Can A Minority Shareholder Force Liquidation?

While it is directors who are responsible for winding up affairs when a company becomes insolvent, shareholders still play a significant role in any subsequent liquidation process. If directors wish to liquidate the company, they must get shareholders to express their approval via a vote at a meeting of shareholders. 75% of shareholders in attendance must vote in favour of the resolution to wind up the company for it to be filed. 

This process of shareholder approval can be quick and simple when all or most of the shareholders are in agreement. However, if only a minority shareholder is in favour then matters become more complicated. Difficulties may also arise when two 50:50 shareholders have differing opinions over whether or not to close the company down via means of Members Voluntary Liquidation (MVL). Whereas one may wish to exit the company or retire and extract assets, the other might prefer to continue running the company. These scenarios therefore raise a series of complex questions: can a minority shareholder force liquidation and how should 50:50 shareholders proceed when not in agreement?

The ‘Just And Equitable’ Option

Because all companies must have Articles of Association which lay out the rules for possible shareholder disputes, shareholder deadlock is rare and it is uncommon that minority shareholders will want to force liquidation without wider approval. However, when these situations do arise, minority shareholders can ask the court for a winding up order on ‘just and equitable’ grounds.

‘Just and equitable’ grounds can be cited by minority shareholders who genuinely believe that the fairest and most suitable course of action for the company is for it to be liquidated. For example, if trust between shareholders has broken down to the extent that it cannot be repaired. The court will consider the relationships between shareholders and look at alternatives like a buyout before deciding whether liquidation via means of a winding up petition is the most appropriate action.

Things For Minority Shareholders To Consider

The courts will typically only agree to winding up if all alternatives have been considered and ruled out. They will expect there to be genuine grounds for the closure of the company and that the purchase of the minority shareholder’s shares has been considered. For this reason, minority shareholders must think carefully before trying to force liquidation or use ‘just and equitable’ grounds as a means of ending shareholder disagreement concerning liquidation. It is not an easy way out or a quick fix but rather a final action from which business relationships are unlikely to be repaired.

If you are in disagreement with other shareholders about the possible liquidation of a company, it is therefore wise to seek professional advice before proceeding any further. A licensed insolvency practitioner can talk you through the different liquidation options to help you get a better understanding of the right course of action for your business. In the case of solvent businesses and shareholder deadlock, a professional can also talk you through the MVL process so that you can determine whether coming to an agreement about liquidating via this means is more suitable. 

For more information about the actions that minority shareholders can take when wanting to liquidate a company, please don’t hesitate to get in touch with our experienced team of licensed insolvency practitioners today.