Shareholders can petition for the winding up of a company on the grounds that it would be just and equitable to do so. The authority for this is s122(1)(g) of the Insolvency Act 1986 and it is generally considered a last resort because it can be highly disruptive to ordinary trade

Who can present a petition?

The Insolvency Act sets out the categories of people who may present a petition for just and equitable winding up:

  • the company;
    • the directors;
    • any creditor (including any contingent or prospective creditors); and
    • shareholders and other contributors who meet certain requirements.

In the vast majority of cases it is a minority shareholder who presents the petition due to the grounds which must apply for the petition to be successful.

The grounds

The presenter must firstly show  that they have sufficient interest in the winding up. They must demonstrate that there will be a tangible benefit i.e. that there will be a monetary surplus after the winding up. This ground will not be met if the company is insolvent and so this petition is unsuitable under those circumstances.

The court will look at each case on its own merits, however common grounds include:

• Exclusion from management- where the minority shareholder has been wrongly excluded from the management of the company;
• Mismanagement- there has been a loss of confidence on the part of the shareholder in relation to the way that the directors or managers have been managing the company, for example the directors have awarded themselves excessive remuneration whilst refusing to pay dividends to the shareholders;
• Deadlock- where decisions cannot be made due to a deadlock within the company; and
• Loss of substratum- the company can no longer pursue its original purposes, either because it has achieved them or otherwise.

Even if the Court considers that a ground has been established, it may refuse to grant the petition if there is an alternative remedy available and where the petitioners are found to be acting unreasonably in petitioning to have the company wound up instead of pursuing this alternative.

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