Where the relationship between the shareholders of a company has broken down irretrievably so that the company cannot function, the court will wind up a solvent company because it is just and equitable to do so.
In Thunder Cats Investments v Nkonjane Economic Prospecting the court said “Only a winding-up will break the paralysis that haunts the company”.
What’s just & equitable?
There is no fixed category of circumstances when deciding what is just and equitable. The phrase confers a wide discretion whether to act. The courts have wound up companies because the company’s:
- substratum has disappeared
- the objects of the company are illegal and fraudulently implemented
- there is a deadlock
- there is oppression of shareholders,
on grounds similar to those for dissolving a partnership. Deadlock as a ground is usually confined to small domestic companies in which personal relationships of confidence and trust have broken down.
“Only a winding-up will break the paralysis that haunts the company”
The company may be wound up by the court even if the breakdown of the relationship is due to the applicant’s misconduct. ‘Clean hands’ is not an absolute bar to the application if the company cannot function.
Shareholders should make peace not war.