Is a breakdown in mutual trust and confidence enough to wind a company up?
In the recent English Court of Appeal decision in the matter of Paramount Powders (UK) Ltd (the Company), the appellant was removed as a director of the Company, following which he petitioned the Court for an order that the Company (which was a quasi-partnership between him and his brothers) be wound up.
At the core of the appellant’s petition at first instance were complaints that his brothers were in breach of fiduciary duties in respect of their conduct in what he characterised as establishing businesses that competed with the Company. In the circumstances it was just and equitable for the Company to be wound up given that there was a breakdown in trust and confidence between him and his brothers.
At first instance and on appeal, it was determined that it was the appellant who was in breach of fiduciary duties; that it was appropriate in the circumstances for him to have been excluded from the management of the Company; and that the breakdown in mutual trust and confidence between them was not enough by itself, to justify the winding up of the Company. The Court further found that a petitioner (as in this case) may not qualify for relief if he is “solely responsible for the situation which has arisen”.
Notwithstanding the above, the Court has cautioned that not every instance of a fiduciary breach would be enough to satisfy the exclusion of a former participant in a quasi-partnership company.