1. Monarch Investments Limited (“the Company”) was incorporated in Jersey in April 1971. The Memorandum and Articles of Association describe the objectives of the Company as carrying out the business of an investment company.

2. There are two shareholders in the Company, the Representor (“Kenneth”) and the Second Respondent (“Robert”). Kenneth and Robert are brothers. Robert is the sole director of the Company since the retirement due to ill-health and subsequent death (not notified to Kenneth by Robert) of the other director in June 2021. Two directors are required under the Memorandum and Articles of Association.

3. Kenneth owns 35.5% of the issued share capital in the Company; the balance, 64.5% of the shares, is held by Robert.

4. The principal assets of the Company are two properties in St Helier: 8 Market Street which consists of a café and two flats and is let at an annual rental of £36,000, and 24 Halkett Street which consists of a shop with a flat above which is currently empty, but should generate, and did generate until approximately eighteen months ago, rental of £30,000 per annum.

5. In July 2015, Kenneth brought proceedings before the Royal Court by way of Representation. That Representation sought a just and equitable winding up of the Company, but ultimately the relief that was sought at the hearing that took place in 2016 was for a declaration that the substratum of the Company had been lost. The Royal Court rejected that assertion. However, the Court did make findings of significance by way of background to the hearing before us that took place on 26 January 2023. The decision of the Royal Court is reported at Gibbons v Monarch Investments Limited [2016] JRC 140. The Deputy Bailiff (as he then was) stated that the Court was proceeding on the footing of affidavits sworn by both brothers which were uncontested by cross-examination.

6. Some of the complaints made by Kenneth echo the complaints that he now makes over six years later about the way in which Robert manages the Company. At paragraph 15, the Deputy Bailiff said that the Court was unable to make a determination in relation to various of the issues before them, but did say the following:

“16. It is clear to us that there have been major difficulties which are continuing in connection with the orderly operation and running of Monarch. No matter who is to blame for these difficulties, it seems clear that the relationship between Kenneth and Robert has effectively broken down and Monarch has not been run in a way which either benefits it or ultimately its shareholders. In fact the contrary is true.

17. One of the items of particular concern, given that one of Monarch’s primary functions is to hold the Properties and to turn them to account for the benefit of the company and ultimately its shareholders, is the failure by Robert to ensure that the company had leases with its tenants for the properties. The explanation given in submissions to us by Robert as to the reasons why he had not ensured that leases were in place were to our mind incomprehensible and incredible.

18. We have no hesitation in saying on the evidence we have seen that the company is currently dysfunctional in its operation and has not been administered and run appropriately and in its interests.”

7. The Court set out the relevant principles engaged when the Court was considering an application to wind up a company on the just and equitable basis and said at paragraph 31:

“31. As we have said, we are not asked to make an order for a just and equitable winding up. Had we been asked to do so, on the facts identified above, it may very well have been that the Court would have made such an order. Because of the way that the case was put to us, however, we have not heard full argument or evidence on it and are not in a position to make any final determination.”

8. Matters have deteriorated since 2016. The brothers are now getting on in years. Kenneth is 83 and Robert is 76. Kenneth retired fourteen years ago, swore affidavits in support of this Representation and appeared before us and, indeed, was required to give evidence on oath in order to update the Court as to matters which had occurred since he swore his affidavit in April 2022.

9. Although Robert was served with these proceedings and spoken to by the Amicus Curiae at the premises where he lives, he did not attend the hearing. It appeared from the evidence (although there was no medical evidence before the Court) that Robert may suffer from difficulties with mental health and certainly has faced several difficulties in recent years. In late 2019, his home in Trinity was a subject of Remise de Biens proceedings and was sold in 2020. During the Remise de Biens, Kenneth became aware that Robert had taken a £300,000 loan from the Company which was repaid to the Company upon the sale of Robert’s home. Although Robert still lives in Jersey, he has been difficult to locate from time to time and has failed to reply to correspondence in relation to these proceedings. In view of Robert’s failure to respond to service of the documentation upon him or, indeed, to notices placed in the Jersey Evening Post, on 11 May 2022, the Court appointed an Amicus Curiae, Advocate Calder, to assist the Court and make such representations as might be appropriate in the absence of Robert when the Representation fell to be heard.

10. Subsequently, the Court ordered that Advocate Calder should attempt to engage with Robert in order to inform her of the submissions which she might make to the Court. Further orders were made in relation to service, including the requirement to give notice to Robert of the proceedings and the date of the hearing, in the Jersey Evening Post.

11. Prior to the hearing, Advocate Calder filed a helpful affidavit in which she said that she had made various attempts to contact Robert at the premises in Grouville where he appeared to live. These were unsuccessful until one evening Advocate Calder went to these premises and, after waiting for a significant period, was able to speak to Robert. She explained her role in the proceedings as a ‘friend of the Court’ and as part of that, she needed to establish Robert’s position in relation to the Representation given that he was not represented, and that by discussing matters with him she would be better informed to advance whatever arguments may properly be put to the Court. Robert said that he was unaware of the forthcoming trial which, having regard to the material before us, we reject. Robert also said that he would not be attending the trial and wanted nothing to do with the case. During the discussion he had with Advocate Calder, Robert became ‘very animated’ about the proceedings and repeated that he wanted nothing more to do with the action. Robert was told that he may be eligible for legal aid by Advocate Calder but again he repeated that he wanted nothing more to do with the proceedings or the Court; that he was unfit to attend trial and that the proceedings had made him very ill. As such, Advocate Calder was unable to establish Robert’s stance in relation to these proceedings, or what submissions he would wish to make in response to the Representation, had he attended the hearing.

12. As we have said, we not only received sworn affidavit evidence from Kenneth, but he also gave evidence. The difficulties that he and the Company face can be summarised as follows:

(i) Since July 2020, he has seen Robert twice – on 23 and 24 December 2021 – despite many efforts to contact him. This had made administration of the Company impossible.

(ii) On 24 December 2021, which appears to be the last occasion that Kenneth saw Robert, they both attended, at Kenneth’s instigation, the offices of the Jersey Financial Services Commission. Robert identified himself as sole director and company secretary and was told that this was not permitted under the provisions of the Companies (Jersey) Law 1991. A previous annual return for the Company submitted by Robert appeared to show that he had identified their late father as a director and beneficial owner of the Company, which was incorrect as he died in 1972. When Kenneth asked Robert if he could be appointed second director in order to permit the annual return to be filed on the Registrar of Companies, Robert refused, saying that he would find someone else. The annual return for 2021 and 2022 of the Company has accordingly not been filed in breach of the statutory requirement. Kenneth has kept the JFSC notified of these proceedings.

(iii) The Company is in arrears in respect of its Jersey tax liabilities. Those arrears now exceed £20,000 and need to be paid. Robert has failed to reply to correspondence or arrange payment. Kenneth has had to persuade Revenue Jersey to stay their hand in terms of issuing proceedings pending this application.

(iv) The parish rates for the two premises have not been paid and Kenneth has managed to arrange payment for the most recent set of rates by persuading the Company’s bankers, Lloyds Bank, to pay on receipt of invoices from the Parish of St Helier. Kenneth cannot arrange payment himself as two signatories are required to sign Company cheques and Robert will not cooperate. Kenneth has taken the same steps in relation to payment of the insurance premiums due in respect of the two properties.

(v) Although the Market Street premises are let out and the rent is being paid into the Company account, the Halkett Street premises are now empty and have been for well over a year. No rent is being received and the insurance premium has increased. The reason that Halkett Street premises are empty is owing to want of repair. Kenneth has offered to obtain a quotation for the repairs required to the Halkett Street premises but Robert has rejected this. Robert said he would obtain a schedule of reparations and resolve matters. Nothing has happened and these premises are now deteriorating to the detriment of the Company. Furthermore, in the last year or so, Robert has changed the locks to the Halkett Street premises and Kenneth is unable to gain access. The only other assets of the Company are certain shares in a South African mining company which were held on behalf of the Company by Robert. Kenneth is not sure of the whereabouts of these shares as no dividends have been received by the Company, so far as he can tell, in recent years.

(vi) Annual accounts for the Company have not been prepared and Annual General Meetings have not taken place. Kenneth now asserts that he has lost confidence in Robert and that Robert is now unable to manage the Company. This has left a considerable burden upon Kenneth which he has difficulty discharging as someone who is not a director and cannot change the board as he is only a minority shareholder.

13. Kenneth’s application is that the Court orders that the Company now be wound up on the just and equitable basis, on the footing that the properties should be sold and the assets of the Company distributed between the shareholders; the process being overseen by an independent liquidator.

Just and equitable winding up

14. The relevant provisions are contained in Article 155 of the Companies (Jersey) Law 1991 (“the Law”) which so far as pertinent provide;

“155. Power for court to wind up

(1) A company, not being a company in respect of which a declaration has been made (and not recalled) under the Désastre Law, may be wound up by the court if the court is of the opinion that –

(a) it is just and equitable to do so; or

(b) it is expedient in the public interest to do so.

(2) An application to the court under this Article on the ground mentioned in paragraph (1)(a) may be made by the company or by a director or a member of the company or by the Minister or the Minister for Treasury and Resources following receipt of an Article 9(5) report or the Commission or by a supervisory body within the meaning of the Proceeds of Crime (Supervisory Bodies) (Jersey) Law 2008.

(3) An application to the court under this Article on the ground mentioned in paragraph (1)(b) may be made by the Minister or by the Minister for Treasury and Resources following receipt of an Article 9(5) report or by the Commission.

(4) If the court orders a company to be wound up under this Article it may –

(a) appoint a liquidator;

(b) direct the manner in which the winding-up is to be conducted; and

(5) The Act of the court ordering the winding up of a company under this Article –

(a) must be delivered by the company to the registrar within 14 days after it is made; and

(b) shall be recorded by the registrar when he or she receives it.

15. In Representation of Abdallah [2021] JRC 249 the Royal Court said:

“87. The law in this area was recently reviewed by the Royal Court in Financial Technology Ventures and Others v ETFS Capital Limited and Graham Tuckwell [2021] JRC 025. The Royal Court said this at paragraph 47 et seq:

“47. It is not possible exhaustively to define all of the circumstances when it may be just and equitable to order the winding up of a company. The Court has a wide discretion and each case must be assessed on its own merits. Common examples of where just and equitable winding up has been ordered by the court include where the substratum of a company has gone, where a company is insolvent and its affairs need to be investigated, where there is a deadlock between the members and / or directors preventing decision making on matters central to the company’s prospects and where, if the company is a quasi-partnership, there has been a breakdown of relations between the participants such that they are unable to cooperate in the conduct of the company’s affairs. As noted by the Royal Court in Re Leveraged Income Fund Limited [2002] JRC 209, Article 155 is based upon several provisions of the UK Companies Act and accordingly English authorities are often of assistance.

48. The Plaintiffs in this case have indicated in the course of argument that their principal remedy is to have their shares purchased at fair value and without any minority discount on the grounds that they have been unfairly prejudiced by the conduct of Mr Tuckwell, and that they seek winding up of the Company in the alternative. Mr Tuckwell argues that it is quite wrong to wind up the Company on the facts of this case. He drew the Court’s attention to the decision of Mummery J In Re A Company (No 314 of 1989) [1991] BCLC 154 at 161, when he described winding up as a “death sentence”. This remark was quoted with approval by Lord Hoffmann in O’Neill.”

88. In the Court of Appeal in the same case [2021] JCA 176, Crow JA, giving the judgment of the Court, added the following:

“268. There is a considerable degree of overlap between the legal principles applicable to the court’s power to grant a winding-up order on the just and equitable ground, and the court’s power to grant relief in respect of unfair prejudice. Nevertheless, there are some significant differences. Most importantly, a plaintiff does not have to demonstrate unfair prejudice to his interests as a member in order to persuade the court to make a winding-up order on the just and equitable ground: a wider range of relevant considerations is available: Hawkes v. Cuddy [2010] BCC 597, at §104. Conversely, the fact that a plaintiff may be able to prove that there has been unfair prejudice to his interests as a member does not necessarily lead to the conclusion that it would be just and equitable to wind up the company, not least because the remedy under Article 155 gives the company its quietus whereas a buy-out order under Article 143 leaves the company intact. As such, the court’s willingness to grant one remedy does not necessarily dictate the answer to the question whether it will be willing to grant the other. Accordingly, we reject Mr Tuckwell’s argument (in §72 of his CSCA) that “If the conduct cannot justify a buy-out, it certainly cannot justify a winding up.”

269. We have already referred, in §64 above, to the decision in Westbourne Galleries which established the principle that, in deciding whether to exercise its power to wind up a company on the just and equitable ground, the court will look behind the legal personality of a company and will take into account the true nature of the relationships between the individual corporators. Taking that approach, there may be circumstances in which the conduct of a controlling shareholder or director involves no breach of law, but nevertheless leads to the conclusion that it would be just and equitable to wind up the company.

270. The circumstances which may lead the court to reach such a conclusion cannot be exhaustively defined. It would be wrong to attempt any such definition. It would also be potentially misleading to adopt a rigidly category-based approach. Nevertheless, some themes emerge and some useful guidance can be derived from the decided cases which serve to illustrate the kind of situations in which the court has in the past been satisfied that a winding-up order is just and equitable.

Justifiable loss of confidence & partiality

271. For example:

a. It has been found that such an order can be made where there has been a justifiable loss of confidence in the probity of the management of a company, particularly where the controlling director treats the business as his own: see for example Loch v. John Blackwood Ltd [1924] AC 783, at 788, cited with approval in Westbourne Galleries, at 367F – G and again more recently in Chu v. Lau [2020] UKPC 24, at §24 and §90.

b. It has also been held that a winding-up order can be made where a minority shareholder has justifiably lost confidence in the impartiality or probity of the company’s management: see Thomson v. Drysdale [1925] SC 311, at 315.

c. It has also been said that conduct deliberately calculated to ‘freeze out’ a minority shareholder, driving him to sell his shares at an undervalue, is capable of justifying a winding-up order: see Re Wondoflex Textiles Pty Ltd [1951] VLR 458, at 468, citing Re James Lumbers Co Ltd [1926] 1 DLR 173, at 188.

272. We would add three observations on this line of authority which are relevant to the present appeal:

a. First, it is important to recognise that Loch v. John Blackwood was not a quasi-partnership case, nor was it one in which there was any deadlock in management. Furthermore, although the facts of Thomson v. Drysdale and of Wondoflex Textiles might have justified a finding that they involved quasi-partnership companies, that was not the basis on which they were decided. All of these decisions were based on entirely general statements of principle that any shareholder in any company is entitled to expect its affairs to be managed with probity and in accordance with basic principles of fair dealing: see also Baird v. Lees (1924) SC 83, at 92, and Re Sunrise Radio, at §4.

b. Second, the use of the word ‘probity’ in Loch v. John Blackwood, and its conjunction with the word ‘impartiality’ in Thomson v. Drysdale, were both deliberate and significant. The courts did not confine their observations to cases involving actionable breaches of a director’s duty, or of actual dishonesty: see also Westbourne Galleries, at 379C – E and 381H. A want of probity and a lack of impartiality are broader concepts than either breach of fiduciary duty or dishonesty, although they may well include both. In particular, the word ‘probity’ embraces concepts both of honesty and of decency.

c. Third, the question whether any particular conduct constitutes a sufficient want of probity or lack of impartiality such as to justify a winding-up order on the just and equitable ground will always be context-specific: Re San Imperial Corp Ltd (№ 2) (1980) HKC 463, at 467G – 468H. In other words, a plaintiff has no enforceable legal right to demand a winding-up order in circumstances where he has justifiably lost confidence in the probity or impartiality of management: but the court is entitled to take into account any such loss of confidence when exercising its judgment whether it is just and equitable to wind up the company.””

16. Certainly, it is unusual to grant such an order in the case of a solvent company. In FTV and Others v ETFS Capital Limited and Tuckwell [2021] JRC 025 the Royal Court held at paragraph 50:

“50. Our attention was also drawn to the decision of Sifris J in the Supreme Court of Victoria in Peter Exton v Extons Pty Ltd [2017] VSC 14, where he noted that courts are “extremely reluctant to wind up a solvent company”. He also noted from previous Australian authority that it was “well accepted that the winding up of a solvent and flourishing company should be a last resort”.”

17. Is this a case of the ‘last resort’? Both counsel for the Representor and Advocate Calder were agreed that the Company was now ‘paralysed’.

18. In Representation of Abdallah, the Court said at paragraph 89 there were three questions that it needed to ask itself when considering whether to order the winding up of a company on this basis. Adopting and adapting those questions to this case, those questions are:

(i) Has Kenneth lost confidence in the probity or impartiality of Robert to manage the Company?

(ii) Is that loss of confidence justified? And, if so

(iii) Is it sufficient to prompt a just and equitable winding up of the Company?

19. In relation to the first issue, there can be no doubt that Kenneth has lost confidence in the probity and impartiality of Robert. Kenneth offered to assume the directorship and to his assist his brother in managing the Company. That was rejected. We have particularised at paragraph 12 above the reasons Kenneth described in his affidavit, amplified in evidence, why he has lost confidence in his brother’s ability to manage the Company. We accept his evidence in this regard.

20. As to whether or not that loss of confidence is justifiable, it should be born in mind that we were unable to conclude with certainty the extent to which Robert’s failure to properly manage the Company was deliberate, reckless or careless or was a consequence of issues with his medical and / or physical health. There was an absence of sufficient evidence in this regard, although it is likely on the evidence that we have heard that his difficulties are, to a significant extent, a consequence of challenges he currently experiences with his mental and perhaps physical health. However, we were satisfied that, at least to some extent, Kenneth’s loss of confidence in the probity and impartiality of his brother is objectively justifiable owing to his brother’s conduct in running the Company over the last few years. He has, on any view, put his own wish to continue to control the Company and to exclude Kenneth from assisting therein in such a way that has prejudiced the interests of the Company and Kenneth as the minority shareholder.

21. As to the third issue, we are satisfied that these circumstances are sufficient to prompt a just and equitable winding up of the Company. We agree with Advocate Calder that this is an unusual case and also agree with her observation that there are no other options readily available to the Court or indeed Kenneth. Somebody needs to be in control of the Company. It has not been found that Robert lacks capacity and accordingly he remains the sole director and principal shareholder of a company which is diminishing in value as a consequence of his neglect. The breakdown of the relationship between brothers has been total. The Court has previously held that the phrase ‘just and equitable’ must be given a flexible and broad interpretation. There are no practical alternatives to winding up on the just and equitable basis, although Advocate Calder helpfully identified the possible alternatives and volunteered that none were appropriate on the facts before us. The Court cannot also lose sight of the fact that the dispute between two brothers of mature years is unlikely to be in the best interests of either and the Court is entitled, in our view, to take into account the age and likely stress on both men of these proceedings and their effect on the Company and its underlying assets.

Our order

22. We rejected the assertion made on behalf of Kenneth that we should direct the liquidator to examine all transactions made since 2007 by the Company in order to ascertain, inter alia, if there had been any inappropriate distributions. We leave that matter for the liquidator to consider, and if the liquidator requires further directions from the Court then they can seek them, preferably in writing so as to avoid the cost of any further hearings.

23. At the conclusion of the hearing, we advised Kenneth that he should be cautious, whatever the findings of the liquidator, in initiating, or causing, or encouraging the liquidator to initiate further legal proceedings against his brother although, of course, ultimately this is a matter for the liquidator and Kenneth to consider.

24. We ordered that:

(i) the Company shall be wound up on the just and equitable basis under Article 155 of the Law;

(ii) a liquidator shall be appointed on terms commensurate with the size of the Company and the limited nature of its assets;

(iii) the identity of the liquidator shall be agreed by the Representor and the Amicus Curiae and notified to the Court within seven days;

(iv) any further orders required by the parties or the liquidator shall be submitted to the Court in writing to avoid the need for further hearings;

(v) the Representor’s costs of and incidental to the proceedings shall be paid by the liquidator as a cost of the liquidation out of the assets of the Company, the said costs to be taxed on the standard basis if not agreed; and

(vi) there shall be liberty to apply.

Authorities

Gibbons v Monarch Investments Limited [2016] JRC 140.

Companies (Jersey) Law 1991.

Representation of Abdallah [2021] JRC 249.

FTV and Others v ETFS Capital Limited and Tuckwell [2021] JRC 025.

Page Last Updated: 20 Feb 2023

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Gibbons v Monarch Investments Limited and Anor 10-Feb-2023

Background

Just and equitable winding up

Our order