In the recent decision in Re Klimvest Plc [2022] EWHC 596 (Ch), HHJ Cawson QC, sitting as a Judge of the English High Court, ordered that the respondent company, Klimvest, be wound up on just and equitable grounds pursuant to section 122(1)(g) of the Insolvency Act 1986. In his judgment, he drew heavily on the Privy Council case of Lau v Chu [2020] UKPC 24, which reinstated the BVI Commercial Court's first instance decision and endorsed the initial findings of Justice Kaye.

The petitioner was a minority shareholder in the company, one of its founding members, and its former director. He sought to wind up the company on multiple grounds, including that following the sale of the company's business and assets, the company had lost its substratum and was no longer fulfilling its purpose.

The petition was opposed by another shareholder. It argued that the company's substratum had changed over time, such that while initially, its purpose was to develop software, it was now to operate as a holding company and to use the proceeds of the asset sale to invest in new ventures.

The remedy of just and equitable winding up is well-established as being one of last resort, only to be used where there is no other remedy available to the petitioner. It has therefore been used sparingly in the BVI, England, and Wales.

However, HHJ Cawson QC's judgment suggests just and equitable winding up could be more widely accessible. Following Lau, he confirmed that once the petitioner has established their entitlement to the equitable relief, it is for the respondent to establish that there is "some other available remedy" which the petitioner "unreasonably" failed to pursue. It is not sufficient that there is any alternative remedy - it must be one that the petitioner ought reasonably to have pursued. HHJ Cawson also cited the Privy Council's endorsement of previous decisions holding that just and equitable relief can be available in wide-ranging circumstances which should not be confined to an exhaustive list and that, perhaps, the Court's had been too timorous in its application in the past.

After carrying out a detailed analysis of what the company's purpose was at the date of the hearing, HHJ Cawson QC found the company had lost substratum such that the grounds for a just and equitable winding up had been met.

Returning again to the decision in Lau, he held that the alternative remedy the respondent had proposed of the company acquiring the petitioner's (and other supporting shareholders') shares was not a remedy the petitioner had unreasonably failed to pursue. The offer was not sufficiently clear, conditional and seemed to suggest that a discount would be applied to reflect the petitioner's position as minority shareholder. The petitioner had therefore not acted unreasonably in refusing it.

Re Klimvest is understood to be the first English decision where a public company has been wound up on just and equitable grounds. It is perhaps an indication of further just and equitable winding up applications to come, which could provide a useful additional remedy for aggrieved shareholders with limited options.

Our previous blog on the decision in Lau can be read here, and our podcast on the decision here.

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