Can a 50-50 shareholder force their company into liquidation?
Many limited companies are founded equally by two people. By pooling their time, expertise and financial resources, they hope to achieve more than if they went into business alone. While this type of relationship often works out well, there are also instances when two shareholders with an equal stake in the company can have very different points of view, and that’s where problems occur.
50-50 shareholders can disagree about everything from who is responsible for tasks to the direction of the business. Those differences in opinion can escalate to the extent that one of the shareholders may decide to liquidate the company, but what happens if the other shareholder disagrees?
Here we discuss whether a 50% shareholder can force a company into liquidation and their other options for closing the business.
50-50 shareholder disputes and Company Liquidation
50-50 shareholder disputes and Company Liquidation
There are many reasons why a shareholder might want to liquidate the company. They may want to retire or start a new venture, or personal reasons might come into play. For example, a romantic couple may separate and one may decide they can no longer work with the other.
The Articles of Association usually set out how shareholder disputes should be resolved. However, if two shareholders own 50% of the company each and neither is willing to change their minds, it creates a deadlock that can be difficult to resolve without external input.
Can a 50% shareholder force a company into liquidation?
One way to break the deadlock is to seek external input from a professional mediation service. A mediator will attempt to present the situation in a way that gives a clear view of the options available and their benefits for each shareholder.
While mediation can be successful in some cases, it doesn’t always end in a resolution. If not, the next logical step for the shareholder who wants to liquidate the company might be to present a just and equitable Winding Up Petition.
A Winding Up Petition is usually presented by a creditor seeking to liquidate a business that owes it money, but a Winding Up Petition on just and equitable grounds works differently. As its name suggests, a shareholder presents a petition to the court, and the court then holds a hearing to decide whether it’s ‘just and equitable’ to wind the company up.
The court will consider all sides of the dispute, the avenues available and the interests of both shareholders. It will typically try to avoid winding the company up and seek other outcomes that are fair to both parties but will also end the dispute.
What are the potential outcomes of a just and equitable Winding Up Petition?
What are the potential outcomes of a just and equitable Winding Up Petition?
The outcome you receive from the court will depend on the circumstances of the case and how each shareholder acts. Generally speaking, the most likely outcome is for one shareholder to buy the other out. That way, both parties achieve a positive resolution and can go their separate ways.
Although it’s quite rare, the petition can lead to the company’s voluntary liquidation. The court will only usually take that route if the company has fulfilled its original purpose or it’s working towards a goal that was never an objective of one of the shareholders.
If the petition does lead to the company’s liquidation, a liquidator will be appointed to wind up its affairs and value and sell its assets. The proceeds will be used to pay the company’s creditors and any remaining funds will be distributed to the shareholders.
Do you need professional assistance with a 50-50 shareholder dispute?
Do you need professional assistance with a 50-50 shareholder dispute?
If you find yourself in this unenviable position, seek professional assistance sooner rather than later. The longer the dispute goes on, the more damage you’ll do to your company and the less financial benefit you’ll receive from a buyout or liquidation.
At Scottish Liquidators, we can guide you through the situation and help you understand the just and equitable Winding Up Petition process. Get in touch for a free, same-day consultation or arrange an in-person meeting in one of our offices throughout Scotland.
