Court refuses to wind up company where possibility of recovering stripped assets

16/01/2008

A company which was trading whilst insolvent avoided a winding up order where there was a prospect of success in proceedings against one of its directors which would return the company to the black.

A dispute between two factions of the shareholders and directors of Minrealm Ltd escalated to the High Court recently, with the prospect of more litigation to come. Both groups owned 50% of the company's shares, but one held a majority of three to two on the Board.

The majority group of directors applied to wind up Minrealm on the basis that it could not pay its debts as and when they fell due. The other two directors agreed that the company was currently insolvent but believed that the majority directors had stripped Minrealm's assets and diverted its business to themselves. The two directors issued a petition under section 459 of the Companies Act 1985 seeking orders that the court regulate Minrealm's business and authorising Minrealm to bring proceedings against the majority directors to recover its assets.

Section 459 allows a minority shareholder (with a 50% shareholding or less) to seek the protection of the court from "unfairly prejudicial" conduct on the part of the majority shareholders. The court can make any orders that it thinks fit to give relief from such conduct, including requiring the majority shareholders to purchase the prejudiced minority shareholding at fair value.

The court agreed with the minority directors that Minrealm ought to be given an opportunity to bring proceedings against the majority directors to recover its assets and potentially return to solvency. Accordingly, the court exercised its discretion to adjourn the winding-up petition.

This case demonstrates that the court will not allow an otherwise valid winding-up petition to circumvent the relief available to (arguably) prejudiced minority shareholders under the Companies Act 1985 where the petition appears to be brought for purely tactical reasons.

In The Matter of Minrealm Ltd [2007] EWHC 3078 (Ch) (20 December 2007)

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