What does ‘Just and Equitable Grounds’ mean in a Winding Up Petition?

A winding up petition issued on ‘just and equitable grounds’ is a different type of petition from a standard creditor’s petition. Rather than being issued by a company’s creditor, a ‘just and equitable’ petition is issued in the case of a shareholder dispute.

If the mutual trust and confidence of the shareholders has broken down and is having a detrimental impact on the company, the shareholders can petition the court to wind up the company on just and equitable grounds.

What’s the Criteria for Just and Equitable Winding Up?

The legal basis for a just and equitable winding up petition is primarily found in Section 122(1)(g) of the Insolvency Act 1986, supplemented by relevant aspects of the Companies Act 2006. The law permits such action when there’s a profound loss of mutual trust and confidence among the company’s primary stakeholders, essentially rendering the company’s management ineffective or impossible.

Just and equitable grounds may include situations like deadlock in management decisions among equally split directors, serious managerial incompetence that harms the company, or cases where the company’s original purpose has been abandoned.

Who Can File and When?

A just and equitable winding up petition can be initiated by various parties closely associated with the company. This includes directors acting under a majority board resolution, any shareholder, and occasionally, other stakeholders like contingent or prospective creditors who can demonstrate a financial interest in the company’s dissolution.

Additionally, the petition can be presented by any person liable to contribute to the company’s assets in the event of it becoming insolvent.   

How does the Court Rule Upon the Petition?

The court will take some different factors into account when deciding whether to make a winding up order. This includes:

• How the company was run;
• Whether the court believes it should intervene in the affairs of the company;
• Whether there is any other viable solution;
• Whether it is ‘just and equitable’ to wind the company up.

The court also evaluates whether the petitioners have utilised all other available remedies to resolve their disputes. This is crucial because the court generally prefers less drastic measures over winding up, especially if other solutions could effectively address the issues without dissolving the company.

Alternative Solutions are Generally Preferred

Before deciding to wind up the company, the court explores alternative remedies such as mediation or restructuring. Often, the court might suggest that one party buy out the other’s shares at a fair valuation, which can be a preferable solution for all involved parties. This approach allows the business to continue operating and often preserves more value for the stakeholders than liquidation would.

Need help?

For more information about just and equitable winding up petitions, please call our team on 0800 074 6757 or email: info@companydebt.com today.

FAQs on Just and Equitable Winding Up