, and more private than court proceedings. We are experts in litigating and settling litigation via ADR.

Specialist London Winding-up Petition Lawyers

Seeking legal advice is crucial for directors or shareholders contemplating a Just and Equitable Winding Up or alternative dispute resolution methods. Experienced lawyers can provide guidance and representation throughout the process, ensuring the best possible outcome.

We’re masters of insolvency dispute litigation. We are a specialist City of London law firm made up of Solicitors & Barristers. We’re based in the Middle Temple Inns of Court (next to the Royal Courts of Justice where the High Court and Central London County Courts are based).  We’re experts in dealing with matters surrounding insolvency in particular our team have unparalleled experience at both issuing and defending winding up petitions vigorously at the Royal Courts of Justice (Rolls Building), or the relevant High Court District Registry or County Court with jurisdiction under the Insolvency Rules. We provide a quick no cost initial telephone case review to establish whether or not we can help you; just call one of our team on 02071830529.