Revisiting just and equitable winding up

Mr Chu and Mr Lau were equal shareholders of a BVI incorporated company. When the two fell out, Mr Lau petitioned for a winding up on the just and equitable grounds based on a deadlock at both director and shareholder level, and an irretrievable breakdown of trust and confidence. The Privy Council allowed Mr Lau’s appeal and restored the decision at first instance to make the winding up order.

The judgment makes interesting reading and relevant to any shareholder dispute as it explores when a just and equitable winding up order may be made which are:

  • To resolve a functional deadlock which led to an inability for the company to function at board or shareholder level.
  • The company was a quasi-partnership and there was an irretrievable breakdown in trust and confidence.

In this case, although Mr Lau could, in theory, untangle himself from the deadlock by selling his shares, a third party was never likely to pay full value for them and so did not bar him from petitioning for a winding up.

The Court also rejected the argument (accepted by the Court of Appeal) that if deadlock is proved, a buy-out was the appropriate remedy. Whilst it was correct a petition could be resisted if the applicant had unreasonably failed to pursue another remedy, the respondent had to put forward what alternative remedy there was. This was a “paradigm case” of a breakdown in trust and confidence and of functional deadlock and in such cases a winding up was typically appropriate remedy.

Chu v Lau (British Virgin Islands) [2020] UKPC 24

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