The legislative roots for section 994, Companies Act 2006 can be traced back to the draconian powers given to the court to order the winding up of a company in appropriate circumstances. This power is now enshrined in section 122, Insolvency Act 1986 and section 122(1)(g) states that the winding up may happen if, “the court is of the opinion that it is just and equitable that the company should be wound up.”
A petition for such an event is relatively unusual due to the value destruction which can often be involved. Remedies available through sections 994 to 996, Companies Act 2006, will often be preferable.
The Sally Harding and Rosemary Walton v Elizabeth Edwards and Others case involved three sisters, their mother and a family trust. The company, Brand and Harding Limited, owned some 242 acres of arable land in Cambridgeshire which was farmed under a contract farming arrangement.
Was this a quasi-partnership?
One interesting aspect of this case centres on the relationship of the quasi-partnership concept with the family company. In the case of Shah v Shah the judge found that the relationships of the shareholders, four brothers, was one of quasi-partnership (albeit a dysfunctional one).
In this case the judge did not need to dwell on the point. He found that it was a quasi-partnership as all three sisters were directors and it was anticipated that they would all be involved in the business. No third party outside the family had been involved in managing the company and the sisters all considered it their entitlement, as well as their responsibility, to be involved in the company's affairs. The question of mutual confidence was not addressed.
The case followed a logical progression, derived from the seminal case of Ebrahimi v Westbourne Galleries.
- Was the company intended to be run as a quasi-partnership?
- Was it, in fact, run as a quasi-partnership?
- Is there a reason why the court should intervene?
- Is there a solution other than a winding up available?
- Is it just and equitable for the company to be wound up?
Sisterly animosity
The dealings between the three sisters over recent years had been marked by accusations and counter-accusations of misconduct descending into bitter acrimony.
Two of the sisters were denied access to the accounting records despite the fact that they were directors. Attempts were also made by the other sister and her husband to remove them from the board.
The judge recognised that the contingent ownership rights made this case difficult to settle by more normal means; each of the sisters held shares directly. However they were also potential beneficiaries under the will of their mother. In addition, they were also beneficially entitled to the shares held by the family trust following the death of their mother who held a life interest.
Conclusion
The judge concluded that the company should be wound up as he could see no alternative. This was based on:
- the depth of the disharmony;
- the deadlock, because of the current and likely future distribution of the shareholdings; and
- the fact that the value within the company, mainly comprising farmland and cash, would not be unduly damaged by a winding up.
Andrew Strickland, Corporate Partner, Scrutton Bland
Valuation Group, March 2015
