When a solvent business is placed into liquidation by its shareholders it’s often because the directors want to retire, or perhaps due to the business having no further purpose. The process used is called Members’ Voluntary Liquidation (MVL), and it ensures the company closes down in an orderly manner.
If there are only two equal shareholders, however, and they don’t agree on whether the company should be liquidated, the situation is more complex. It may be difficult to resolve without taking positive action, so can a 50-50 shareholder put a company into liquidation without the agreement of the other person?
When there are only two shareholders, the lack of a casting vote can be problematic should a conflict arise. This type of shareholder dispute creates a deadlock that can continue for some time, with the risk of it affecting company performance as the directors become distracted
Typically, a company’s Articles of Association determine the way in which shareholder disputes are dealt with, but the 50-50 split means that neither shareholder has to concede to the other’s point of view.
There is a way that a 50-50 shareholder can put a company into liquidation, however, so how do they do this and what might be the outcome?
A 50% shareholder can place their company into liquidation by applying to the courts for a winding up petition on ‘just and equitable’ grounds. They present a just and equitable winding up petition and the court decides the company’s fate.
The court will expect the shareholders to have undergone mediation in the first instance - the support of a professional mediation service can release a deadlock in some cases, by presenting a clearer picture of the options available to the two shareholders.
Mediation doesn’t always work in a 50-50 shareholder deadlock, but a just and equitable winding up petition can provide a way out of the dispute, and allow the company and its directors to move forward.
A winding up petition is commonly issued by a creditor intent on forcing the company into liquidation. The winding up petition leads to a winding up order, which sets in motion the liquidation process.
A just and equitable winding up petition is another means by which a company can be liquidated, but for different reasons. The court will look at the case, the background to the dispute, and whether the deadlock can be broken by any other means.
They may suggest the shareholder who doesn’t want to liquidate buys out their partner’s share, for example. If they’re financially able to do so, this could enable a profitable company to carry on trading, and provide the other shareholder with the opportunity to develop the business to its full potential.
It’s important to seek professional help early on in a 50-50 shareholder dispute. A deadlock of this kind can seriously disrupt the day-to-day operations of a company, demotivate staff, and negatively affect customer service levels.
Ultimately, profit levels will also suffer and a previously thriving company can quickly start to experience financial distress. Obtaining professional advice can help both shareholders move on, and end a stressful and damaging situation.
UK Liquidators has extensive experience of helping directors and shareholders deal with disputes and find ways to escape this problematic situation. Please contact one of our partner-led team for more information, and to arrange a free, same-day consultation. We work from a wide network of offices around the country.
If you are considering liquidation for your limited company, taking advice from a licensed insolvency practitioner can help you understand your options.
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If you are considering liquidation for your company, taking expert advice at an early stage is crucial. At UK Liquidators, our team of licensed insolvency practitioners are committed to providing limited company directors with the help and advice they need to make an informed decision.
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