THE “JUST AND EQUITABLE” WINDING UP OF SMALL PRIVATE COMPANIES

AuthorM. R. Chesterman.
Date01 March 1973
Published date01 March 1973
DOIhttp://doi.org/10.1111/j.1468-2230.1973.tb01359.x
THE
"
JUST
AND EQUITABLE
"
WINDING UP
OF
SMALL PRIVATE COMPANIES
SECTION
222
(1)
of the Companies Act
1948
appears to give the
courts
carte blanche
in the winding up of companies; they need.
only be satisfied that
it
is
"
just and equitable
"
to make an order.'
Not surprisingly, the interpretation of this broad provision has
provoked a wide divergence of judicial opinions over the years.a
Recently, debate has focused on the application of section
222
(1)
to small private companies, or so-called
"
quasi-partnerships," and
it
is with this specific topic that this article is concerned.
It
is
a
topic which appears eminently ripe for academic discussion, not only
because the House of Lords has just considered
it
for the first
time, and at some length, in
Ebrahimi
v.
Westbourne Galleries
Ltd.,3
but also because remarkably little has been said about it in
the literature of English company law."
Two reasons for this scarcity spring to mind: first, that the
lugubrious fortunes of section
210
(a
matter
to
which
I
shall revert
later on) have acted as a decoy; and secondly, that section
222
(1)
does not appear on its face to 'be a shareholder's remedy (a
fashionable thing to discuss), but merely a ground for winding up
(rather less fa~hionable).~ In fact, it is both, and this point is
well worth elaborating at the outset. The reason why section
222
(1)
has considerable practical importance as a shareholder's
remedy is not that its use will inevitably bring the company into
liquidation; indeed, liquidation is usually the last thing that the
petitioner,
or
anyone else, wants, because financially
it
spells
disaster for all. It is instead the threat of liquidation that will
1
Subsidiary requirements are that the petitioner-member must not be acting
unreasonably in pureuing liquidation rather than some other remedy (Com-
panies Act
1948,
a.
225 (2))
and that the company must
be
solvent,
so
that
he
has some tangible interest in the liquidation
(Re Rim Gold Washing
Co.
(1879)
11
Ch.D.
36
(C.A.);
Re Othery Construction
Ltd.
[1966]
1
W.L.R.
69;
Re
Expanded Plugs Ltd.
119661
1
W.L.R.
514).
Quaere
their relevance in view
of
the fact that,
as
pointed
out. infra,
liquidation scarcely ever occurs.
2
Cf.
the insistence
of
Lord Cottenham L.C. in
Ex
p.
Spackman
(1849)
1
Mac.
&
(3.
170,
174,
that the provision must be interpreted
ejusdem generis
with the
preceding paras. (a)
to
(e)
(which seem conspicuously
to
lack
a
genus) with
the more modern view, whereby this and other restrictive interpretations are
rejected (see
e.g. Ebrahimi
v.
Westbourne Galleries Ltd.
[1972] 2
W.L.R.
1289, 1293, 1301;
Re Tinoli Freeholds
Ltd.
[1972]
V.R.
455, 468).
[1972] 2
W.L.R.
1289; [1972] 2
All
E.R.
492;
noted
(1972)
88
L.Q.R.
468.
4
See, however, an important discussion by McPherson
in
(1964) 27
M.L.R.
282;
also the same author's
LQW
Relating
to
Company
Liquidation
(1968),
pp.
102-
117.
Contrast the saant treatment in
her,
Modern
Company
Law
(3rd
ed.,
1969),
pp.
596-598.
6
Thus
in
Palmer
OIL
Company
Law
(21st
ed.,
1968),
pp.
739-740,
and the Report
of
the Jenkins Committee on Company Law,
1956
(Cmnd.
1749),
para.
503,
it
is
dealt with under winding up, not under shareholders' remedies.
129
VOI..
36
130
THE MODERN LAW REVIEW
often be effective in achieving redress
for
an aggrieved member.‘
He can stand beside the barrel of gunpowder with a lighted match
in his hands,
so
to speak, demanding that he get what he wants-
which
in
most cases is simply a good price for his shares-or else
everyone, including himself, perishes swiftly and dramati~ally.~
Accordingly, when in Re Lundie
Uros.
Ltd8 it was held in relation
to a three-man company that the unjustified exclusion of a
member-director from management did not constitute oppression
under section
210,
but did give grounds for an order under section
222
(f),
the second
of
these two rulings was at least as important
as the first and in practical terms went a long way towards
negativing the effects there~f.~
It
meant that in all private
companies
of
the
(‘
quasi-partnership
type-and there must be
many thousands of these in England ’O-the majority in general
meeting could not use with impunity
l1
the statutory
or
any other
power to dismiss one of their directors from the board in the
absence of any evident justification
or
cause. They ran the risk
that the dismissed director, hurt in pride and pocket, could use
the threat of winding up to coerce them into reinstating him,
or
buying out his shares at a high price,
or
doing whatever else he
sought from them. The ruling thus had a considerable significance
as regards the balance of power between majority and minority in
such companies.
This article will not deal with all the various kinds of fact
situation that have been held to fall within section
222
(f),
but only
with those which are relevant to so-called
‘‘
quasi-partnerships
alone, i.e. which do not fall within the provision unless the
company involved is
of
the
quasi-partnership
type.12
As
already mentioned, the House of Lords in Ebrahimi
v.
Westbourne
Galleries Ltd.ls gave detailed consideration
to
this particular area
6
7
8
8
10
11
la
13
He will usually, though not necessarily, be a minority member.
In
Ebralhni
v.
Westbourne Galleries
Ltd.,
supra,
at p. 1303, this point is
made for the first time,
so
far as
I
am aware, in the English case-law.
Sometimes, an order will be made, but subsequently all the parties, including
the petitioner, request its rescission; an example is afforded by
Re
Lundie
B~os.
Ltd.
[1965]
1
W.L.R. 1051.
Supra.
Yet note the attention paid to
8.
210, rather than
8.
222
(j),
in Oower,
op.cit.,
pp.
597,
602; Wedderburn (1966) 29 M.L.R. 321.
Hadden,
Coinpany Law
and
Capitalism
(1972), supplies an estimate
of
200,000
operating companies with
a
membership of five or less
(p.
100).
Subject to any right
of
the dismissed director to sue for damages
for
breach of
his contract of service, if such existed and was for a fixed term. It is sub-
mitted that the existence of such a right should not
per
se
impair any right
of
the director to seek
a
liquidation (see
8.
225
(a),
referred to in note
1,
supra);
otherwise the director without a service contract is unduly favoured. See,
however,
Re
Cuthbert
Cooper
&
Sons
Ltd.
“371
Ch.
392,
400.
In relation to the other categories, see especially the work
of
McPherson
referred
to
in note 4,
supra.
They cornpiise such matters as failure of the
business of financial substratum and the existence of a fraudulent purpose
underlying the formation
of
the company. Recent case-law has
BC~~CCI~
touched upon them.
[1972] 2
W.L.R.
1289; [1972] 2 All E.R. 492.

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