Relationship between Companies Act

Parker J found the argument of Mr. Acton inconsistent under the following grounds as he has misread the judgments of both the cases of Ebrahimi v Westbourne Galleries Ltd and O’Neill v Phillips . In the case of Ebrahimi v Westbourne Galleries Ltd there is an express warning by Lord Wilberforce that a company – even if it is a quasi – partnership – can not be treated as if it were a partnership as laid down by Lord Hoffmann in O’Neill v Phillips.

Secondly it must be noted that for arriving at the decision of passing a winding up order on the just and equitable ground and under the provisions of section 459, Lord Hoffmann drew a parallel by applying the reasoning of Lord Wilberforce in the Ebrahimi’s case. As per Lord Hoffmann in O’Neill v Phillips, the winding up jurisdiction is not wider in scope than the remedies available under s. 459. Passing of a winding up order on a company can be equated to the passing of a death sentence on the company.

Moreover s 125 (2) of the Insolvency Act 1986 clearly identifies that the winding up order should be taken only as a last resort (as per the statutory provision stated above). Parker J was of the opinion that when there was no ground which is unfair under s 459 then the company need not be wound up under s 122 applying the principles of just and equitable grounds. If such an order is passed it would be inconsistent with the judgment pronounced by Lord Hoffmann in O’Neill v Phillips

Parker J also opined that if the decision in the case of Re R A Noble & Sons (Clothing) Ltd is to be taken as authority for withholding the proposition that an unfair conduct which could not be established so for the purpose of s 459 can be a case for winding up on just and equitable ground, then such authority is inconsistent with the decision in O’Neill v Phillips. Hence Parker J concluded that” if the conduct by the majority relied on by Surendra in the instant case is not unfair for the purposes of s 459, it cannot found a case for a winding-up order on the ‘just and equitable’ ground.

” Conclusion: Based on the argument of Mr. Acton and the comments of Parker J in his judgment in the case of ReGuidzone Ltd the following issues emerge in respect of the remedies available to the minority shareholders. An analysis of the legal aspects of the issue of protection of the minority interests of the company is concerned exceptions to the general rule established in the case of Foss v Harbottle had been provided. It has been established that the minority shareholder can sue under the circumstances of derivative actions, personal wrongs and against unfairly prejudicial conduct.

Several circumstance and acts have been established under the law having the characteristics of unfairly prejudicial under s 459. Under all such circumstances cases have been decided by providing appropriate remedies to the petitioners and the courts have arrived at the decision of winding up only as a last resort. Thus s 459 is having much wider scope and has been applied invariably in large number of cases to set precedence for the ‘unfairly prejudicial ground’. Hence it can be regarded that s 459 has a much wider scope than s 122.

Although s 122 of the Insolvency Act 1986 gives the power to the courts to pass the order of winding up of the company under just and equitable grounds, s 125 provides an alternative to the ultimate decision by restricting the scope for winding up by requiring the courts to investigate in to options available for mitigating the grievance of the petitioner other than winding up. Hence the intention of the statute is not to pass the winding up the order at the first instance as being claimed by Mr. Acton.

Parker J is correct in refuting Mr. Acton’s argument that simply because it is proved that the company is quasi – partnership it automatically becomes subjected to the winding up decision which is incorrect and inconsistent with the decision given in the case o’neill. It is also incorrect to assume that though the act committed is not ‘unfairly prejudicial’ under s 459, it can be regarded as a just and equitable ground for winding up, simply because the act was committed by the majority against the minority.

Parker J is also correct in saying that Mr. Acton’s contention that S 122 of the Insolvency Act 1986 has a wider scope than s 459 of the Companies Act 1985 is not acceptable as according to the controlling provisions of s. 125 provides for the search of all other alternatives before a decision for winding up could be passed and this definitely includes consideration of s 459. On this premise s 459 has a wider scope than s 122.

Parker J is relying on the judgment of Lord Hoffmann in the O’niell case that a company can not be treated as if it were a partnership even if it is a quasi – partnership as quoted by Lord Wilberforce in Ebrahimi case. Perhaps this is the foremost decision to influence Parker J in pronouncing his judgment in the case of Guidestone Ltd. On this basis only Parker J finds the argument of Mr. Acton inconsistent with the settled law.

Though there are other factors which weighed with the judgment of Parker J the fact that the company Guidestone Ltd need not be treated as a partnership is the foundation on which Parker J has made his conclusion. Under these circumstances the decision of Parker J that “The jurisdiction to make a winding-up order on the just and equitable ground under s 122(1)(g) of the Insolvency Act 1986 was not wider than the jurisdiction to grant relief under s 459.

Accordingly if the conduct by the majority relied on by S was not unfair for the purposes of s 459, it could not found a case for a winding-up order on the just and equitable ground” can be considered as in accordance with law and natural justice. Hence in view of the foregoing it can be concluded that Mr. Acton’s comments about the relationship between section 459 of the Companies Act 1985 and section 122(1) (g) of the Insolvency Act 1986 cannot be considered as having some validity and the interpretation of Parker J in Re Guidezone [2000] 2 BCLC 321 is absolutely tenable under law.