Badyal v Badyal & Ors

Breakdown of mutual trust and confidence in a quasi-partnership company is relevant to a just and equitable winding-up petition, but it is not decisive by itself. The court must assess all equitable considerations, including probity, good faith, mutual confidence and the conduct causing the breakdown.

A petitioner whose own misconduct caused the breakdown may be unable to insist on winding up. The remedy is distinct from unfair-prejudice relief. Under section 125(2) of the Insolvency Act 1986, winding up is generally a last resort where another remedy is available and pursued unreasonably instead.

Tarlochan Singh Badyal appealed from part of the judgment of Carr J, who had declared that he was validly removed as a director of Paramount Powders (UK) Ltd and dismissed his petition for relief under sections 994 to 996 of the Companies Act 2006 and for winding up on the just and equitable ground under section 122(1)(g) of the Insolvency Act 1986.

The appeal was confined to the refusal to wind up the company. The appellant argued that breakdown of mutual trust and confidence in a quasi-partnership company was sufficient, and challenged the characterisation of winding up as exceptional or a last resort. The central issue was whether, in light of the judge’s factual findings, it was just and equitable to make a winding-up order.

1. Appeal dismissed. The judge was entitled to dismiss the winding-up petition. No error of principle or identifiable flaw in his evaluation of the facts was shown.
2. A breakdown of mutual trust and confidence is one relevant factor in the just and equitable jurisdiction, but it does not automatically require winding up. The court may subject the exercise of legal rights under the company’s constitution to equitable considerations, including probity, good faith and mutual confidence. A company remains a company in law, even where it is described as a quasi-partnership.
3. The observations in Fulham Football Club (1987) Ltd v Richards correctly reflected section 125(2) of the Insolvency Act 1986. Where another remedy is available and the petitioner acts unreasonably in seeking winding up instead, the court should not make the order. Winding up is generally a last resort and an exceptional remedy in shareholder disputes.
4. The judge found that the appellant’s own misconduct, including involvement in a competing business, caused the ultimate breakdown. A petitioner may therefore be unable to insist on winding up where he was solely responsible for the situation or where his misconduct caused the loss of confidence. This does not mean that every fiduciary breach automatically makes exclusion from management fair; fairness remains an evaluative question.
5. The judge’s reliance on the parallel unfair-prejudice jurisdiction and on O’Neill v Phillips did not confuse the statutory regimes. The judge was also entitled to regard the benefit which winding up would confer on the competing business as an additional equitable consideration.

Lord Justice Simon and Lord Justice David Richards agreed with Lord Justice McCombe.

• Court of Appeal (Civil Division): appeal dismissed. The refusal to wind up Paramount Powders (UK) Ltd on the just and equitable ground was upheld.
• High Court of Justice, Business and Property Courts, Business List (ChD): Carr J’s judgment, [2018] EWHC 68 (Ch), declared that the appellant had been validly removed as a director and dismissed the winding-up petition and the claim for relief under sections 994 to 996 of the Companies Act 2006.