The basic right of a shareholder in a company is that they can vote as they please and for the purpose of safeguarding their own interests. Each share carries one vote and if a majority of shareholders vote in favour of a resolution it is passed, often to the frustration of the minority. Having said that, the power to vote is limited in that it can only be exercised by the majority in a way that does not lead to the oppression of the minority shareholder populace. Under section 232 of the Corporations Act 2001 (Cth), remedies are available in relation to conduct that is contrary to the interests of the members of the company as a whole, or oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members. The question thus arises, what conduct will amount to an oppression of the minority?
Unjust appropriation of corporate property and rights
Resolutions passed at a general meeting may be struck down, on the basis of oppression against the minority, where the majority of the shareholders vote to acquire corporate property and/or corporate rights for themselves to the exclusion of the minority.
Release of Directors from a breach of the duty of good faith
All company Directors are subject to certain duties, one of which is the duty of good faith. Majority shareholders cannot, by way of a general meeting, pass a resolution that purports to avail a Director of the consequences flowing from a breach of the duty. To do so without the prior informed consent of the minority may amount to an oppression of the minority shareholder body.
Altering the corporate constitution to the detriment of the minority
Companies are governed by a corporate constitution, the replaceable rules found under the Corporations Act 2001 (Cth) or a combination of the two. Where a company has chosen to adopt a corporate constitution it is free to make amendments to the document. However, majority shareholders cannot pass a resolution that allows for the alteration of the company constitution, if the alteration would prejudicially affect the rights of some of the members. To do so may lead to oppression on the minority. This will particularly be the case where the amendment seeks to give the majority an advantage of which the minority is to be deprived i.e. where the voting rights of the minority are abrogated and the voting rights of the majority are enhanced.
Remedies
Under section 232 of the Corporations Act 2001 (Cth), where oppression against the minority is established, the court has the discretion to make a range of orders including an order:
- that the company be wound up;
- regulating the conduct of the company’s affairs in the future;
- for the purchase of shares;
- restraining persons from doing, or requiring persons to undertake, a particular course of action.
Conclusion
If you would like to know more about oppression against minority shareholders our team of experienced LegalVision lawyers would be happy to assist you with any queries that you may have. Contact us today to see how we can help.