Just and Equitable Winding Up: When a Court Can Order a Company to Close

What Is a Just and Equitable Winding Up?

A just and equitable winding up is an order by the court that a company be wound up, meaning brought to an end, on the grounds that it would be just and equitable to do so. The statutory basis for this remedy is Section 122(1)(g) of the Insolvency Act 1986, which gives the court the power to wind up a company where it is just and equitable to do so. This is the oldest and in some ways the most drastic remedy available to shareholders in dispute, because it ends the existence of the company altogether.

Because winding up is such a serious and irreversible step, the courts approach just and equitable petitions with considerable caution. The remedy is most appropriate where the commercial relationship between the shareholders has broken down so completely that there is no viable future for the company, and where a less drastic remedy such as a buyout under Section 994 of the Companies Act 2006 is not available or would not adequately address the situation.

This page is part of the Shareholder Disputes Knowledge Guide. If you need legal advice on a shareholder dispute see my direct access barrister page.

The Relationship Between Just and Equitable Winding Up and Unfair Prejudice Petitions

Just and equitable winding up and unfair prejudice petitions under Section 994 of the Companies Act 2006 often arise from the same underlying facts. A minority shareholder who is being oppressed by the majority can in principle petition under either provision, or under both. The courts have consistently encouraged shareholders to pursue the less drastic remedy of an unfair prejudice petition where that is available, rather than seeking the nuclear option of winding up a company that may be commercially viable.

Section 125(2) of the Insolvency Act 1986 specifically provides that the court shall not make a winding up order if it is of the opinion that some other remedy is available and that the petitioners are acting unreasonably in seeking winding up instead of pursuing that other remedy. In practice, this means that a just and equitable winding up petition is most likely to succeed where either no unfair prejudice remedy is available or adequate, or where the company is genuinely non-viable and the business cannot be saved.

When a Just and Equitable Petition May Be Brought

Courts have granted just and equitable winding up orders in a range of situations over many decades of case law. The most commonly recognised grounds include the following.

Deadlock. Where the shareholders are equally divided, governance decisions cannot be made, and there is no mechanism for resolving the impasse, the company is paralysed. In a deadlocked company, no meaningful business can be conducted and no decisions about the company’s future can be implemented without one party capitulating. Where deadlock is genuine and irresolvable, winding up may be the only practical solution.

Breakdown of the quasi-partnership relationship. In companies that operate as quasi-partnerships, the irreversible breakdown of the personal relationship between the shareholders can justify a winding up order. The House of Lords recognised in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360 that where a company was formed on the basis of personal trust and that trust has been destroyed, the commercial basis of the company no longer exists and it would be just and equitable to wind it up.

Loss of substratum. Where the company was formed for a specific purpose that can no longer be achieved, or where the main objects of the company have been abandoned or become impossible, the court may wind up the company on the basis that its essential purpose has been lost.

Fraud or illegality. Where the company is being used as a vehicle for fraud, or where its affairs are being conducted in a manner that is illegal, winding up may be appropriate to bring that activity to an end and protect the interests of shareholders and creditors.

Justifiable lack of confidence in management. Where a minority shareholder can establish that those managing the company have conducted its affairs in a way that justifies a complete loss of confidence in their management, and that confidence cannot reasonably be restored, a winding up order may be made.

The Court’s Discretion and Its Limits

Even where one or more of the recognised grounds is established, the court retains a wide discretion about whether to make a winding up order. The court will consider all the circumstances, including whether an alternative remedy such as a buyout under Section 994 would adequately address the situation, whether the petitioner has behaved unreasonably in seeking winding up when a less drastic remedy was available, and what the effect of winding up would be on employees, creditors and other stakeholders.

A petitioner who seeks a winding up order primarily as a tactical measure, to put pressure on the other shareholders rather than because winding up genuinely reflects the appropriate outcome, risks having the petition dismissed and facing adverse costs consequences. The courts are alert to the use of just and equitable petitions as a bargaining chip rather than a genuine request for the company to be wound up.

Standing and Procedural Requirements

A just and equitable petition may be brought by any member of the company, which in practice means any registered shareholder. The petitioner must have the necessary standing to petition and must be able to demonstrate that winding up would benefit them rather than simply harm the company and its other stakeholders. A petition brought by a shareholder who has no genuine interest in the company’s affairs or who has already received full value for their shares is unlikely to be entertained.

Procedurally, a just and equitable petition is presented to the Companies Court and follows a similar process to other company proceedings. The petitioner must serve the company and any other interested parties, and the matter will be listed for a hearing at which all parties have the opportunity to be heard.

Practical Reality: When Winding Up Is and Is Not the Right Choice

In practice, just and equitable winding up is rarely the best outcome for any of the shareholders in a dispute, even for the petitioner seeking it. Winding up a going concern destroys value: the company’s assets are realised at forced sale values, employees lose their jobs, goodwill is lost, and the total proceeds available for distribution to shareholders are typically far less than the value the business would achieve as a going concern.

For this reason, many just and equitable petitions are used as leverage rather than as a genuine request for the company to be wound up. A credible threat to wind up the company may bring the majority shareholders to the negotiating table and result in a negotiated buyout at a fair value. This tactical use of the just and equitable petition is well understood by experienced practitioners and courts alike, and it can be an effective tool when used appropriately.

The better alternative in most cases is an unfair prejudice petition under Section 994 of the Companies Act 2006, which gives the court a wider range of remedies including a buyout at fair value without requiring the company to be wound up. For detailed guidance on unfair prejudice petitions see the chapter on how to bring an unfair prejudice petition.

Published Resources

My book Shareholder Disputes: A Practical Guide for Business Owners, Directors and Family Businesses covers just and equitable winding up in detail, including ten examples of successful petitions and ten examples of unsuccessful petitions drawn from the case law, and a practical analysis of when this remedy is genuinely appropriate as opposed to being used tactically.

See all books.

Frequently Asked Questions

Will a just and equitable petition always lead to the company being wound up?

No. Many just and equitable petitions are resolved by negotiated settlement, often a buyout of the petitioner’s shares at a fair value, before the court makes any winding up order. The filing of the petition creates pressure and demonstrates that the petitioner is serious, but the parties frequently reach a commercial resolution before the matter comes to a final hearing.

Can a court refuse to wind up the company even if just and equitable grounds are established?

Yes. The court retains a wide discretion and will not make a winding up order if it considers that another remedy, such as a buyout under Section 994, is available and that the petitioner is acting unreasonably in seeking winding up rather than pursuing that other remedy.

What happens to employees and creditors if the company is wound up?

On a winding up, a liquidator is appointed to realise the company’s assets, pay its debts and distribute any surplus to shareholders. Employees become redundant and have statutory claims for redundancy pay and unpaid wages. Creditors are paid in priority to shareholders according to the statutory order of priority. Any surplus after all debts and costs have been paid is distributed to shareholders in accordance with their respective shareholdings.

Is winding up a realistic threat in a shareholder dispute?

It depends on the circumstances. In a deadlocked company or one where the relationship between shareholders has genuinely broken down, a just and equitable petition is a credible remedy and can be an effective negotiating tool. In a commercially viable company where an unfair prejudice remedy is clearly available, the court is likely to regard a winding up petition as unnecessary and the petitioner as acting unreasonably in pursuing it rather than seeking a less drastic remedy.

Get in Touch

If you are considering a just and equitable winding up petition or want to understand whether it is the right route for your situation, I would be glad to discuss your options.

Call 020 4538 0246, use the contact form below, or book a call directly.

Important disclaimer: This page is provided for general information and educational purposes only and does not constitute legal advice. The content may not be legally accurate for your specific situation. You must not rely on anything on this page in respect of your legal rights. The law in this area relates to companies registered in England and Wales only. Always seek independent legal advice from a qualified specialist before taking or refraining from taking any action. The author accepts no responsibility for any decisions made or outcomes arising from use of this material. If you would like specific advice on your situation, contact me here.

What Is a Just and Equitable Winding Up of a Company?