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A quick look at… Ebrahimi v Westbourne Galleries Ltd. [1973] AC 360

This case remains the leading authority on the provision currently found in s122(1) (g) of the Insolvency Act 1986, which provides that a petition to wind up a company can be granted if it is “just and equitable” to wind up the company.

November 2016

The defendant company (a carpet dealership) had been formed with the claimant and Mr Nazar (with whom he had run the business for some years as a partnership) as sole directors and shareholders. Soon after the company’s incorporation, Nazar’s son became a director and shareholder, and the Nazars excluded Ebrahimi from the management of the business. Ebrahimi accordingly filed a winding-up petition under what is now s122(1)(g).
His petition was granted but the company succesfully appealed against this ruling, the Court of Appeal holding that a company could only be wound up on this basis if there had been wholly unreasonable conduct or bad faith on the part of the respondent. Accordingly, Ebrahimi appealed to the House of Lords.
His appeal was granted on the basis that, in the words of Lord Wilberforce, the words “just and equitable” ought to be interpreted so as to “give… them full force”.
This meant that in a ‘quasi-partnership’ company like Westbourne Galleries, the court were required to have regard to the interests of the individuals behind the corporate form.
In these circumstances, the House of Lords took the view that the company had been formed on the basis of mutual confidence between the ‘quasi-partners’ (Ebrahimi and Nazar), and the breakdown of this, coupled with Ebrahimi’s inability to “take out his stake and go elsewhere” due to its being a private limited company, meant that it was just and equitable to grant the petition.
• Ross Fletcher is an AIA Achieve e-tutor. The AIA Achieve team is producing a series of ‘A Quick Look at….’ articles and more can be found on the AIA website:
www.aiaworldwide.com/a-quick-look-at.

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