Just and equitable winding up – a question of interest

A recent Scottish case concerned whether a minority shareholder was entitled to a court order to wind up a company on the basis that it was just and equitable to do so. 

The case was brought by Christopher Turnbull, a minority shareholder of Against the Head Limited. Mr Turnbull was initially an employee of the company before he became managing director in 2018. However, the relationship between Mr Turnbull and the company broke down, leading to Mr Turnbull leaving the company’s employment in July 2019 and resigning as director. Mr Turnbull’s argument under section 122(1)(g) of the Insolvency Act 1986, was that it was just and equitable for the company to be wound up. He said he had an interest to bring the case because the winding up of the company would result in a tangible benefit to him. The respondents, the company, and its directors, all opposed the case.

In deciding the case, Lord Braid said there were well-established grounds on which a ‘just and equitable’ order could be granted. These included:

• Loss of substratum 
• Irretrievable breakdown in trust and confidence 
• Deadlock 
• Lack of probity

This was not an exhaustive list of grounds. A remedy could be granted in any situation where it was just and equitable to do so. 

There was no dispute that the company was insolvent. Its liabilities exceeded its assets. Mr Turnbull had title to bring the petition, as the holder of shares for at least six months before the commencement of the petition. The issue was whether Mr Turnbull had an interest to do so on the basis that he would derive a tangible benefit should the company be wound up. This was especially so given the fact that Mr Turnbull conceded that if the company were to be liquidated, there would be no return to shareholders, including himself. 

Lord Braid decided that the circumstances did not justify a just and equitable winding-up order. 

To have an interest to bring the petition, Mr Turnbull would have to show tangible benefit for himself, should the case be successful. Lord Braid refused the application to wind up the company because Mr Turnbull did not have standing to bring the petition, considering the company’s insolvency. There would be no benefit to him as a shareholder if the company was wound up. 

Lord Braid went on to say that even if he had decided that Mr Turnbull had sufficient interest, he would have decided that the circumstances did not justify a just and equitable winding-up of the company. The applicant had argued there was a breakdown of trust and confidence between the shareholders and directors and mismanagement by the directors. Lord Braid described the events as a domestic dispute over business strategy and management decisions, which did not amount to lack of probity. There were no other circumstances which would have justified the granting of the application.