Disputes are rife in companies – the simple fact is, not everyone can get along. One issue that we regularly hear from our clients concerns minority shareholders that feel unfairly treated or oppressed. Directors have a duty to act fairly between shareholders to ensure their decisions promote the interests of the company, not just the majority shareholders. Oppressed minority shareholders can seek a remedy under section 232 of the Corporations Act 2001 (Cth) (the Act). Section 232 addresses conduct that is either:
- contrary to the interests of shareholders as a whole; or
- oppressive, unfairly prejudicial or unfairly discriminatory against a shareholder(s).
We set out what conduct a court will consider and whether oppressed minority shareholders should consider a claim.
What Will The Courts Consider?
The courts assess oppressive conduct by applying an objective test. That is, they consider the following:
- whether a reasonable bystander would view the conduct as unfair;
- whether a reasonable director or board of directors would have taken the same action.
There must be a level of commercial unfairness that goes beyond mere disadvantage to a shareholder. The court will consider this in light of the history of the company’s affairs and the directors’ intention at the time they incorporated the company. Courts have considered the following conduct as oppressive:
- misuse of company funds;
- oppressive conduct at board meetings;
- denial of access to company information;
- improper diversion of business to another entity;
- exclusion from participation in the management of a company;
- excessive remuneration paid to directors, which don’t correspond with payment of dividends to shareholders;
- the improper issuing of shares for the purpose of diluting minority voting rights; and
- refusing to call meetings.
What Happens if a Court Finds Oppression?
The court can hand down many remedies under the Act, including:
- winding the company up;
- restraining a person from doing a specified act;
- requiring a person do a specified act;
- ordering the purchase of shares (e.g. a standard order the court will make is ordering the majority shareholders to buy out the shares of the oppressed minority shareholders);
- regulating the conduct of the company’s affairs; and
- appointing a receiver and manager.
Where the court decides that none of these remedies is just, they also have the power to make any order which it thinks is appropriate. Importantly, if the conduct so warrants this remedy, the court will not hesitate to wind up the company.
Oppression can be a complex area to pursue and litigate through the courts. Further, shareholder disputes which go through court are notoriously expensive, time-consuming and bitter. That is often due to the close relationship between shareholders. As a first step, we suggest you try to proceed as amicably as possible and reach an out of court resolution. If you have any further questions about minority shareholder oppression or need assistance with your matter, get in touch with our specialist dispute lawyers on 1300 544 755.