We regularly encounter situations where business relationships, once full of promise, have soured beyond repair. One of the more drastic remedies available in such cases is the just and equitable winding up of a company. Though not often the first resort, this powerful legal mechanism can be a lifeline when internal conflict has rendered a company unworkable.
But what does this really mean and why it might be relevant to you?
What is “Just and Equitable” winding up?
The remedy is governed by section 122(1)(g) of the Insolvency Act 1986, which allows a shareholder to petition the court for the company to be wound up where it is just and equitable to do so. This is not about insolvency in the financial sense, it is about whether the company can function as a business.
Winding up is available on just and equitable grounds when the company is solvent. The company must have sufficient assets to be able to pay a return to shareholders after payment of the liquidators’ fees and outlays, for the shareholder to have sufficient interest to petition the court to grant the remedy.
The traditional grounds to seek just and equitable winding up of the court are:
- Loss of substratum;
- Management deadlock; and
- An irretrievable breakdown in trust and confidence in a corporate quasi-partnership.
In the recent petition of Christopher Turnbull [2024] CSOH 37, Lord Braid issued his opinion which discussed the remedy of just and equitable winding up. Lord Braid made it clear that there is not an exhaustive list of grounds where the remedy is available, and it may be available in any situation where it is “just and equitable” to do so. The facts will be considered by the court. We can consider the circumstances of the company with you to consider what options are available to you.
Lord Braid also highlighted that just and equitable winding up is a remedy of last resort which requires the court to undertake a three stage analysis when considering whether the remedy is available:
- Is the petitioner entitled to relief?
- If so, would the winding up be just and equitable if there was no other remedy available?
- If so, has the petitioner unreasonably failed to pursue some other available remedy instead of seeking winding-up?
The petitioner bears burden for the first two stages. The burden for the third stage lies with the respondent.
Loss of Substratum
This is where a company has been formed to pursue a particular object or to carry on a business of a particular type, which it has abandoned to pursue and entirely different business.
Management deadlock
The classic scenario arises in owner managed private companies with equal shareholdings and no shareholders’ agreement. If, for example, two directors or shareholders are at odds and cannot agree on the company’s direction, the business grinds to a halt. This is an example of management deadlock.
Imagine two equal shareholders and directors, each with veto power, but no mechanism to resolve their disagreements. If decisions cannot be made, staff are not paid, contracts lapse, and the company is paralysed. The court may, in such situations, view winding up as the only viable resolution.
Quasi-partnerships: more than just a company
Things become even more emotionally charged in what the courts term a “quasi-partnership”. These are companies that, whilst incorporated, operate more like partnerships. They are often founded on mutual trust and confidence, where all the members intend to be involved in the management of the company, typically among friends, family, or long-time colleagues.
In such cases, parties expect loyalty and transparency, not merely formal corporate governance. When trust is betrayed - say, if one party excludes another from management, or fails to consult on major decisions - the aggrieved party may feel deeply wronged.
It is not enough to say, “But the articles of association don’t require me to consult the others.” If the company was built on a mutual trust understanding, and that mutual trust and understanding is broken, a court may decide the only fair outcome is to wind up the business.
Why legal advice matters
If you find yourself embroiled in conflict with a fellow shareholder, you may be unsure what options you have, or whether you are entitled to seek the company’s winding up. It is a serious step, often referred to as a last resort, and can have profound commercial and personal consequences.
At times like these, you need clear, strategic advice. Whether you are considering petitioning the court or defending such a claim, we can help you understand your position, assess your options, and protect your interests.
Business relationships can be fragile. If you are caught in a deadlock or feel the foundation of mutual trust has been shattered, do not suffer in silence. Contact us today for confidential advice on whether a just and equitable winding up, or another remedy, might be right for you. Call us on 03330 430350.
