ExpertMedium2 marksMultiple Choice
ACCA · Question 23 · Corporate and Business Law
Two individuals form a private limited company to run a restaurant, each holding 50% of the shares and both acting as directors. After a severe falling out, they refuse to speak to each other, leading to complete management deadlock. The business is still solvent. Under what ground can the court order the compulsory liquidation of the company?
Two individuals form a private limited company to run a restaurant, each holding 50% of the shares and both acting as directors. After a severe falling out, they refuse to speak to each other, leading to complete management deadlock. The business is still solvent. Under what ground can the court order the compulsory liquidation of the company?
Answer options:
A.
On the ground of inability to pay debts.
B.
On the ground that the company has not commenced business within a year.
C.
On the ground that it is just and equitable to do so.
D.
On the ground of wrongful trading.
How to approach this question
Identify the statutory grounds for compulsory liquidation under s.122 of the Insolvency Act 1986, specifically for solvent companies in deadlock.
Full Answer
C.On the ground that it is just and equitable to do so.✓ Correct
Section 122(1)(g) of the Insolvency Act 1986 allows a court to wind up a company if it is of the opinion that it is 'just and equitable' to do so. This is frequently used in 'quasi-partnership' companies where there is an irretrievable breakdown in trust and confidence leading to management deadlock, as established in the case of Re Yenidje Tobacco Co Ltd.
Common mistakes
Assuming liquidation is only for insolvent companies.
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