Minority Protection Under UK Law

The day to day running of the company is carried out by the directors with certain important decision being reserved to the shareholders. By following the principle of majority rule that a requisite majority of shareholders must vote in favour of the proposed resolution in order to be passed and which are done through special and ordinary resolutions so a consequence of that, a minority shareholder can do very little to influence whether how a shareholder resolution will be carried as these resolutions are subjected to the vote of the majority and this very much restricts a minority shareholder's ability to make an influence on how a company run day to day unless that minority can join forces with other shareholders to make a majority in order to block a decision in a case where a majority vote is required. If it does not occur then in such cases a minority shareholder must live with the decision made by the majority. This puts the minority in a disadvantaged position and that is why there are common law and statutory remedies available to the minority. These procedures are costly while pursuing.

What is Unfair prejudice:

Unfair prejudice is an attractive alternative to the other remedies which are available for a minority. The first definition of unfair prejudice can be derived from the case of Re-Bovey Hotel Ventures that "If a reasonable bystander observes the consequences of the conduct and regards the consequences as unfairly prejudices to the claimants' interests"; so this is a reasonable man test which is set out in more detail in section 994 of the companies Act 2006.?Under this provision a minority shareholder who feels prejudiced, aggrieved as a result of unfairly prejudicial conduct by the majority of the shareholders can redress that situation using section 994 petitions.

As mentioned in section 994 of CA 2006, "a member of the company may apply to the court by petition for an order on the grounds that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interest of its members generally or some parts of its members, including at-least himself or that any actual or proposed act or omission of the company, including an act or omission on its behalf is or would be prejudicial."

Who is a Member:

The member mentioned here is defined in section 112 of the same Act "as someone who has agreed for the subscription of the memorandum of the company and thus by registering the subscription results in becoming a member of the company. A member is also someone who has agreed to become a member and in the company register their names are included as members of the company."

So, when a person agrees to become a member without the necessity of a contract in the strictest sense is a member of the company and this was confirmed in the case of Re Nuneaton Borough Association Fottball Club Ltd. In a more recent case in Harris v Jones the court took the view that the right petition under section 994 extended to a person whose shares have been transferred but who has not been necessarily registered as a member.

There is a more recent case of Blunt v Jackson where the court noted that "it had the power to indeed amend the register of members retrospectively in order to include a member on that register."

Note: In theory therefore, a claim for unfair prejudice could include a majority of members even though it is rare in practice because there are other avenues a majority member can pursue. (Re Legal Costs Negotiators Ltd)

The legal test for unfair prejudice:

So the legal test for unfair prejudice as mentioned by 994(1)(a) "is looking at the company's affairs seeing whether they are or are being conducted in a manner which is unfairly prejudicial to the interest of the members generally"

It should be noted that, anybody bringing a claim under section 994 must do so with clean hands and this is the element of equity here. (Richardson v Blackmore)

Grounds for unfair prejudice claim

All the requirements are interdependent.

A) Company's Affairs:

Section 994 mentions that, "the claimant must establish unfairly prejudicial conduct arising from some corporate act or omission".?

As per Re Legal Costs Negotiators Ltd, "a company which had four individual people who had equal shareholding in the company and were also directors and employees of the company and the relationship between them broke down with one of those individuals who was dismissed as an employee and consequentially he resigned from the board just before a resolution was passed to remove him though he remained as a shareholder of the company and refused to sell his shares to the other three remaining shareholders. Those three remaining shareholders petitioned to seek an order from the court that the individual who resigned from the board should transfer his shares to them (remaining shareholders)".

Held: the court of appeal here rejected the petition on the basis that as majority shareholder they could prevent any prejudice being inflicted on him by the company and simply remaining as a shareholder was not conduct relating to the company's affairs because he was not having any impact on the company's affairs and the court emphasized that, the conduct complained of must relate to the "affairs of the company.

So, it must be acts done by the company or acts authorized by the company and it should not refer to the conduct of an individual shareholder acting in his private capacity and this is the key to an understanding of the company's affairs.

There are various cases in regards to the issue of "company's affairs" such as, the case of Re Citybranch Group Ltd, "here the issue was whether the conduct within a subsidiary company could be regarded as falling within the affairs of the holding company." [while dealing with a group of companies situation ]

Held: The court was of the opinion that, "in the correct situation or circumstances, acts or conducts of a subsidiary can also amount to being a conduct of the holding company and that he could see no logical reason to protect shareholders of a trading company, but not protecting the shareholders of the holding".

Another case regarding this issue is Re Unisoft Ltd ?

B) Interest of the members:

After establishing company's affairs the next issue that needs to be taken into consideration is the "interests of the members". It is where a claimant must prove that the interests the claimant holds have been unfairly prejudiced as a result of conduct on the part of the company.

Early case laws have taken quite a narrow view of interests by stressing the need to show that the interest of the claimant has been unfairly prejudiced. These situations can be seen in the case of Re J E Cade and Son Ltd.

Regarding this requirement another case law provides an interpretation which is O'Neil v Phillips. In this case the court stated that, "the requirement of interests of the members must not be narrowly or technically interpreted"; so the interests of the members in this situation can be widely construed.

There is an unusual illustration of this approach which have been applied in the case of Gamblestaden FastigheterAB v Baltic Partners Ltd and in this case a member or a shareholder had given a loan to the company as the company needed an injection of capital and the issue was whether the member's petition should be struck out because the company was insolvent and the relief being sought would not benefit the petitioner anyway. This case went to the Privy Council and they stated that, "the interest is capable of extending of covering a member who was also acting in the capacity of creditor because in the circumstances the distinction became artificial".

The element that can be adduced from section 994 in relation to the interests of a member can be attributed from O'Neil v Phillips where it is essential that the courts to adopt a very wider approach to the interests of the members of the company.?

C) Unfairly Prejudicial:

The meaning of "unfairly Prejudicial" in section 994 needs to be examined. The test for unfairly prejudicial is regarded to be an objective test and this test was confirmed in O'Neil v Phillips where Lord Hoffman stated that, "unfair prejudice will comprise of a breach of an agreed term or use of the principles, which are against the element of good faith". Therefore, unfair prejudice is something which is referred to as something contrary to good faith.

Good faith raises the question whether a person giving equitable considerations making it unfair to rely on the strict legal powers.

Unfairly prejudicial conduct has been developed through common law and thus examples of such may include negligence or mismanagement of a company. It will also amount to unfairly prejudicial conduct where it is a serious or repeated mismanagement and where the mismanagement puts at risk the value of a minority shareholders interest.

On the other hand disagreements as to company's policies are not usually the grounds for a petition of unfairly prejudicial conduct.?For example, a change in business direction is not considered to be unfairly prejudicial.

Breach of the Articles of Association is what was considered in the case of O'Neil v Phillips where Lord Hoffman said that, "a member or shareholder of a company is not directly entitled to complain of unfair prejudice unless there is some breach of agreed terms".?

Bad faith:

No need to prove bad faith or intent which consciously done in relation to whether the act to be considered unfair.

Legitimate expectation:

Shareholders may have legitimate expectation that they would be involved in the management of the company and while prevention of such involvement may result in unfairly prejudicial conduct. So, occasionally legitimate expectation has some parts to play but usually considered to be sufficient.

Examples of Unfairly Prejudicial conduct

Unfairly Prejudicial conduct includes,

1) Breach of director duties (Almack v Burnham)

2. Misappropriation of company assets (Re Little Olympian Each-Ways Ltd)

3. Improper allotment of shares (Re Coloursource)

4. Mismanagement (Re macro)

5. Breaches of the Articles of Association or the Companies Act 2006

1. Exclusion from management:

This occurs where a member of the company is being excluded from the board and this happens in small private companies where every board member expect themselves to play part in the management but obviously anyone can be dismissed or removed from the managerial position by GM or general meeting through a resolution given the fact that there should be a proper cause for such action. Though in public companies a claim arising or being successful on the grounds of exclusion is rare.

As can be seen in the case of Re Tottenhum Hotspur Plc, where a CEO Mr Venebles was excluded from his office and claimed that he was unfairly prejudiced but the court held that, there was no "legitimate expectation" on part of the person who was excluded to remain in the position of the company.

Another case concerning this issue of exclusion whether it was "unfairly prejudicial" was found in the case of Re XYZ Limited "where it was not possible for two people working together in the same company and the court held that they should "part company" because if either of them ask each other to leave the company then it cannot be said that one has acted unfairly with the other."?

2. Mismanagement:

A claim for unfair prejudice can arise in case of mismanagement in the company though courts do not easily grant such claims as it is a commercial matter and the courts do not interfere with commercial decision being taken by a company. As can be seen from the case of Re Macro (Ipswich) Ltd, that a single director was in negligence and some of the employees were also obtaining commissions which showed that there was mismanagement over the many years of the running of the company which resulted in serious economical loss suffered by the company and the shareholders as a whole and was subjected to be unfairly prejudicial conduct.?

3. Breach of director's duties:

The breach of directors' duties in can also be a substantial ground to be subjected to an unfairly prejudicial conduct. In the case of Re London School of Electronics Ltd, the directors or the people who hold the position of the management misappropriated the assets of the company and were held to be in breach of the fiduciary duties imposed to a director of a company and amounted to unfairly prejudicial to the shareholders or the member of the company.

Another case concerning this issue was Re a Company where the directors were held to be liable under section 994 for unfairly prejudice the interest of the members by making secret profits.

In another situation a case concerned where the directors of a company sold the company to a different company at an "under value" and the directors also gained personally; this act or affairs of the company organized by the directors was held to be unfairly prejudicial to the members or shareholders of the company. (Re Little Olympian Each-Ways Ltd)

4. Excessive remuneration and refusal to pay dividends:

A claim can arise in relation to unfair prejudice if the directors while performing their duties accept remuneration outside the scope of the company's constitution which can happen as the directors have the delegation of determining the remuneration which will be paid to other directors of the board and the members of the company do not have much decision to make in regards to this situation. So, in such a case a member of the company can raise a claim for unfair prejudice if they think that the directors have taken excessive remuneration which is beyond of what they are usually given or which is not in accordance with the constitution of the company.

Taking excessive remuneration is associated with the point of refusal to pay dividends by the board of directors to the members or shareholders of the company. So, while the director accepts excessive remuneration and gives less or no dividend to the shareholders then a member of the company will be unfairly prejudiced and can bring a claim on this ground for unfairly prejudicial conduct.

As per Re a Company It was observed by the Vice-Chancellor that, "the remuneration and dividend levels could not be justified by 'objective commercial criteria' thus the act of the directors were unfairly prejudicial.

Section 996 Unfair prejudice remedy

Once the factors of section 994 is established it is essential to go the remedies which are available under this claim as mentioned by section 996(1) of CA 2006.

First of all, petitions under section 994 are likely to be expensive, sometime time consuming and rather complicated to bring a claim and the court has the discretion to make such order as the court may think fit. So, there are possibilities of barriers and uncertainty for the person who is bringing the claim and because of this reason a settlement by negotiation is preferably easy one to pursue as mentioned by the Civil Procedure Rules.

If there is no settlement and there is an application to the court for an unfair prejudice claim by a member of the company then after a person brings claim, the court can issue the following orders, a) Regulatory order; b) Restrain action/ require to take action; c) Authorize derivative claim; d) Require court's consent or permission for amendment of Articles; And e) Share purchase order

Share purchase order

This is where one side is willing to buy out shares held by the other; the court in these instances will make an order to purchase the shares though after granting order the problem or issue here is how those shares will be valued. The court make these purchase orders because these are the most common remedy and usually results in a clean break but there is a question as to how it is decided by the court in relation to the value of the shares. The courts decide on the basis of a "just and fair valuation"

The guidance has been given in the case of Bird Precision Bellows Ltd which is concerned that, in a valuation of shares on a buyout and here the Court stated that, "as far as the claimants are concerned the sale is really being enforced upon them as a result of the unfairly prejudicial conduct; so, but for the prejudicial conduct there would not be a claim in the first place and the claimants would be in an unfair position if they are imposed with a discount for the sale of shares which has been forced. The Court of Appeal was of this view and agreed. So, the rule is that there will be no discounting for a minority shareholding and the shareholder should first attempt to use any "fair" valuation mechanisms written in the Articles of Association but if there is no fair mechanisms mentioned in the articles then the court will make a valuation. The court in order to achieve that valuation will apply valuation as far as it is similar to the mechanism provided in the articles. The "general rule" used by the court is the valuation date in that on which the court order was issued.

The relationship between unfair prejudice and Just & Equitable winding up:

Derivative Actions or claims

The rule in Foss v Harbottle translates the doctrine of separate legal personality, the statutory contract which is basically the internal management principle and the principle of majority rule into rule of procedure.

This doctrine was initially expressed in the case of Edwards v Halliwell where Lord Justice Jenkins established two limbs or categories to that rule. The first rule is that "in a case where a wrong has been done to the company, the proper plaintiff or claimant in such a situation is prima facie the company itself" which means the company is the proper plaintiff or claimant is such a situation; the second portion of the rule is, "an individual shareholder cannot challenge any transaction where a simple majority of members would approve it and would be binding on the members and the company"

The two subsidiary Principle:

In the case of Burland and Earle the two subsidiary principles was derived and in this case the court stated that, "the court will not interfere with the internal management of a company as long as the people in the management of the company are acting within their powers; the court also emphasized on the fact that, the proper claimant here is the company itself who is the only entity to be able to bring a claim against a wrong done to it.

a) The Internal Management:

In the case of MacDougall v Gardiner "a chairman of a mining company had adjourned a general meeting of that company without putting the question of the adjournment to the vote which was requested by the shareholders" and the court stated that, it is not the court to decide what is happening in the internal management of the company and if the majority abuses their powers then the minority can bring a claim in accordance with their rights but it is the company who has the right to bring an action against a wrong done to the company. In this case the internal management principle is being emphasized on the basis of proper claimant doctrine.

b) The irregularity Principle:

The irregularity principle means, if the majority has done something out of the ordinary or irregular of their conducts and is not capable of ratification by the majority shareholders or by a simple majority then the irregularity principle applies which was derived from the case of Browne v La Trinidad.

The rule in Foss v Harbottle:

The facts in Foss v Harbottle is that, "two shareholders or members of a company claimed to the court that the directors and promoters of the company had misapplied the assets of the company which should be compensated and a receiver should be appointed in such circumstance but the court held that, it was not the members who suffered exclusively but it was the company that suffered the and the company can only bring action against the alleged defendants and the claim cannot be granted because it may hamper or frustrate the right of the majority shareholding as the claim here was brought by minority and the majority here are entitled by majority rule to approve or ratify the actions of the alleged directors and promoters". This rule in Foss v Harbottle establishes the proper claimant rule.

Thus, Foss v Harbottle is not an absolute bar for an individual shareholder to bring a claim against a wrong because there are other rules that or procedures available to a minority shareholder to bring an action.

Exceptions to the Foss v Harbottle:

In the case of Edwards v Halliwell the court stated four exceptions where it is possible for an individual shareholder to bring an action against an alleged wrong. .

a) The act which the member has made complain of is Illegal or Ultra virus.

b) The act which the member has made complain of could only be sanctioned by a special majority or in following the procedure compliance has not been maintained.?

c) Where the personal rights of the individual member has been breached.

d) A fraud has occurred on the minority and the people who did fraud or the wrong are in the control.

Personal claim:

A shareholder can bring a claim (regardless of whether the company suffered the loss or not) for the infringement of his personal rights as a shareholder which can be the rights written in the agreement of the shareholder. (Lee v Sheard),(Pender v Lushington).

Reflective Loss:

On the contrary, personal claims cannot be claimed by a shareholder if the loss by the shareholder is a reflection of the loss suffered by the company (Prudential Assurance Co Ltd v Newman Industries Ltd).

Representative actions:

According to CPR 19 representative actions are considered as group litigations where a group of people have the same interest or suffered collectively can proceed with a claim as a group.

What is a derivative Claim or Action

A derivative action is an action in which a member or members of the company brings an action on behalf of the company. A disadvantage of the derivative claim is that, the relief that has been claimed is only subjected to benefit the company but an advantage of this action is that it helps a shareholder to "right a wrong" whereby it might not have been able to apply the rule in Foss v Harbottle.

Statutory Rule of Companies Act 2006 for Derivative Claims

Section 260 of the companies Act 2006 is a right of action which also enables the shareholders to bring a derivative claim or action in a more areas which was previously not available in the common law.

Who can claim?

First of all, section 260(1), states that, the proceedings of a derivative claim can be brought by a member of a company on behalf of the company to seek relief where a "cause of action" is vested in the company. So, need to have a member of a company.

Who can you claim against?

a member of a company thus can bring proceedings against a director, another person, which will also include former directors, shadow directors as mentioned by section 260(5)

The basis of the claim:

The basis of the claim as mentioned by section 260(3) "is any cause of action arising from an actual or proposed act or omission involving negligence, default, breach of duty or breach of trust by a director of the company".

Note that, "it is no longer a requirement that a director has to be have benefited personally from a breach before a derivate action can be brought, so there is no requirement of personal benefit on the part of the director. "

According to section 260(4), "a member is able to bring a claim for events occurred before that member became a member of the company and this underlines the fact that the cause of action is vested in the company rather than a member at a particular point in time; therefore, this also emphasizes on the fact that a company has a separate legal personality."

However, a member bringing the claim have to be a member at the time he is bringing the action even if the event did not occur while that person was a member thus a former member is not able to bring a claim regarding the events which happened when that person was a member.

The process of a derivative claim:

Two stage process-

Section 260-264 of the Companies Act mentioned the procedural aspects as to whether a court should permit a derivative action to continue.

Firstly the first stage is the prima facie case where the claimant must apply to the court to start commencing the proceedings of the claim by seeking permission to the court and it depends on the person bringing the claim to show that the claim is worth continuing. After bringing the claim the court will then consider evidence that was presented by the person who brought the claim without any evidence provided on part of the company. So, if the court refuses and does not give permission to proceed with the claim then it is possible for the member to seek permission for an oral hearing. Therefore, there is the documentation hearing and then the oral hearing for reconsidering the decision and even if the court refuses this permission as well the court may consider any order appropriate which the court thinks fit and the court may make a "cost-order against the claimant. While establishing a prima facie case the court will look into the facts of the case whether the claim is in the interest of the company or not and whether it is more than fanciful (Three Rivers District Council and Others v Governor and Company of the Bank of England).

The second stage is the part where the main permission hearing starts. So, it can be assumed that the member was able to convince the court at the permission stage then the court involves and will hear the evidences provided by both parties. While permitting the claim the court can impose terms to continue the claim as the court thinks fit (the court may include that the company indemnifies the action in terms of costs or the court?may refuse the permission at any time dismissing the claim or the court also may adjourn proceedings directions stating that the court needs more evidence).

The court also has both discretion and mandatory basis for refusing a claim.

Bars to a derivative Action:

At the first stage there is discretionary bar in which hearing where there is no prima facie case on the basis of section 262(3) and the court might dismiss the claim. To establish a prima facie case the court will look into the facts of the case whether the claim is in the interest of the company or not and whether it is more than fanciful. (Three Rivers District Council and Others v Governor and Company of the Bank of England)

There is a second stage where derivative claims can be barred by way of absolute bars to a derivative claim at the main hearing and these are,

1. A director acting within the ambit of section 172 (promoting the success of the company) will not pursue or seek to continue such claim as mentioned by section 263(2)(a)

2. Alternatively according to section 263(2)(b) or section 263(2)(c) "the cause of the action arises from an act or omission that has been authorized or ratified by the company. So, if the company has authorized or ratified then there is a mandatory refusal on the part of the court to refuse the claim." However, it is not possible for a company or the majority of shareholders to ratify an action of the defendant if the action falls under the exceptions laid down in Foss v Harbottle.

According to section 263(3) additionally there are more discretionary factors the court may look into while dismissing a claim or while refusing the proceedings.

3. Lack of good faith. (Barell v Duckett)

4. Importance of the director whether the director is promoting the success of the company may also be taken into account. (Stainer v Lee) and (Lesini v Westrip Holdings Ltd)

5. The court may look at whether the act or omission either proposed or occurred is capable of authorization or ratification by the majority or not.

6. The court may look at whether the company made a decision for not pursuing the claim.

7. The court may look at whether an individual member may bring an action through his own right.

Finally there are is a Mandatory point of consideration which the court will take into account and that is the court will look at the views the other shareholders possess or the views of other shareholders who are disinterested.

Statutory Remedy:

Firstly, the key principle while bringing a derivative action by member or individual who is bringing the claim on behalf of the company will not receive the remedy rather it is the company who will obtain such remedy.

Secondly, even if a claim is for personal rights there may not be a claim for reflective loss because a member bringing a claim for personal loss cannot claim for costs that belong to the company in a personal claim. (Prudential Assurance Co Ltd v Newman Industries Ltd), (Johnson v Gore Wood & Co)

Costs:

In a derivation action or claim, it is the member who brings the action on behalf of the company in the pursuance to seek a remedy for the company and in such a case the court may by Civil Procedure Rule (CPR) 19 instruct the company to pay the costs liability of the claim to the claimant who brought the action on behalf of the company.

In order to obtain such order the claimant may seek an application for costs alongside the permission of the claim; this is called a pre-emptive costs order where a claimant is pre-empting where a cost that might arise in the future as derived from the decision in Wallersteiner v Moir. In this case the court stressed that, "a shareholder who brings an action for a derivative claim may be entitled to be indemnified by the company after the trial regarding the costs liability and if the claimant can show that throughout the trial, his actions were reasonable.?

Another possibility is where the company may be required to make funding during the trial of a derivative action for the alleged director in the claim that was made by the claimant and in a case if the director loses the trial then the company will be able to recover losses the company suffered during the trial.

Just & Equitable Winding up

Firstly it should be addressed that a proper claimant must be the company itself (Foss v Harbottle). An aggrieved minority shareholder in small private companies historically either suffered by the decision taken by the majority or sought relief on a Just & equitable winding up order. At many times the unfair prejudicial claim is first attempted and not a just & equitable winding up because the reason is that it is a terminal solution as it can be considered as a last resort for an aggrieved shareholder or minority even though historically this was the only available option for a member to claim against a wrong. In the present the provision regarding just & equitable winding up is mentioned in section 122(1) of the Insolvency Act 1986 where it is stated that the minority shareholder asks the court to end the life of a company and distribute the remaining assets to the shareholder. Historically, this remedy has its origin from partnership law on the courts of equity where the courts look that the relationship of partners are no longer attached and their relationship could not be resolved; so in such a case the court dissolves the partnership between them.

Therefore the availability of just & equitable winding up remedy is mentioned in the Insolvency Act 1986 which terminally finishes the life span of the company although the courts and the CPR encourages the other alternatives which are available because this is the terminal solution and the remedy of last resort as provided by section 125(2) of IA 1986.

Further by looking at section 127 of the IA 1986 it can be seen that, a just & equitable winding up may result in disastrous consequences for a successful company as the company is no longer capable of carrying its business freely. The reason behind is that as per section 127 "any disposition of the company's property and any transfer of shares or alteration in the status of the company's members made after the commencement of a winding up is void unless the court otherwise orders." Therefore, as soon as winding up order has been presented to the court by the petitioner; the company is effectively paralyzed for all intents and purposes unless the court agrees that the company can do something. This approach can be seen in the case of Fuller v Cyracuse Ltd.

Grounds for winding up Petition 1:

According to the case of Ebrahimi v Westbourne Galleries Ltd where a director and shareholder was dismissed by the majority and did not get any opportunity to participate in the company's business, did not got profit and also did not received dividends as a shareholder as the two directors gained all the profits by way of directors remuneration. The court held that, even though Ebrahimi (the director) was removed by way of provisions mentioned in the CA 2006 and the articles of association yet the court emphasized on the just and equitable aspects of this case and stated that, that there was a partnership arrangement between the two directors which formed the basis of an understanding and Ebrahimi, the director who was dismissed from the managerial position of the company had such understanding with the other director with whom he formed the company; so, the court found that the removal from the board of directors was indeed breach of the understanding they both had and thus the petition for just and equitable winding up was satisfied and the court held that the company should be wind up. Lord Wilberforce in this case emphasized on the "case by case basis" point and that the tendency of bringing categories in relation to what is just and equitable should not be followed.

Just and equitable winding up 2 Examples

There are instances or examples where a just and equitable winding up petition can be brought. These are as follows-

1. Substratum has failed:

This ground is considered to be one of the narrowest grounds for a just and equitable winding up where it is on the claimant to prove that the company is no longer pursuing its original commercial objective and this has been illustrated in the case of Re German Date Coffee Company where the objective of the company was not a general partnership to make substitute for coffee form dates but to work a particular patent being the German patent and as that particular patent did not exist the shareholder could claim for a wind up petition. The court in this case held that there was a breach of the terms of the partnership agreement as the substratum was no longer there which it had initially and the shareholders can say that the company had been wound up.

It should be noted that this ground is not as important as before because in the current regime the Companies Act 2006 section 31(3) provides a very broader approach to the object of the company and not limited to a particular object or substratum.

2. Fraud:

Where the formation of the company is to "perpetrate a fraud" and in such a case the shareholders by a winding up petition can recover the investments they made if the fraud can be proved which can be seen in the case of Re Thomas Edward Brinsead & Sons where three people committed fraud by formulating a company which had similar name with a company before named John Edward Brinsead & Sons and was held to be conducted on the basis of fraudulent purposes of selling pianos in the name of earlier company which was famous for selling and manufacturing pianos. Therefore, the shareholders brought the claim and were successful to establish a ground for just & equitable winding up.

3. Deadlock or breakdown of a relationship:

The deadlock or breakdown of relationships in between the management is rare but it can occur and when it occurs the court may grant a winding up order. As can be seen in the case of Re Yenidje Tobaccoo Co Ltd where even though initially there was agreement in between the people in the managerial position yet as time went there was a time when no director was in communication with one another maybe because of relationship breakdown which resulted in a total breakdown of relationship or a deadlock in the company's business and management thus the court held to wound up the company on the basis of just and equitable winding up. ?

4. Justifiable loss of confidence in the company's management:

A ground for just and equitable winding up can occur if there is a justifiable loss of confidence in the company's management. Here, the court may order a winding up order where the managerial competence of the company is in question as can be seen in the case of Loch v John Blackwood Ltd where a majority shareholding was dominated by a director and inducing the minority shareholding to sell their shares to him at an undervalue and also that director did not provided or dividends to the shareholders; even never called a GM and did not published the accounts regarding the business of the company; in summary the director operated the business as his own and the Court held the company to be wound up on the grounds of just and equitable wind up as there was no confidence or loss of confidence in the director or the management of the company.

5. Exclusion from participation or exclusion from management:

In the case of exclusion from participation or management where initially in the formation there was arrangements or a "fundamental understanding" in between the partners of the business that a manager of the company will be subjected to the participation in the management of the company but as time gone by it was not followed or was broken then the court may order a just & equitable winding up order. This can be seen in the case of Ebrahimi v Westbourne Gallaeries where Lord Wilberforce emphasized on the fact that there should not be any set list rather it should be assessed on a case by case basis on what is just and equitable. Another similar case can be found where the decision of Ebrahimi was applied and it is the case of Re A&BC Chewing Gum where "USA Public corporation" had provided 1/3 of the capital in the company and by virtue of this in their shareholders agreement it was mentioned that they will be able to appoint a director but later on the majority did not approved of this which resulted in a just and equitable wind up on the basis of the application of Ebrahimi stated by Lord Wilberforce that there was "fundamental understanding" in between parties to engage or participate in the management of the company which was breached thus the company can be wound up.

6. Abuse of control by majority shareholder:

There can be instances where a majority shareholder has abused their position as a majority. Therefore, as can be seen in the case of Loch v John Blackwood Ltd where a majority shareholding was dominated by a director and inducing the minority shareholding to sell their shares to him at an undervalue and also that director did not provided or dividends to the shareholders; even never called a GM and did not published the accounts regarding the business of the company; in summary the director operated the business as his own and the Court held the company to be wound up on the grounds of just and equitable wind up as abuse of control by majority shareholder.

Right to petition

A right to petition is given in section 124 of CA 2006 where it extends to a "contributor" of the company to bring a petition for the company to be wound up and a contributor is someone who has held the shares of a company for "at-least 6 months" and it was considered in the case of Re Chesterfield Catering.

The court will also look at the element of disadvantages to the shareholder in order to allow the petition to proceed such as, distribution of the assets.?