Harding & Anor v Edwards & Ors

For a family company operated as a quasi-partnership, the court may wind up the company on just and equitable grounds where mutual trust and confidence have broken down, management is deadlocked, or personal hostility prevents proper decision-making. The court must consider whether the company was intended and in fact operated as a quasi-partnership, whether intervention is justified, whether an alternative solution exists, and whether winding up should be ordered. A petitioner need not be wholly blameless: sufficiently clean hands are enough. A majority cannot simply exclude quasi-partners who retain substantial shareholder rights. The company’s profitability does not prevent a winding-up order where the relationship essential to its operation has irretrievably failed.

The petitioners, sisters and shareholders in Brand & Harding Ltd, sought the winding up of a family farming company under section 122(1)(g) of the Insolvency Act 1986. They alleged that the company was operated as a quasi-partnership, that relations between the family shareholders had broken down, and that management had become deadlocked.

The first respondent opposed the petition. She argued that the company was profitable, that she could continue managing it successfully, and that the petitioners should withdraw from management. The issues were whether the company was intended and operated as a quasi-partnership, whether there were grounds for intervention, whether any alternative to winding up was available, and whether winding up was just and equitable.

1. The petition was granted. It was just and equitable to wind up the company.
2. The court adopted the approach derived from Ebrahimi v Westbourne Galleries [1973] AC 360. The relevant questions were whether the company was intended to be run as a quasi-partnership; whether it was in fact so run; whether intervention was justified by deadlock, breakdown of mutual trust and confidence or improper management; whether an alternative solution existed which the petitioners were unreasonably refusing; and, finally, whether winding up should be ordered.
3. The company was a family business. The shares had been held within the family and the shareholders had been intended to participate in management. The company had in fact been operated on that basis.
4. The disputes concerning the accountant, access to records, attempted removal of directors and appointment of another director, and the distribution and voting of shares demonstrated persistent deadlock, a complete breakdown of mutual trust and confidence, and improper management. Personal hostility had become inseparable from decisions affecting the company.
5. The clean-hands requirement did not demand complete blamelessness. In the circumstances of a prolonged family dispute, the petitioners’ conduct was sufficiently clean to invoke the jurisdiction. The court also applied the principle in Re Yenidje Tobacco Co Ltd [1916] 2 Ch 426, that continuing quarrelling and the impossibility of placing confidence in one another may justify winding up even where the company is prosperous.
6. There was no satisfactory alternative. The proposed purchase of the petitioners’ shares lacked an agreed price and did not reliably resolve future disputes. The respondent could not simply expunge the petitioners from the company while they retained substantial shareholder rights. The prospect of improvement was absent and future disputes were likely.