COMPULSORY WINDING UP JUST AND EQUITABLE
1. Main object of the company cannot be achieved Sect. 35(2) says that, “ if the constitution sets out the objects of the company, the shall be restricted from carrying on any business or activity that is not within those objects� If the company carries the activities outside its objects, the members are permitted to petition to wind up the company as per sect. 465 (1)h. Re German Date Coffee Company (1882) 20 Ch 169
Re German Date Coffee Company (1882) Stated that its object was the working of a German patent to manufacture coffee from dates. The company failed to acquire patent from German but acquire a Swedish and establish work in Hamburg without a patent.
shareholders Some shareholder withdrew from the company when they discovered that a German patent would not obtained. The large majority wished the company to continue.
The 2 shareholder petitioned the court for a winding up order on the basis that as the main object of the company was impossible to carry out, it was just and equitable to wind the company up.
• The court held that the whole substratum of the company was gone, the business was to make coffee from dates using German patent in Germany and not to enter into business generally. • The shareholders were entitled to say that they did not enter into the company on those term, and so the company ought to be wound up.
2. If a state of deadlock exist in the management of the company, a winding up may be ordered. This situation is most likely occur when the company has a small number of directors who are also the majority shareholders.
- This situation can refer to the following cases: • Re Yenidje Tobacco Co (1916) • Re Semantan Estate (1952) Ltd (1965) • Re Ah Yee Contractors (Pte) Ltd. (1987)
Re Yenidje Tobacco Co (1916)
The company was set up by Rothman and Weinberg to carry out on the business of tobacco manufacturers.
Rothman and Weinberg the only shareholder and directors of the company. They fell out with each other and could not get along. Eventually, they ceased to communicate with one another except through the company secretary.
The court held that under those circumstances it could not be expected that the two would work together. They are not in speaking term. No substantial business was being transacted. Even though the company was still making large profits, it was ordered to be wound up on ground of just and equitable circumstances.
3. Breakdown of mutual trust Where the company is like a small partnership based on mutual trust and confidence and that trust and confidence is broken, the court might consider it just and equitable to wind the company up. For example, where the majority member deliberately exclude the minority from participating in the management of the company, the minority may have the company wound up. Can refer to the case : • Ebrahimi v Westbourne Gallaries (1973) • Tay Bok Choon v Tahanson Sdn Bhd (1987)
Ebrahimi v Westbourne Gallaries (1973) The company was set up to take over a partnership business. The partners were Nazar and Ebrahimi. Both were shareholders and directors of the new company. No dividend paid but the director received remuneration. Nazar’s son joined the company as a shareholder and director later. The two Nazars controlled company. They removed Ebrahimi from his post as director. He thereby lost his source remuneration. Ebrahimi petitioned for the winding up of the company.
Lord Wilberforce held that it was an indisputable inference that when Ebrahimi and Nazar set up the company, they did so on the basis that the nature of the relationship between them (i.e. equal partners in the business) would remain the same. What the Nazars had done was a repudiation of that relationship. Even though what the Nazars did was perfectly legal, it was just and equitable that the company be wound up.
4. Company’s business has been carried on in a fraudulent manner If this happened and the shareholders have been misled into investing in the company, the shareholders may have the company wound up in order to get their money back.
Re Thomas Edward Brinsmead & Sons Ltd (1897) 1 Ch 45
John Brinsmead & Sons were noted piano makers. Three employees of the firm (all name Brinsmead as well) set up the company to manufacture pianos. These were passed off as the products of the firm. John Brinsmead & Son obtained an injunction against the company restraining it from using the name ‘Brinsmead’.
The court held that the company was formed for the purpose of defrauding John Brinsmead & Son. The shareholders, who had been misled into believing that the company had the right to use the name and goodwill of Brinsmead, were entitled to refuse to continue in a business which was a fraud. In view of the frauds that had been committed, and to protect the interest of the innocent shareholders, the company was wound up.
5. Oppression • Where a member is oppressed or treated unfairly by the controlling members, he may apply for relief under sect. 346 or petition to wing up the company under sect. 465(1)(h).
Loch v John Blackwood Ltd. (1924). Where the director failed to hold general meeting. Balance sheet, profit and loss account and reports were not submitted and the requirement regarding audit were not complied with. The objective was to keep the shareholder in dark in order to acquire their shares cheaply. There was justifiable lack of the confident in the management and the court ordered the company to be wound up.