The court has a power under the Insolvency Act 1986 to wind up a company if it is ‘just and equitable’ to do so.
It has long been thought that the court will only order winding up where the company is deadlocked and the claimant shareholder has no alternative claim. Normally, minority shareholders involved in a dispute with other shareholders must apply for an order that the majority shareholder must buy their shares and, if this remedy is available, the court will not order the winding-up of a company, which is seen as a last resort.
However, in the recent case of Dosanjh v Balendran [2025] EWHC 507 (Ch), the court ordered that a company owned by two shareholders could be wound up following irreconcilable differences between them over the accounting treatment of payments from the company, the parties’ inability to agree a set of statutory accounts and the strategy for selling an investment property.
One of the directors had tried to unilaterally disinstruct the company’s accountant and each of the directors had filed a set of accounts on behalf of the company. The court looked closely at each party’s conduct in relation to the accounts and decided that one of the directors had been wrong to try to characterise fixed payments of £7,000 as the reimbursement of expenses. Furthermore, the disagreement about whether a property should be sold to a third party linked to one of the directors or, alternatively, developed into flats was seen as symptomatic of the deadlock between the directors.
In the run up to the trial, one of the directors offered to buy the other’s shares but the price that he offered did not reflect the number of properties which the company owned. The inadequacy of the offer to buy the shares was an important factor in the judge’s decision because it demonstrated that the director asking for the company to be wound up did not have an effective alternative remedy. Even if he had applied to court for an order that the other director must buy his shares, the other director couldn’t apparently afford to pay a fair price and, as the process of trying to determine a fair price for the shares would be dependent upon carrying out a valuation of the company’s property portfolio, this process could lead to a further dispute.
Whilst winding-up orders are not the most common way of resolving shareholder deadlock, this case shows that the remedy can be obtained more readily than previously thought.
If you are involved in any shareholder or company dispute, please contact Alexander Haddad to have an initial discussion (ahaddad@nockolds.co.uk 0203 892 6805).