Mr. A and his brother Mr. B were partners in a garment manufacturing company business for many years. On the advice of their accountant, they formed a limited company (A & B Ltd) and invited Mr. B’s son to join them in the business. It was agreed that Mr. A and Mr. B would each hold 40% of the shares and that B’s son would hold the remaining 20%. Recently, Mr. A and Mr. B have been unable to agree on the design, quality of fabric or colour of their products, and consequently have neglected the business. They have failed to pay their suppliers and are unable to fulfil their contracted orders. Mr. B’s son always agrees with his father. As a result, Mr. A now refuses to communicate with either of them. Are there any grounds on which A & B Ltd can be wound up by the court?
A & B Ltd can be wound up by the court on any of the following grounds under section 177(1) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance:
- After the three owners have arranged to pay all of the outstanding amounts to their suppliers, they (as the members (shareholders) of A&B Ltd) pass a special resolution agreeing to have the company wound up by the court.
- The business of A&B Ltd has been suspended for a whole year.
- The debts that A&B Ltd owe to its suppliers exceed $10,000 and a statutory demand has been served on A&B Ltd and A&B Ltd has, for 3 weeks after the service, failed to pay the sum due.
- The court is of the opinion that it would be just and equitable for A&B Ltd to be wound up, as there is a breakdown of mutual trust and confidence among the three persons who are the shareholders and directors of A&B Ltd that prevents the proper management of the company.
For more information about the winding-up of a limited company, please go to the Bankruptcy, Individual Voluntary Arrangement and Winding-up of Companies topic.