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Directors are often also shareholders of the company, whether in their personal capacity or through a related corporate entity. If you are a director and a shareholder of a company and you find yourself in dispute with other directors or shareholders, whether in the running of the company or otherwise, the nature and gravity of the dispute can be more complex. The situation can become even more difficult in the presence of oppressive or prejudicial conduct of one or more directors against you and where any attempts of settlement negotiations have failed or may otherwise be futile. This article will outline your options in such circumstances. In particular, commencing oppression proceedings in the Supreme Court to obtain appropriate relief.
What Are Oppression Proceedings?
Oppression proceedings are often brought before the Supreme Court. In the context of a directors/shareholders dispute, they involve a claim whereby a party alleges that the conduct of a company’s affairs is:
- unfairly prejudicial; or
- unfairly discriminatory
against the shareholder. Whether in that capacity or in any other capacity.
What Constitutes Oppressive, Unfairly Prejudicial or Unfairly Discriminatory Conduct?
What constitutes as ‘conduct of a company’s affairs’ is fairly wide and broad. It can include any of the following:
- internal management and proceeding of the company;
- the business, transactions and dealings, property, liabilities, profits and other income, receipts, losses, outgoings and expenditure of the company;
- any act or thing performed by or on behalf of the company in respect of its business or property;
- the ownership of shares and other interests in the company; and
- the exercise or control over the right to exercise the right to votes attached to shares of a company.
Examples of conduct that may be subject to an oppression claim include:
- if you are excluded from managing the company. This can involve a broad range of conduct, including if the other directors have:
- taken away your ability to access the books and records of the company (e.g. accounting records);
- prevented you from contacting clients and other stakeholders of the company; or
- if they have physically locked you out of the premises from which your company operates its business from;
- where you have been prevented from accessing information of the company. However, note that there are other means for you to access a company’s information. This is if you are a shareholder, an existing director or previous director;
- where another director of your company has diverted business opportunities to another company, which you have no interest in;
- where other directors/shareholders resolve to dilute your shares in the company;
- unfairly refusing to declare dividends in the company; or
- misuse of company funds.
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Who Can Make an Oppression Claim?
Existing shareholders and their related directors can make a claim for oppression. Additionally, former shareholders and their related directors can make a claim for oppression, where their removal as a shareholder of a company relates to the oppression claim.
What Relief Can You Seek From the Court?
The court has very wide powers and discretion in granting relief in oppression proceedings. In the context of a director/shareholder dispute, and depending on your circumstances, it may be open for you to seek orders that include the following:
A Buyout of Your Shares
This may involve an order for the other directors/shareholders to buy out your shares and any other interest in the company. As part of the relief sought, you may also seek an order that the parties obtain a valuation of the company’s shares prior to the oppressive conduct complained of from taking place.
Appointment of Receivers
This will involve appointing receivers and managers to investigate the company’s affairs. Additionally, it may involve the receivers and managers taking control of the business of the company interim. Such orders will necessarily take the management of the company away from you and the other disputing directors. This is because it is aimed at bringing an objective and partial management over your company. As part of this relief, you may also seek an order that the receivers be tasked with effecting a sale of the company’s business or assets.
Restraining the Other Directors From Engaging in Any Specific Conduct
This conduct will depend on the circumstances of your disputes. It aims to remove the possible cause of the oppressive conduct complained of. For example, if another director is proposing to remove you as a director of your company or from dissipating the company’s assets.
Winding Up the Company
This involves an order for the company to be wound up. However, a court would be reluctant to make this order in respect of an otherwise solvent and trading company if there are other reasonable means of resolving the oppressive conduct complained of. Generally, the court will make an order for a winding up where it will be futile to make any other orders requiring you and the other disputing directors to continue to manage the company. Further, this is common where there has been a total breakdown of the relationship and mutual trust between you.
An order to wind up your company will involve the court appointing a liquidator over the company. The liquidator will thereafter:
- conduct his or her investigations;
- pay off any existing liabilities of the company; and
- distribute any remaining assets of the company between its shareholders.
The objective of this approach is to ultimately deregister your company.
Breaches of Director Duties and Derivative Claims
Oppressive conduct also tends to lead to breaches of a director’s statutory or fiduciary obligations it owes to the company. Such duties include the duty:
- to exercise care and diligence in the exercise of their powers;
- to exercise their powers and discharge their duties in good faith, in the best interest of the company and for a proper purpose;
- not to improperly use their position or information obtained through his or her directorship of the company to gain an advantage for themselves or someone else, or cause detriment to the corporation; and
- not to improperly use information.
It may also be open for you to bring a derivative action against the other disputing director or shareholder if you believe that their actions are causing loss and damage to the company.
In addition, you may make claims for breaches of fiduciary duties and derivative action in the same proceedings as your oppression claim.
While we always recommend attempting to reach a commercial settlement to resolve directors’ disputes, such resolution is not always possible. Therefore, commencing an oppression claim may be available to you where the other director or shareholder’s conduct is particularly oppressive, unfairly prejudicial or otherwise unfairly discriminatory against you. A wide range of conduct can constitute as oppressive conduct. Additionally, it may be open for you to seek appropriate relief from the court that will allow you to reasonably exit the company. If you require any assistance or would like to discuss your options in resolving any existing or impending disputes, contact LegalVision’s dispute resolution lawyers on 1300 544 755 or fill out the form on this page.
Frequently Asked Questions
In a directors/shareholders dispute, they often involve an oppression claim where a party alleges that the conduct of a company’s affairs is oppressive, unfairly prejudicial or unfairly discriminatory against the shareholder.
Existing shareholders and their related directors as well as former shareholders and their related directors (where their removal as a shareholder of a company relates to the claim) can make a claim for oppression. Additionally, this may include minority shareholders and majority shareholders.
You may be able to seek an oppression remedy in the form of orders, including a buyout of your shares, appointment of receivers, restraining the other directors from engaging in any specific conduct, winding up the company or derivative claims.
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