Shareholders Deadlock- Winding Up Company on Just and Equitable Ground
When a company with two directors and shareholders, each owning 50%, cannot agree at board or shareholder level, and no decisions can be made. The company is “deadlocked”.
The shareholder of the Company may consider applying to the Court by way of Petition to wind up the company on just and equitable ground under section 177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32).
But this is a drastic action, and the shareholder (Petitioner) must show to the Court that he has explored alternatives, for example a buy out by the other shareholder or by the company, then argue that the company cannot continue in deadlock.
The Petitioner must show to the Court that the shareholders’ expectation has been defeated, and there is lost or breakdown of mutual trust and confidence between the shareholders.
If the court has decided to grant a winding up order, the property of the company would be put in the hands of liquidators whose role is then to sell all material assets and distribute any net proceeds to the shareholders.
For legal advice or services on shareholders’ disputes, please contact
CHOW & CHEUNG, Hong Kong Solicitors & Notary Public [cac@ccsn.hk / +852 2856 3799]
www.ccsn.hk