In the last few articles we discussed the winding-up of a company, whether it is yours or you are seeking to wind-up someone else’s company if the company is insolvent, that is, it is not able to pay its debts or meet its financial commitments.
In this article we will be looking at how a company can be wound up even if it is solvent, that is, still able to pay its debts and meet its financial commitments. The article will examine the principle in law that allows this type of winding-up of a solvent company to take place under the “just and equitable”rule.
Section 15 of the Companies (Insolvency & Receivership) Act reads;
- A liquidator may be appointed by the court on the application of:
- The company; or
- A director of the company; or
- A shareholder of the company; or
- A creditor of the company….; or
- The Registrar.
- The court may appoint a liquidator if it is satisfied that:
- The company is unable to pay its debts; or
- The company or the directors have persistently or seriously failed to comply with the Act; or
- It is just and equitable that the company be put into liquidation.
For the purpose of this article we will only be addressing sub-section (2)(c).
The Act does not tell us what the meaning of just and equitable is nor what the court must look for in deciding to wind-up a company under this principle. Therefore, the court must look to cases which have been decided on the matter to assess whether the case before it falls under this principle.
The decision for the court to wind-up a company on the just and equitable principle is therefore not a decision based on the preference of the court but on all the facts presented to it. This is because the matter of “just and equitable” can be varied and it is for the court to listen to all the circumstances of the case to know whether it justifies winding-up the company on this ground. Therefore, any person coming to the court to ask to wind-up a solvent company must be able to make a very strong case for doing so.
Some of the facts upon which the court has agreed to wind-up a solvent company have been:
- There has been mismanagement or misconduct in the affairs of the business, e.g. fraud.
- There has been an irretrievable breakdown in the relationship between the parties resulting in a loss of mutual trust and cooperation between the parties.
- There has been a loss of confidence between the parties resulting from events that have taken place in the personal or professional relationship of the parties.
- There is a deadlock on critical issues concerning the company and there is no way out of the deadlock, e.g. on matters of the management or expansion of the company.
- There is a mismanagement of funds leading to a loss of confidence, e.g. where bad financial decisions have been taken or monies used for purposes other than for the direct benefit of the company.
- The company is no longer engaged in the business for which it was set up. This is referred to as a loss of the substratum, e.g. a company was established to buy and sell land but instead is trading in computers.
- The Shareholders/Directors may no longer want to be engaged in the business of the company and may wish it wound up and sold and they receive their share of the proceeds of the sale, e.g. the company may have been in operation for a long time and some of the shareholders/directors want to sell the company and retire.
- The competency in the management of the company by the directors/shareholders is questionable.
- The relationship between the parties is hostile and aggressive.
These are only some examples of cases in which the court agreed to wind-up a company but it is important to know that this list is not exhaustive, so, if your personal circumstances do not fall under the list as set out it does not necessarily mean that you do not have a case.
The most important thing to remember is that even though you may have good reason to seek the winding-up of a solvent company you must be able to show the court 2 important things:
- That the relationship between the parties is very important, that is, the establishment of the company between or among the members was based on a relationship based on trust and confidence as with a husband and wife or brothers and sisters or friends. Therefore, if something was to go wrong in this relationship it would likely affect the continuation of any professional relationship with the company; and
- Most importantly, that the breakdown of that relationship is so serious that it has led to or is likely to lead to serious consequences in the company. In other words, the health of the company is largely based on the mutual trust and cooperation of the parties and without that they would be unable to work together for the benefit of the company and the company would very likely begin to experience financial and other issues.
If you think you may have a case or someone has brought such a case against your company then please seek specialist advice on your personal circumstances moving forward as this article is simply a general overview of this area of the law.
DISCLAIMER – This is a legal column to provide basic information on the law and court procedure. It is not to be used as a substitute for legal advice but to be used only as a starting point in understanding what you might need and what you might need to do.