The Role of Warranties and Indemnities in Protecting Buyers in Acquisitions
When purchasing a business/shares, buyers want assurance that they will be getting what they pay...
The recent case of Haz International Ltd v Yesilkaya [2021] EWHC 1695 (Ch) highlights some of the key considerations of the court when a petitioner seeks a just and equitable winding up of a company.
Facts
Mr Il and Mr Yesilkaya were directors and shareholders of Haz International Limited (“the Company”).
Mr Il presented a petition, alleging that he and Mr Yesilkaya had run the Company as a quasi-partnership and seeking an order for the just and equitable winding up of the Company because there had been a complete breakdown of trust and confidence between them. He also sought an alternative order that Mr Yesilkaya buy out his shares.
Held
The court agreed that there was a quasi-partnership and that there was a breakdown of trust and confidence (two prerequisites for a winding up order where the company is not paralysed by deadlock). However, despite those findings, the court did not order the winding up of the Company. This was because:
- Mr Il had not come to court with “clean hands” because he had deliberately taken actions to “strip the business” from the Company and had written misleading correspondence to Mr Yesilkaya seeking to justify his actions; and
- the Company was part of a successful corporate group and winding up the Company would bring a stigma to the wider group.
The petition was dismissed. Mr Il remained a shareholder.
Key takeaways
What can we learn from this recent case?
- Seek legal advice and representation as early as possible. The outcome here might have been different had Mr Il not taken inappropriate action and written misleading correspondence. Early legal advice might have discouraged him from taking steps which later prejudiced his position. Early legal advice can put you on the right path from the outset and that can have big implications further down the line.
- Consider the impact of the winding up order sought on the wider corporate group. The court considered the wider group of companies when making its decision. It is important to give thought to impact on the group (and any anticipated deals which winding up a company may frustrate or impact) from the outset.
- Don’t do anything you know you shouldn’t. Taking rash steps to try and better your opponent outside of court or transfer business or assets out of the relevant company will likely come back to haunt you.
If you have concerns about the conduct of fellow shareholders and/or directors then contact our corporate disputes solicitors George Gwynn or Morgan Rees to seek specialist advice on the options available to you.