Exit remedies for minority shareholders in close companies (IVOR nr. 82) 2011/4.4.3:4.4.3 Relationship to s. 122 IA 1986- "fust and equitable" winding-up

Exit remedies for minority shareholders in close companies (IVOR nr. 82) 2011/4.4.3

4.4.3 Relationship to s. 122 IA 1986- "fust and equitable" winding-up

Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.Deze functie is alleen te gebruiken als je bent ingelogd.

Although the unfair prejudice remedy in s. 994 and the winding up remedy in s. 122 are two separate and independent remedies, they are related to a certain extent. Firstly, petitioners can consider the two remedies as alternatives, or under certain circumstances, file on the basis of s. 994 and s. 122 at the same time.1 But it is not difficult to understand that standards required by s. 122 are higher because of the possible involvement of public interests in a winding-up proceeding, and only a severe action will meet the standard. Winding-up is not included on the relief list of s. 996. Although by using its equitable power, the court can order a dissolution as it sees fit under s. 996, this is not as threatening as explicitly stated in s. 122. More often than not, a petition for winding up leads to the freezing of the company's bank account and would paralyze the business as transactions involving the company's property may be void if a winding up order is granted later.2 Consequently, dissemination of the information that a petition has been filed under this remedy is potentially extremely damaging to the company,3 as it arouses uneasiness among suppliers, creditors and customers at the expense of the company.4 By invoking s. 122, a petitioner puts more pressure on the majority in the company and urges them to solve the problem as soon as possible.5

Secondly, the interpretation of s. 459 (now s. 994) has developed from the case reasoning under s. 122.6 The Ebrahimi case laid the foundation for the understanding of when it might be "fust and equitable" to order the winding-up of a company and it has also influenced s. 994.7 Referring to good faith in partnerships in the Ebrahimi case, Lord Wilberforce said:8

"The words [`jast and equitable'] are a recognition of the fact that a limited company is more than a mere legal entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure. That structure is defined by the Companies Act [1948] and by the articles of association by which shareholders agree to be bound. In most companies and in most contexts, this defmition is sufficient and exhaustive, equally so whether the company is large or small."

The significance of the notion "a limited company is more than a mere legal entity, with a personality in law of its own: ...there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure" cannot be stressed enough and later prominent cases under s. 459 (s. 994), such as Saul D Harrison,9 O’Neill,10 all started their analysis on the basis of the Ebrahimi case.11 Accordingly, the construction of "just and equitable" has influenced the meaning of unfair prejudice.12

Deze functie is alleen te gebruiken als je bent ingelogd.