Company Law Question

kronsington

Hi, i hope someone can help me with this.

Hypothetically, if there's a company where a shareholder owns 40% of the shares and wishes to sell those shares to other shareholders of the company but that person will only sell at their own price and if they do not get that price they say will seek to have to company wound up. surely this is not possible? can the other shareholders prevent the person doing this? what are their rights? would love to hear some thoughts if possible. thanks

Jo King

What's wrong with that?
I can decide I want 10 times the market value of my bicycle should I wish to sell it. Anyone who wants to pay less can go jump.

Section 213

This is actually a pretty complicated question with a lot more information required to answer it properly.

In short, there are three kinds of winding up:

1. Members Voluntary
2. Creditors Voluntary
3. Court Ordered

In order for either of the 1st two types to occur a resolution of the members must be passed. Obviously you need more than 40% of the voting rights to achieve this.

In order for the third type to occur you must either be a creditor who has called for payment and has been unsatisfied, thereby deeming the company to be insolvent, or fall under one of the below provisions. The creditor can then present a petition to have the company wound up.

The basic reasons why a Court can wind up a company are enumerated in s.213 of the Companies Act 1963 as follows:

Section 213 wrote:

A company may be wound up by the court if—

(a) the company has by special resolution resolved that the company be wound up by the court;

(b) default is made in delivering the statutory report to the registrar or in holding the statutory meeting;

(c) the company does not commence its business within a year from its incorporation or suspends its business for a whole year;

(d) the number of members is reduced, in the case of a private company, below two, or, in the case of any other company, below seven;

(e) the company is unable to pay its debts;

(f) the court is of opinion that it is just and equitable that the company should be wound up;

(g) the court is satisfied that the company's affairs are being conducted, or the powers of the directors are being exercised, in a manner oppressive to any member or in disregard of his interests as a member and that, despite the existence of an alternative remedy, winding up would be justified in the general circumstances of the case so, however, that the court may dismiss a petition to wind up under this paragraph if it is of opinion that proceedings under section 205 would, in all the circumstances, be more appropriate.

If the 40% shareholder can prove that he is being treated oppressively pursuant to s.205 of the Companies Act 1963 then one remedy available to the Court is to order a winding up. This is obviously dependent on the circumstances of the case.

In short then, whether or not the shareholder can have the company wound up will depend entirely on the conduct of the company, whether they are a creditor and a number of other small factors which aren't worth going into in a broad hypothetical. Generally speaking you should seek legal advice if you feel this matter is likely to escalate as, quite frankly, you could not possibly give sufficient detail or receive sufficient advice through this medium to set your mind at ease.