High Court grants rare remedy of winding up of company in shareholder dispute

The High Court has ordered the winding up of a company in the context of a shareholder dispute. It found that the "just and equitable" ground was made out in circumstances where there had been a complete breakdown in the parties' relationship of trust and confidence and a functional deadlock between them: Dosanjh v Balendran (In re Webb Estate Developments Ltd) [2025] EWHC 507 (Ch).

The decision demonstrates that, despite authority that winding up should only be used as a last resort in shareholder disputes, the court will grant such relief in an appropriate case, particularly where there has been a total breakdown in the parties' relationship and other relief is not realistic.

A shareholder dispute of this sort would more usually be litigated as a claim for unfair prejudice under s.994 Companies Act 2006. Under that provision, the most common remedy is an order for the minority shareholder to be bought out at fair value by the majority shareholder(s) if unfair prejudice is established. The Practice Direction on Insolvency Proceedings states that it is undesirable to seek a winding up order as an alternative to an order under s.994 as a matter of course (see here, at paragraph 22.1). The present decision may therefore be seen as typical.

The decision also helpfully suggests that the court will be slow to find that counter allegations against the petitioning shareholder will represent an equitable bar to a winding up.

While each case will turn on its facts, the decision will be welcomed by minority shareholders considering their litigation options. Following this decision, the threat of a winding up petition may serve as helpful leverage in shareholder disputes.

Background

Mr Dosanjh and Mr Balendran had from around 2011 carried on a business of real estate management and development as a limited liability partnership called Webb Estate Management LLP. They subsequently incorporated a limited company, Webb Estate Development Limited (the "Company"), to carry on the business.

Their relationship began to break down in 2020 at the time of filing the last set of accounts for the LLP. The principal area of dispute was how to treat monthly payments they had received from the Company, amounting to around £7,000 per month. Mr Dosanjh said that they should be treated as repayment of directors' loans to the Company. Mr Balendran's case was that they were to be treated as reimbursement of "expenses".

Mr Dosanjh filed a petition to wind up the Company on the just and equitable ground, relying on the relationship of trust and confidence between the parties and also functional deadlock.

Before trial, Mr Dosanjh proposed a phased sale of the Company's properties, with a winding up to follow on a longstop date. After the start of trial, Mr Balendran indicated that he would be willing to purchase Mr Dosanjh's shares.

Decision

The High Court (ICC Judge Mullen) granted the petition.

Legal background

The court set out the legislative background, namely that:

1. The grounds for winding up a company under s.122(1) Insolvency Act 1986 ("IA") include where the court considers that it is "just and equitable" to do so.
2. Section 125(2) IA constrains a court from winding up on this ground where a petition is brought by shareholders if the court considers that "some other remedy is available to the petitioners and they are acting unreasonably in seeking to have the company wound up instead of pursuing some other remedy".

The court noted that winding up had been described as a remedy of last resort and an "exceptional remedy to grant in the context of disputes between shareholders" (Fulham Football Club (1987) Ltd v Richards [2012] Ch 333). In a BVI case considering the substantially similarly worded provision in the BVI 2003 Insolvency Act (in Chu v Lau [2020] UKPC 24), Lord Briggs JSC had considered that the remedy was available in instances of: (1) functional deadlock; or (2) irretrievable breakdown in trust and confidence between the participating members. He considered there was a three stage analysis: (a) is the applicant entitled to some relief?; (b) if so, would a winding-up be just and equitable if there were no other remedy available?; (c) if so, has the applicant unreasonably failed to pursue some other legal remedy, instead of winding up?

The court also noted that in Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, Lord Cross had explained that "a petitioner who relies on the ‘just and equitable’ clause must come to court with clean hands", but Rose J (as she then was) in Harding v Edwards [2014] EWHC 247 (Ch) put a gloss on this, explaining that she did not consider this meant that "a petitioner must be able to show that he or she is entirely blameless for the  problems that have overtaken the company…. it is rare for any one party to emerge as having behaved with exemplary politeness and reasonableness throughout" a period of disagreement leading to a petition.

Application of the legal test

The court considered that there had been an irretrievable breakdown in the relationship of trust and confidence between Mr Dosanjh and Mr Balendran. That was admitted and was amply evidenced by the parties' exchanges in relation to the accounts, which it considered in detail.

The court noted that there had been frequent disagreement between the parties as to the treatment of the payments to directors in the accounts.

The court rejected Mr Balendran's position that these were expenses, on the basis they were not properly incurred as expenditure by the directors for the benefit of the Company but rather were round-figure payments that did not fluctuate to reflect any expenses incurred over the course of a given month.

Mr Balendran sought to terminate the Company's accountants' appointment, which Mr Dosanjh told the Company to disregard. The parties then exchanged emails in point scoring terms, criticising one another's conduct, in relation to a directors' meeting. They then each filed different versions of the accounts on behalf of the Company unilaterally.

The court also considered that a failed sale of one of the Company's properties, Aldwych House, contributed to a loss of trust and confidence (and Mr Balendran's conduct in respect of the same was fatal in this regard). Mr Balendran had written to Mr Dosanjh to propose a sale of the property to "another buyer" after the initial sale had fallen through, but only subsequently revealed that the other buyer was in fact a company in which he had a 50% shareholding. Mr Balendran also instructed architects to draw up plans for converting the property into flats, but did not tell Mr Dosanjh about this. He subsequently blamed Mr Dosanjh for not proceeding with the sale. 

The court also concluded that the management of the Company was functionally deadlocked. That was partly on the basis that Mr Balendran had taken an entirely entrenched position in relation to the accounts, which the court considered Mr Dosanjh was right to reject as improper (given the proper characterisation of these payments, as explained above). These issues, and the Aldwych House issues, were evidence of deadlock. The court noted that the progress of concluding the Company's business had been slow and was likely to be further mired in dispute.

The court noted that either ground (ie functional deadlock or a breakdown in trust and confidence) therefore entitled Mr Dosanjh to the relief of a winding up. It did not expressly cover the second of the three limbs in Lord Briggs's test above, namely whether a winding up was just and equitable, but turned straight to the third limb: whether Mr Dosanjh was unreasonable in seeking a winding up over another remedy. It considered that he was not. There was no realistic alternative to winding up. Mr Dosanjh did not wish to purchase Mr Balendran's shares. Mr Balendran had made a very low offer to purchase Mr Dosanjh's shares, but the court considered that to be unrealistic in the face of evidence as to the value of the properties which the Company still owned. It was also a potential source of further dispute as the acquisition of the shares relied on a bridging loan, which was subject to a valuation of the properties.

The fact that there would be lower returns on the properties on a winding up than on a sale by the directors was not sufficient for the court not to order a winding up, given the breakdown in the parties' relationship.

The court also rejected the suggestion that Mr Dosanjh should not be granted the remedy on the basis that he did not have clean hands (as he had filed unapproved accounts). The court found that he had done so to prevent the Company being struck off the register and in the face of unreasonable conduct from Mr Balendran.