Legal rights - winding up, Business Law and Ethics

Legal rights - Winding up:

In substance these two people are really partners" and by analogy with the law of partnership (which permits dissolution if the partners are really unable to work together) it was just and equitable to order liquidation.

(a) The members or directors are associated in the company on the basis of certain understandings but one (or more) exercises his legal rights against another in breach of those understandings with results which are unfair.  Such situations are sometimes referred to as a "fraud on the minority"

                                                  Case: EBRAHIM v. WESTBOURNE GALLERIES (1973)

E and N carried on business together for 25 years, originally as partners and for the last 10 years through a company in which each originally had 500 shares.  E and N were the first directors and shared the profits as directors' remuneration; no dividends were paid.  When N's son joined the business he became a third director and E and N each transferred 100 shares to N's son.  Eventually there were disputes: N and his son used their voting control in general meeting (600 votes against 400) to remove E from his directorship under the power of removal given by Companies Act 1948 s.184 (Kenya, s.185).  E sued to have the company wound up.


The company should be wound up.  N and his son were within their legal rights in removing E from his directorship but the past relationship made it "unjust or inequitable" to insist on legal rights and the court could intervene on equitable principles to order liquidation.  E's petition for relief on grounds of oppression of minority failed since he failed to make out a strong enough case for such relief.

Posted Date: 1/15/2013 4:51:09 AM | Location : United States

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