What to Do with a Deadlocked Company? High Court Gives Guidance

What is to be done when a company falls into paralysing deadlock, with equal shareholders unable to agree about anything? A judge addressed that issue in a case concerning a former husband and wife whose business and personal relationships had descended into acrimony.

Following their divorce, the ex-couple remained directors of a company in which they each had a 50 per cent shareholding. In asserting that it would be just and equitable to wind up the company, the man cited the irretrievable breakdown of trust and confidence between them. The woman opposed his application.

Ruling on the matter, the High Court noted that the company was plainly deadlocked. In refusing to grant a winding up order, however, it found that the man was entirely responsible for that situation and had not come to court with clean hands. He had sought to minimise his appalling behaviour towards the woman whilst seeking, in every way, to portray her in the worst possible light.

He had not reasonably pursued alternative remedies to fruition and, if the company were wound up, he would derive a collateral benefit from his wrongful actions at the woman's expense. Noting that winding up orders are a discretionary remedy, the Court found that it would be wholly unconscionable were it to exercise its jurisdiction in the man's favour.

The Court observed that the most appropriate way of relieving the deadlock would have been to place the company in administration. That would have enabled an independent administrator to continue its business so that its goodwill and other assets could be sold as a going concern. For reasons that had not been properly explained, however, no such application had been made and the Court had no power to make an administration order on its own initiative.