Re Paramount Powders (UK) Ltd

The Court of Appeal dismissed the appeal against the High Court's refusal to wind up Paramount Powders (UK) Limited on the "just and equitable" ground under section 122(1)(g) of the Insolvency Act 1986, and upheld the judge's concurrent dismissal of the petitioner’s alternative relief under sections 994–996 of the Companies Act 2006. The court reaffirmed that a breakdown of mutual trust and confidence in a quasi-partnership company is a relevant factor but not by itself an automatic basis for a winding-up order: the equitable jurisdiction considers a range of factors, including probity and good faith, and will refuse relief where the petitioner is responsible for the breakdown.

The court accepted the High Court's findings of fact that the appellant (TSB) had engaged in misconduct by secretly supporting a competing business (Trident) in breach of fiduciary duties, that his pleaded allegations against his brothers were not proved, and that the effect of a winding-up order would be to advantage Trident unfairly. The judge's reliance on authorities concerning the exceptional character of the winding-up remedy and the role of section 125(2) of the Insolvency Act was endorsed.

Background and parties: TSB (the appellant) and his two younger brothers (MSB and SSB) had long-run family businesses including Paramount Powders (UK) Limited ("the Company") and various partnerships. Relations deteriorated and competing businesses were alleged. TSB presented company proceedings initially under sections 994–996 of the Companies Act 2006 and later amended his petition to seek winding-up under section 122(1)(g) of the Insolvency Act 1986. MSB and SSB countered, alleging that TSB had been involved in and funded a competing company (Trident) in breach of fiduciary duty and moved to remove TSB as a director.

Nature of the claim and remedy sought:

• Primary relief sought by the appellant in amended pleadings: winding-up of the Company as just and equitable (s.122(1)(g) Insolvency Act 1986).
• Alternative relief initially sought: unfair prejudice relief under sections 994–996 Companies Act 2006 (the petition later abandoned as to these grounds on appeal).

Issues framed:

• Whether a breakdown in mutual trust and confidence in a quasi-partnership company, without more, is sufficient to justify a winding-up order.
• Whether the High Court judge erred in law in treating the just and equitable winding-up remedy as exceptional or as a last resort (and the proper interpretation of section 125(2) Insolvency Act 1986).
• Whether the judge misapplied his discretion or made reviewable errors when finding the appellant had engaged in misconduct (involvement with Trident) and therefore was not entitled to relief.

Court’s reasoning and conclusions:

• The Court of Appeal reviewed the relevant authorities (including Westbourne Galleries, O'Neill v Phillips, Fulham Football Club and others) and confirmed that the just and equitable jurisdiction is equitable and fact-sensitive: breakdown of mutual trust and confidence is a relevant factor but only one of several (including probity and good faith).
• Section 125(2) and the authorities support the view that winding-up on the just and equitable ground is generally an exceptional remedy where other remedies (for example under section 994) are available; the judge’s characterisation of winding-up as a last resort was a fair paraphrase of the authorities.
• The judge’s primary factual findings — that the appellant had secretly funded and supported Trident, that many of his pleaded complaints failed, and that the breakdown in relations was substantially caused by the appellant’s conduct — were not vitiated by any identifiable error of principle or mis-evaluation of the evidence.
• Given those findings, it was proper to refuse the winding-up petition as unjust and inequitable, including because a winding-up order would have risked unfairly benefitting the competing business.

Procedural posture: Appeal from the High Court (Henry Carr J), reported at [2018] EWHC 68 (Ch), dismissed by the Court of Appeal on 8 October 2019.

The appeal was dismissed. The Court of Appeal held that the High Court had properly exercised its discretion under section 122(1)(g) of the Insolvency Act 1986 and rightly refused a winding-up order: a breakdown in mutual trust and confidence in a quasi-partnership company is a relevant but not determinative factor and will not justify winding-up where the petitioner is responsible for the breakdown or where other equitable considerations (including that winding-up would benefit a competitor) make the order unjust. The judge’s findings of fact that the appellant had engaged in misconduct (supporting Trident) and that his pleaded allegations failed were upheld and no error of principle was shown.

Appeal to the Court of Appeal from the High Court of Justice (Business and Property Courts, Chancery Division), Henry Carr J, reported as [2018] EWHC 68 (Ch); this Court delivered judgment as [2019] EWCA Civ 1644.