Can One Director Close a Company?

March 15, 2024 / Business Insolvency

Working with one or more fellow directors can be a great advantage when running a company. With cooperation, handling the workload that comes with running a company is often made much easier. Similarly, having a few fresh perspectives can be invaluable when considering your company’s future, potentially helping you make profitable decisions and prepare your company for the future. However, while working with a board of directors can be more advantageous than working alone, it can cause its own problems. One such problem rears its head if one director wants to close down the company, but the other directors don’t. This raises the question – can one director close a company?

In this article, Clarke Bell will answer this question, breaking down the deadlocks that sometimes arise between directors, how they can be resolved, and what your options are in such a situation.

What is a deadlocked dispute in a company?

A deadlocked dispute occurs when two directors with an equal amount of shares in a company vehemently disagree on strategy or the company’s future. If there is no resolution to this disagreement in sight, and there exists no other board member or third party who can mediate or forcefully resolve the disagreement, it will be considered a deadlock.

A deadlocked dispute can be disastrous for a company, as it is an obstacle wedged firmly between its leadership. Often, this obstacle is incredibly detrimental even for previously successful companies, as it tends to stagnate the company in question. Attention is wrenched away from the company’s operations, making it much less flexible and responsive to changes in the market, causing approaching issues to be ignored and resulting in existing problems to worsen. As such, it is best to avoid deadlocked disputes entirely, or solve them swiftly should they arise.

Can a deadlocked dispute be resolved?

Deadlocked disputes can be quite a problem for a company, essentially distracting its leadership and leaving them unable to perform their duties properly. If left unaddressed, a deadlocked dispute can cause an otherwise successful company to falter over time. As such, directors experiencing a deadlocked dispute would be best served solving the issue as fast as possible. While potentially difficult, this goal can be achieved through one of several means, as we will cover later.

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Can one director close a company?

During a deadlocked dispute, it is not uncommon for one director to throw in the towel and wish to liquidate the company, rather than find a solution to their problems. Assuming two directors own equal shares in the company, but have a difference of opinion regarding liquidation, one director cannot unilaterally liquidate the company in most cases. However, the departing director may be able to apply for a “just and equitable” liquidation. This form of liquidation can be sought during a deadlocked dispute, allowing a director in favour of liquidation to bring their case to the courts.

Depending on the specifics of the case, the courts will propose a set of potential solutions to the dispute. Solutions may include buying out the departing director or insolvency procedures to remedy the company’s problems. If the courts cannot find any reasonable potential solutions to the dispute, then they may approve a winding-up petition as proposed by the departing director. What follows depends on the financial state of the company.

Assuming the company is solvent, a “just and equitable” winding up petition will result in the company being placed into Members’ Voluntary Liquidation (MVL). This procedure aims to liquidate a company’s assets efficiently, distributing the proceeds amongst directors and other shareholders, if applicable. Once all distributions have been made, the company will be wound up and removed from the Companies House register.

Alternatively, if the company is insolvent, it will be entered into Creditors’ Voluntary Liquidation (CVL). This procedure is similar to an MVL, though it has an inverted objective. Rather than distributing liquidation proceeds amongst shareholders, a CVL aims to repay as much of a company’s debt as possible. Once all possible distributions have been made, the company will be closed and removed from the Companies House register.

{It is also worth noting that “just and equitable” liquidation also applies when the director wants to liquidate a company, but the shareholders don’t.}

What should I do if the dispute cannot be resolved?

If you are a director stuck in a deadlocked dispute with another, a swift resolution is generally the best outcome for everyone. However, this is often much easier said than done, leading to less ideal results if not handled well. Buying out the other director is often one of the only solutions to such a dispute and, if not possible, there is typically little left on the table.

Despite the few options available, inaction is simply not an option. You have duties and responsibilities as a director, and a disagreement with your fellow members cannot be allowed to obstruct these obligations. If a dispute threatens the financial stability of your company, and with it, the ability to pay its creditors, staff, and contracted business partners, then decisive action must be taken. You may find that you have a case to be made in the courts, which may in turn compel your counterpart to choose between accepting a buyout offer or resignation, allowing the company to continue functioning to the benefit of related parties. If this is an option, you should carefully consider doing so, as allowing the dispute to meddle in your ability to uphold director obligations will not help you should accusations of misconduct be levied.

Clarke Bell can help

Deadlocked disputes can be a serious problem for a company. They can cause an irreparable rift in a company’s leadership, while also drawing attention away from growing and improving the company. In the worst-case scenario, a director may take the issue to the courts, putting the company’s fate in the hands of a judge. These disputes are not good for the health of a company, but sometimes, an outside perspective can help address problems. Clarke Bell can help in this capacity.

We have more than 29 years of experience helping companies solve their problems, and we can do the same for you.

Whether you need help implementing an insolvency procedure or assistance with reorganising a company, our team of experts can ensure the best outcome for you and your company.

Don’t hesitate to contact us today for a free, no-obligation consultation and find out exactly what we can do for you.