The most common reason that companies are wound up is because they are insolvent (often initiated by an unpaid creditor).
Did you know, however, that companies can be wound up on grounds other than insolvency? This is called winding up on just and equitable grounds.
When will a company be wound up on just and equitable grounds?
Some of the matters which a Court may consider in winding up a company for just and equitable grounds are as follows:
(a) a failure of the main object of the company’s formation;
(b) a deadlock in the management of the company;
(c) a breakdown in the relationship between the shareholders;
(d) a lack of confidence in the conduct and management of the affairs of the company;
(e) where there has been fraud, misconduct or oppression in relation to the affairs of the company;
(f) serious concerns about the company’s compliance with its statutory obligations, including the filing of tax returns;
(g) where there have been breaches of the Corporations Act 2001, including breaches of directors’ duties or an inadequacy of accounts or recordkeeping;
(h) questions of commercial morality in the conduct of the company’s affairs; and
(i) a risk to the public interest that warrants protection.
Lesson
There are numerous reasons a Court will wind up on just and equitable grounds.
There is a large body of case law regarding this area, and it is important to obtain expert legal advice before commencing or defending Court proceedings of this nature.
