John Leslie Taylor v The Whitehall Partnership Limited & Anor. [2023] EWHC 596 (Ch)

“On hearing a winding-up petition the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make an interim order, or any other order that it thinks fit …”

“If the petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the court, if it is of opinion: (a) that the petitioners are entitled to relief either by winding up the company or by some other means, and (b) that in the absence of any other remedy it would be just and equitable that the company should be wound up, shall make a winding-up order; but this does not apply if the court is also of the opinion both that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy.”

“187. The remedy has been described as one of last resort and an exceptional remedy in the context of disputes between shareholders – see e.g., Fulham Football Club (1987) Ltd v Richards [2012] Ch. 333 at [54]–[56]. This is reflected in the wording of Section 125(2) of the 1986 Act, which requires the Court to decline to make a winding up order where some other remedy is available, and the petitioner is acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy. An alternative remedy might potentially be provided by pursuing a remedy under Sections 994-996 of the Companies Act 2006 (‘the 2006 Act’) on the grounds that the affairs of the company are being or have been conducted in a manner that is unfairly prejudicial to the petitioner in his capacity as a shareholder, or by an offer to buy the petitioner's shares. 189. Absent an alternative remedy, the question is one of considering whether it is ‘just and equitable’ that the company should be wound up. 190. As emphasised by Dillon J in Re St Piran Ltd [1981] 1 W.L.R. 1300 at 1307: ‘The words "just and equitable" are wide general words to be construed generally and taken at their face value. Whether in any case a winding up order should be made would depend on a full investigation of the facts of the particular case … The concept of justice and equity is a very wide concept …’ 193. In Lau v Chu (supra), Lady Arden JSC approved this approach, saying at [101]: ‘Lord Wilberforce clearly held the phrase "just and equitable" was general and should ‘not be reduced to the sum of particular instances' '(pp 374-375). He also held that the courts may have been too timorous in the past in just and equitable winding up and that it was impossible or undesirable to define the circumstances in which equitable considerations could arise (p 379).’ 194. The jurisdiction is most often invoked in circumstances where the company is in substance a partnership, but it is clear that the jurisdiction is not so limited, and ‘may be invoked whenever justice and equity require’ – Re Ringtower Holdings plc (1989) 5 B.C.C. 82, at 91F, per Peter Gibson J. 197. In Lau v Chu (supra), Lord Briggs JSC, at [39(a)] and [43], made clear that: ‘There is no rule that a just and equitable application for winding up must be justified solely by reference to the position as at the date of the filing of the application… The court has to ask itself, at the time of the hearing, whether it is just and equitable that a liquidator should be appointed… the court should consider all relevant matters as at the date of the hearing. Secondly this is entirely in accordance with the court's ordinary practice when considering whether to grant discretionary relief of an equitable nature’. 198. It is apparent from the extract from the judgment of Lord Briggs in Lau v Chu (supra) referred to in the last paragraph that the court is required to consider all relevant matters pertaining at the date of the hearing that might bear upon the question as to whether it is just and equitable that the company be wound up, a question that is liable to involve an element of discretion with regard to whether the relief sought ought to be granted. 199. Apart from the question of alternative remedies, those discretionary matters might potentially include considerations such as the wishes of other members of the company, the financial consequences to the company of making a winding up order, and the conduct of the petitioner.”

“54 The power of the court to wind up on the just and equitable ground is also contained in section 122 of the 1986 Act but, in relation to a contributory's petition, the conditions for its exercise are very different. As a general rule, the shareholder seeking the winding up order must be able to establish that the company is solvent and that there will be a surplus remaining for distribution after the payment of the company's debts and the costs and expenses of the liquidation: see In re Rica Gold Washing Co Ltd (1879) 11 Ch D 36. 55 A shareholder will not therefore be permitted to petition under s.122(1)(g) for the winding up of an insolvent company and, in the case of a solvent company, the court’s power will only be exercised in his favour with a view to dividing the net assets of the company where no other means can be found of resolving the dispute between shareholders in relation to their rights and interests as members. To this end, s.125(2) of the Insolvency Act 1986 provides: ‘If the petition is presented by members of the company as contributories on the ground that it is just and equitable that the company should be wound up, the court, if it is of opinion: (a) that the petitioners are entitled to relief either by winding up the company or by some other means, and (b) that in the absence of any other remedy it would be just and equitable that the company should be wound up, shall make a winding up order …’ but this does not apply if the court is also of the opinion both that some other remedy is available to the petitioners and that they are acting unreasonably in seeking to have the company wound up instead of pursuing that other remedy … 56. Section 994 [of the Companies Act 2006] will usually provide the source of a satisfactory alternative remedy such as a buy-out order so that winding up under s.122(1)(g) is therefore a last resort and, in my experience, an exceptional remedy to grant in the context of disputes between shareholders. This is confirmed by the terms of the current Practice Direction 49B (Order under s.127 of the Insolvency Act 1986 ) which draws attention to the undesirability of asking, as a matter of course, for a winding up order as an alternative to an order under s. 994.”

“It is well established that winding up is a shareholders’ remedy of last resort. But this does not mean that winding up is unavailable to members if they have any other remedy. The member retains a significant element of choice in the remedy to be sought, even though the court has the last word …the court carries out a three stage analysis, asking: (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 available remedy instead of seeking winding up?”

“People do not become partners unless they have confidence in one another and it is of the essence of the relationship that mutual confidence is maintained. If neither has any longer confidence in the other so that they cannot work together in the way originally contemplated then the relationship should be ended unless, indeed, the party who wishes to end it has been solely responsible for the situation which has arisen.”

“39. It seems to me, therefore, that a petitioner may well not qualify for relief if he is ‘solely responsible for the situation which has arisen’ (Lord Cross [in Westbourne] at 383–4). If the breakdown in confidence has been due to his misconduct, he may not be able to insist on a winding up of the company (Lord Cross at 387). 40. Here, as it seems to me, the judge found that TSB was solely responsible for the situation that had arisen. The matters of which he complained were rejected and the breakdown in confidence was due to his own misconduct. 41. Having noted the passages from Lord Cross’s speech (quoted above), one must be careful to avoid creating the impression that every breach of fiduciary duty by one corporator in a quasi-partnership company will automatically render his exclusion from management fair. That is not the case, as was said in this court recently in the context of an “unfair prejudice” claim in Re Sprintroom Ltd [2019] EWCA Civ 932; [2019] B.C.C. 1031 at [82]–[83]. However, relief (in some unfair prejudice cases) has been refused where the excluded party has been found to have been justifiably excluded: see the examples quoted at [82] of the Sprintroom judgment.”

“The legal burden of proof is on the applicant at stages (a) and (b). But it shifts to the respondent at stage (c): see Moosa v Mavjee Bhawan (Pty) Ltd (1966) (3) SA 131, 152 and Asia Pacific Joint Mining Pty Ltd v Allways Resources Holdings Pty Ltd [2018] ACSR 227, paras 32 and 43.”

“Now I will say a word or two on the law as regards the position of a Petitioner holding fully paid-up shares. He is not liable to contribute anything towards the assets of the company, and if he has any interest at all, it must be that after full payment of all the (debts and liabilities of the company there will remain a surplus divisible among the shareholders of sufficient value to authorize him to present a petition. That being his position, and the rule being that the Petitioner must succeed upon allegations which are proved, of course the Petitioner must shew the Court by sufficient allegation that he has a sufficient interest to entitle him to ask for the winding-up of the company. I say " a sufficient interest," for the mere allegation of a surplus or of a probable surplus will not be sufficient. He must shew what I may call a tangible interest. I am not going to lay down any rule as to what that must be, but if he shewed only that there was such a surplus as, on being fairly divided, irrespective of the costs of the winding-up, would give him £5,1 should say that would not be sufficient to induce the Court to interfere in his behalf.”

“I cannot think that a petition presented by a fully paid shareholder on ground (b) of section 222 could be treated as demurrable because he was unable to allege that there would be a surplus of assets. I also think, if I may say so respectfully, that the references to ‘a surplus’ or to ‘assets for distribution amongst the shareholders’ which appear in some of the cases, are to some extent an unnecessarily restrictive gloss upon what was said in Re Rica Gold Washing Co., 11 Ch.D. 36. What was required for a fully paid shareholder to petition was, Jessel M.R. said, at p. 43: ‘... a sufficient interest to entitle him to ask for the winding up of the company … He must show what I may call a tangible interest.’ He then went on to stress that he was not going to lay down any rule as to what that tangible interest must be, and gave as an example of what was not a sufficient interest a negligible surplus on the distribution. I do not, however, think that it can be quite accurate to say that the tangible interest of the fully paid shareholder must necessarily and in all cases be restricted to the existence or the prospective existence of a surplus. Indeed, Jessel M.R. himself in Re Rica Gold Washing Co., in the opening words of the paragraph which I have read, seems to suggest that the potential liability of a shareholder can constitute an interest for this purpose. And, for instance, a fully paid shareholder who petitions to wind up a company on ground (d) of section 222 — that is to say, that the number of members has been reduced below the requisite minimum — has the strongest possible interest in seeing that the company's business is brought to an end, for otherwise he may find himself personally liable for the company's debts under section 31; and I cannot conceive, if the company were insolvent and his peril thus increased, that the court would tell him that the petition was incompetent on this ground. Furthermore, it must be recalled that the fasciculus of sections dealing with winding up applies to unlimited companies as well as to limited companies, and a shareholder, albeit his shares were fully paid in such a company, might have a very strong interest in the liquidation of the company which was totally insolvent simply from the point of view of terminating his liability as a member. However, it is I think clear that in referring to ‘a sufficient interest’ Jessel M.R. meant an interest by virtue of the petitioner's membership. In order to establish his locus standi to petition a fully paid shareholder must, as it seems to me, show that he will, as a member of the company, achieve some advantage, or avoid or minimise some disadvantage, which j) would accrue to him by virtue of his membership of the company. For instance, a member of a company might have a strong interest in terminating its life because he was engaged in a competing business or because he was engaged in litigation with the company, but I do not think that that was the sort of interest that Jessel M.R. had in mind.”

“Following an application for a Change of Legal Status from The Whitehall Partnership Limited to The Whitehall Partnership LLP the FCA responded to this with our letter of 6 February 2020. This letter advised that the Authorisations Division is minded to recommend to the relevant FCA Committee to refuse this application. FCA concerns were that It does not consider that Threshold Condition 2E, Suitability is satisfied for the following reasons – Mr Taylor failed to set out the clear legal basis upon which he, as a co-Director, was entitled to remove the other co-Director Joanne Taylor, and to record the termination of Joanne Taylor's director appointment at Companies House; No alternative legal provision has been Identified by Mr Taylor as providing him with the powers, as co-Director and a 50% shareholder, to unilaterally remove Joanne Taylor as co-Director; We did not consider that we had received a satisfactory explanation as to the legal basis for the unilateral removal of Joanne Taylor as Director; and Mr Taylor was not sufficiently open in the original application papers and subsequent correspondence with us regarding Joanne Taylor's position in the firm, and the purpose of her removal as CF1.”

“The Second Respondent cannot sensibly contend that the Petitioner ought to have pursued a remedy pursuant to the unfair prejudice petition jurisdiction since when the Petitioner did issue a section 994 petition she sought to oppose it and averred that he was not entitled to any relief on his petition … Likewise, as the filed evidence shows, the Second Respondent is not prepared to sell her shares in the Company based on any independent valuation, nor is there any offer to sell shares on the table. The Second Respondent’s position on offers appears to be that she wishes to purchase the Petitioner’s shares in the Company from him (even though he is the only qualified financial adviser in the Company) and on terms that he agree to ‘exit the industry permanently’: … The Second Respondent’s alternative suggestion that both the Petitioner and the Second Respondent give up their decision-making rights as directors and shareholders to a court appointed ‘independent expert in the area of deadlock’, is plainly not a credible argument. The court having no jurisdiction to order such an appointment on the hearing of a winding up petition (or otherwise), and there also being absolutely no evidence (nor credibly any possibility) of the Financial Conduct Authority authorising such a proposal.”

“(1) That your shareholding will be valued at a fair value as between a willing buyer and a willing seller on a pro rata basis and with no discount for a minority shareholding (there being none), and on the basis that the Company is a going concern; (2) The valuer shall take account of the assets, profitability and prospects of the Company; (3) The valuation will be as of the date of this letter; (4) For the purpose of making submissions to the valuer, each party will have full access to all financial information concerning the Company; (5) The valuer will act as expert not arbitrator, and shall not give reasons for his decision; and (6) The valuer will have power to determine who shall bear the costs of the valuation.”

“Despite the fact I have no plans to retire, the Second Respondent has proposed selling the Company to True Potential. However, the 'restricted' retail packaged products offered by True Potential are incompatible with bespoke 'whole of market' solutions required by the Company's clients. The Second Respondent refers to the value of client relationships in Paragraph 92, whereby she accepts my relationship with each client is vital to the Company's performance. Hence, the only viable solution was for me for me to buy the Second Respondent's shareholding.”