The decision of
Subject matter or participant?
A member or shareholder of a
An order that a winding up petition is an inter partes proceeding will determine, among other things, whether the company's assets may be used to fund the defence of the petition, and the extent to which other shareholders in the company will participate in the proceedings.
In some cases, such as in tightly held companies or where the board of the company is deadlocked, it may be readily apparent to the court that the company is unable to participate and the dispute should properly be characterised as an inter partes proceeding. However, in other cases, such as Madera, it is less clear cut.
Facts in Madera
The petitioner was a trust established under the laws of
As a consequence, the petitioner presented a petition seeking to wind up the company on the just and equitable ground on the basis that the petitioner had justifiably lost confidence in the probity with which the affairs of the company were being conducted. The petitioner filed a summons seeking directions that the petition proceeding be treated as an inter partes proceeding between the petitioner and the directors as respondents.
Characterisation of the petition
Richards J considered a line of English and
- There is a general principle that the funds of a company should not be spent on litigation where the real essence of the dispute is between the shareholders5
- The court must consider whether participation in the proceedings by the company was "necessary or expedient in the interests of the company as a whole"6
- The essential question is whether it is right to say that the company had "a separate and independent position" to the shareholders7 or whether it has a "real interest independent of its shareholders in defending the petition"8
- A relevant consideration is whether the petitioner alleges that the shareholders are implicated in the misconduct alleged in the petition.9 If the petition makes allegations against shareholders, procedural fairness dictates that they should be joined
Richards J found that because the directors were shareholders, the Court had jurisdiction to make an order joining the directors as respondents.10 However, her Ladyship found that the Court retains an underlying discretion as to whether it is appropriate to characterise the dispute as a dispute between shareholders and make orders for joinder.
Richards J found that although the conduct of the directors was central to allegations that the company should be wound up, the conduct complained of related to their actions taken in their capacity as directors of the company, and the petitioner did not make any allegations about their conduct as shareholders. Her Ladyship found that the shareholdings of the directors "are incidental to the alleged activity and are neither the essence of nor central to and do not feature in it."11
Consequently, Richards J refused to exercise her discretion to join the directors, characterising the dispute as one "with the company and with its directors" and finding that the company had a "real interest" in the proceeding.12
Conclusion
In the absence of a freestanding remedy for unfair prejudice or oppression in the
Footnotes
1. (Unreported, Segal J,
2. Companies Act (2022 Revision), s 92(e).
3. Companies Winding Up Rules, O.3, r.12(1).
4. Financial Services Division Guide (
5.
6. Re a Company (No. 001126 of 1992) [1993] BCC 325 at 333.
7. Arrow Trading & Investments v
8. Re
9. Re
10. Madera at [110].
11. Madera at [114].
12. Madera at [113], [116]. Notably, Richards J said that the fact that the Directors only had a small shareholding of 6.4% was "possibly not a complete answer" and suggested there may be some scenarios where joinder of minor shareholders was appropriate, including in cases involving unfair buy out arrangements or oppressive conduct : Madera at [108].
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