Resolving company shareholder disputes: oppression or winding up?

Introduction

The typical scenario in which shareholder grievances arise involves relatively small companies – small in the sense of not having many shareholders rather than not being profitable – where personal relationships break down beyond repair. Sometimes it involves two friends who entered into business with the best of intentions, sometimes husband and wife, brother and sister, and sometimes two complete strangers who saw a lucrative gap in the market and set about trying to exploit it. I like to think that most of these business ventures are successful and do not end with the partners hurling insults at one another in exchanges of High court affidavits. As a company litigation lawyer, the ones I come across most often are the ones that do meet this unfortunate fate.

From a legal point of view, there are a number of options available to a disgruntled shareholder. The most common one is contained in section 212 of the Companies Act 2014 which provides a remedy for company members who have been oppressed by the majority (or equal) shareholders or whose interests have been disregarded. Much has been said and written about that provision but it is not the only one available to would-be litigants. There is also section 569(e) of the Companies Act 2014 which provides for the winding up of a company on the grounds that it would be "just and equitable" to do so. This seemingly vague terminology has been clarified by the Courts in this jurisdiction and in England over more than a century of case law. The purpose of this article is to consider a recent decision of the Irish High Court in Re Sulu Software Consultancy Limited [2025] IEHC 669 where Oisin Quinn J decided that it was appropriate to wind up a company on the "just and equitable" ground.

The Facts

The facts are not very different from the standard litigation in which shareholder oppression is alleged. The respondent issued oppression proceedings against the petitioner under section 212. Some time after that, the petitioner issued her own proceeding, namely a petition to wind up the company pursuant to section 569(e). The judgement in question concerned the latter application.

The petitioner sought the winding up of the company under the "just and equitable" jurisdiction on three grounds:

The company was a "quasi partnership" and there had been a complete breakdown in the relationship between its founders;
There was a deadlock in the company such that it could not pursue a voluntary winding up;
There had been a failure in the company's "substratum". In other words, the company was either pursuing a completely different business from that for which it was created or, as in this case, was no longer pursuing any business at all.

While the judgment does not provide details of the reasons for the breakdown in the relationship between the company's shareholders, it is clear that the breakdown led to the complete paralysis and loss of business to the company. Indeed, it was acknowledged by both parties that the Company was unable to attract investors, had no assets or employees and was not carrying on any business. It would be completely insolvent within a matter of months if not liquidated. Based on that, one might wonder why the respondent would object to the winding up application, especially as he was a director of the company and could be personally liable if it became isnolvent. His reasons concerned allegations about his fellow shareholders' conduct, specifically that:

They had caused the breakdown in the relationship which in turn led to the company becoming paralysed;
They had passed a resolution waiving the non-compete clauses in their (and his) employment contracts which had resulted in them starting a new competing company;
He was pursuing a claim for oppression under section 212 which might be prejudiced or halted altogether if the company was wound up.

The decision

After reciting the authorities, Quinn J had no hesitation in making the winding up order sought by the petitioner. He reached the conclusion that, on balance, it was just and equitable to wind up the company under section 569(e). He was particularly influence by the fact that the company was in a zombie-like state, no longer carrying on any business with impending insolvency and no plans from any party for its rescue. Indeed. the respondent (who was seeking to keep the company alive) had already stated that he wanted nothing more to do with the company and had resigned his employment with the result that his shareholding had been compulsorily acquired at a nominal value under a “Bad leaver” clause in the company’s constitution.

Quinn J concluded that:

“The principal reason for this [conclusion] is the undisputed fact that the Company is on the cusp of insolvency and has literally only months to go before it runs out of funds and there is no plausible prospect of this not occurring. No solution has been identified that will enable the Company to avoid an imminent insolvency. As Collins J. says in Re Lanskey Ltd. "there was no adequate or satisfactory alternative remedy here.

To refuse the petition would be to create an unsatisfactory situation. The Company has currently no employees and is carrying on minimal activity. In a few months the Company will be insolvent with no cash or other assets and it will be difficult, from a practical point of view, for any liquidator to carry out the functions necessary to wind up the Company properly".

It is interesting that Quinn J relies so heavily on the Company’s impending insolvency as the reason for his conclusion, especially in light of the fact that it was not put forward by the petitioner as being one of its three main reasons justifying liquidation under the “just and equitable” ground. Impending insolvency is not a separate stand-alone reason for making a winding up order under section 569, whereas actual insolvency is (pursuant to section 569(d) of the Companies Act 2014). In that regard, Quinn J pointed to section 224A of the Companies Act 2014 which requires the directors of a company to display extra vigilance where a company, while not actually insolvent, is in danger of becoming insolvent. It would be stretching the wording of the judgment to say that Quinn J intended to create an additional category of cases in which the “just and equitable” ground could be invoked, namely those cases where the company was in danger of insolvency with no plans for rescuing it. After all, a company in that situation could still potentially be saved by removing the source of its plight, one of the bickering shareholders, through a compulsory buy-out as is standard practice under section 212. Quinn J also went on to consider the three grounds which were relied upon by the petitioner, mentioned above, and held that they were also present in the case. It is not clear however if Quinn J would have considered them by themselves, without the company’s pending insolvency, as being sufficient to make the order. Quinn J held as follows:

“As described above, the undisputed facts indicate an irretrievable breakdown in relations between two founders, a degree of deadlock in terms of decision making, a failure of the Company to be able to pursue its purpose, and an inability to raise any funds which is fatal to a start-up business of the nature being pursued by the Company. The undisputed facts demonstrate that the Company is on the cusp of insolvency and will run out of money in a few months. The issues complained of by the Respondent when examined in context are not sufficient, for the reasons set out above, to disentitle the Petitioner to the relief sought. Finally, there is no alternative resolution reasonably available.”

Comments

First, it is somewhat unfortunate that section 212 does not appear to provide any mechanism for the winding up of a company as a remedy pursuant to that provision. In other words, a shareholder alleging oppression will normally need to choose between the remedies under section 212 and the winding up of the company under section 569. It does not appear to be procedurally possible to seek both remedies in the same proceedings because the former are initiated pursuant to an originating notice of motion whereas the latter are by petition. This is different from the position which existed prior to the commencement of the Companies Act 2014 when both applications were made by petition.

The conclusion reached by Quinn J is no doubt practical in terms of achieving the only real resolution which would not result in dragging the corpse of a company through further expensive and pointless litigation. In fact, while the respondent was concerned about the fate of his oppression proceedings if the winding up order was made, he did accept that the company was worthless and therefore the remedy which is normally awarded in such proceedings (that his shares should be bought out) would actually have resulted in him receiving little or nothing for his shares. Those shares had, in any event, already been compulsorily purchased under the “Bad Leaver” clause.

There is nevertheless some scope for concern with the outcome. The respondent may very well have been entitled to seek significant monetary compensation against the petitioner in the oppression proceedings in addition to a buy-out, especially if he could prove his allegation that the petitioner’s oppressive conduct had led to the company’s demise. But it was accepted that the winding up of the company did not inevitably lead to the end of the oppression proceedings, at least insofar as they related to remedies against the petitioner personally (such as compensation). In other words, it could be argued that the winding up of the company did not materially prejudice the respondent’s ability to continue with the oppression proceedings against the petitioner (although it should be noted that the company is joined as a notice party to oppression proceedings for procedural reasons).

One of the things which is admitted to have happened in this case was that the Petitioner, along with the third shareholder (together the majority shareholders holding 75% of the shares), both voted to waive anti-compete clauses in their employment contracts with the company and then proceeded to establish what appeared to be a competing company while still directors of the first company. One might argue that setting up a competing business while still directors of the company is a breach of their fiduciary duty to the company, even If it is not a breach of their employment contract. The company would have the option of pursuing them personally for the breach or the respondent could do so through a derivative action. While Quinn J noted that it would be open to the liquidator to take action against the petitioner if he though it necessary, it should be remembered that that would be highly unlikely in circumstances where the company had no funds to pursue the action.

Conclusion

The conclusion to be drawn is that a company which is close to insolvency and has ceased trading due to a dispute between shareholders may, at least where no other option is available, be wound up under the ”just and equitable” ground. However, lawyers should be slow to recommend such a course of action to respondents to section 212 proceedings because, although it was not held to be the case in Sulu Software Limited, it may well be regarded as an abuse of process intended to stifle the oppression proceedings.

Author: Mahmud Samad BL
Publication date: 23rd October 2026