Quick summary of shareholder oppression remedies
If a company’s affairs are conducted oppressively, s 233 of the Corporations Act 2001 (Cth) allows the Court to make any order it considers appropriate. The two (2) most common orders are a buy-out of the oppressed shareholder’s shares at fair value and winding up the company. Courts generally prefer a buy-out and treat winding up as a last resort.
Key insights
- A buy-out order is the most common remedy for shareholder oppression and is designed to return to the oppressed shareholder the value of their shares.
- A buy-out (by another member) and a buy-back (by the company) are separate orders under s 233(1)(d) and (e).
- Winding up is a last resort, particularly where the company is operating and profitable.
- In Snell v Glatis (No 2) [2020] NSWCA 166, the Court of Appeal replaced a buy-out order with a winding up order because the buy-out could not practically be performed.
On this page
- Quick summary
- What remedies are available for shareholder oppression?
- What is a buy-out order?
- When will the Court wind up the company instead?
- Why did the Court order a winding up in Snell v Glatis (No 2)?
- Buy-out or winding up: how does the Court decide?
- Practical tips for shareholders weighing their remedy
- Frequently asked questions
- Key takeaways
- Our approach
- Further reading
- Links and further references
In Snell v Glatis (No 2) [2020] NSWCA 166 (Snell), the New South Wales Court of Appeal set aside an order compelling an oppressor to buy out an oppressed shareholder and instead ordered a winding up. The decision illustrates how the Court chooses between the two (2) principal remedies for shareholder oppression under the Corporations Act 2001 (Cth) (Corporations Act). This article explains those remedies, the principles applied in Snell, and the practical questions a shareholder should consider before seeking either order. For an overview of the conduct that amounts to oppression, see our shareholder oppression lawyers page.
——— Legal remedies
What remedies are available for shareholder oppression?
If the Court finds oppression under s 232 of the Corporations Act, s 233(1) allows it to make any order it considers appropriate.[1] The right remedy depends on the company, the relationship between the shareholders and whether the business can continue. The orders most often sought are:
Buy-out order
The Court orders another member, usually the majority shareholder, to buy the oppressed shareholder’s shares at fair value (s 233(1)(d)).
Buy-back order
The Court orders the company itself to buy the shares, with an appropriate reduction of its share capital (s 233(1)(e)).
Winding up
The Court orders that the company be wound up and its assets realised by a liquidator (s 233(1)(a)).
Orders regulating the company
The Court can modify the constitution, regulate the future conduct of the company’s affairs, restrain conduct or require a person to act (s 233(1)(b), (c), (i) and (j)).
The Court may also direct the company to bring, defend or discontinue proceedings, authorise a member to do so on the company’s behalf, or appoint a receiver (s 233(1)(f)–(h)). Applications may be brought by the persons listed in s 234, including current and certain former members. In Queensland, oppression applications are usually brought in the Supreme Court of Queensland or the Federal Court of Australia.
In short, the Court’s power is broad, but in closely held companies the practical choice usually comes down to a buy-out or a winding up.
——— Buy-out orders
What is a buy-out order?
A buy-out order is an order requiring a person, usually the majority shareholder responsible for the oppression, to purchase the oppressed shareholder’s shares at fair value under s 233(1)(d). Its purpose is to return to the minority shareholder the value of their shareholding.[2]
It is the remedy most often sought in closely held companies because it ends the relationship while allowing the business to continue. It should be distinguished from a buy-back order under s 233(1)(e), which requires the company itself to purchase the shares.
Valuation is usually the main point of contest. Shares are generally valued at fair value, and courts commonly decline to apply a minority discount where the sale is compelled by oppression. The date at which the shares are valued can also materially change the outcome. See our articles on shareholder oppression valuation issues and point in time valuation.
In short, a buy-out order separates the parties, keeps the business running and puts a value on the oppressed shareholder’s interest.
——— Winding up
When will the Court wind up the company instead?
The Court will usually wind up a company for oppression only as a last resort, where a buy-out is impractical or no other order will fairly resolve the oppression. Courts are particularly reluctant to wind up a company that is operating and profitable.
Winding up places the company into liquidation. A liquidator realises the company’s assets, pays its creditors and distributes any surplus to members. The Court may order a winding up as an oppression remedy under s 233(1)(a), under s 461(1)(f) where the company’s affairs are being conducted in an oppressive or unfairly prejudicial manner, or under s 461(1)(k) where it is just and equitable to do so. See our article on just and equitable winding up for shareholder oppression.
In short, winding up is reserved for cases where no other order will fairly resolve the oppression.
——— Case study
Why did the Court order a winding up in Snell v Glatis (No 2)?
In Snell, the Court of Appeal ordered a winding up because the buy-out made at first instance could not practically be carried out.
The primary judge found that the affairs of four (4) companies controlled by Mr Snell had been conducted in a manner unfairly prejudicial to Mr Glatis, and ordered a compulsory buy-out of Mr Glatis’s interests across the group. The buy-out gave rise to significant practical difficulties, including Mr Snell’s inability to raise the funds needed to pay the purchase price.
The Court of Appeal applied the following principles:[3]
- oppression may be cured by ordering the oppressor to acquire the oppressed shareholder’s shares at fair value;
- a buy-out order should be framed to put the company back on a sound footing and remove the causes of conflict;
- winding up is a last resort when compared with a buy-out; and
- winding up an operating and profitable company is an extreme step that requires a strong case to be made.
Applying those principles, the Court of Appeal found that the primary judge erred in making the buy-out order. Because the group’s assets were substantially realisable and there was little active trading, many of the usual reasons against winding up did not apply. Winding up was a realistic means of securing Mr Glatis’s share of the value of the group and of bringing the oppression to an end, and a winding up order was made instead.[4]
In short, a buy-out is only an effective remedy if it can be performed. Where the oppressor cannot fund it, winding up may be the more reliable way to realise the oppressed shareholder’s value.
Considering a buy-out or winding up application? Dundas Lawyers advises shareholders and directors on oppression remedies, share valuation and negotiated exits. Call 07 3221 0013 or submit an enquiry online.
——— Comparison
Buy-out or winding up: how does the Court decide?
The Court weighs whether the business is viable, whether a buy-out can be funded and performed, and whether a buy-out would end the conflict. The factors considered in Snell point to the following comparison:
| Buy-out order | Winding up order | |
|---|---|---|
| Source of power | s 233(1)(d) or (e) | s 233(1)(a); s 461(1)(f) or (k) |
| Effect on the business | Business continues under the remaining owner or owners | Business ends and a liquidator realises the assets |
| How value is returned | Purchase price at fair value | Distribution of any surplus after creditors are paid |
| Court’s approach | Usually preferred where the business is viable | Last resort |
| Main risk | The purchaser cannot fund the price | Value is lost on a forced sale of the assets |
——— Practical tips
Practical tips for shareholders weighing their remedy
Obtain an early valuation
Understand what your shares are worth, and on what basis, before choosing which remedy to pursue.
Check your exit clauses
A constitution or shareholders’ agreement may already contain exit or buy-out mechanisms that are faster than Court proceedings.
Test whether a buy-out can be funded
A buy-out order is of limited value if the other side cannot pay. Snell shows the Court will take this into account.
Seek alternative relief
Applications commonly seek a buy-out and, in the alternative, winding up, so the Court can make the order that fits.
See also our article on shareholders’ agreements and deadlock clauses.
Frequently asked questions about shareholder oppression remedies
Can the Court force the majority to buy my shares?
Yes. If oppression is established under s 232 of the Corporations Act, the Court may order a member to purchase the oppressed shareholder’s shares under s 233(1)(d). It is the most common remedy in closely held companies.
Is a buy-out order the same as a share buy-back?
No. A buy-out order requires a person, usually another member, to purchase the shares. A buy-back order under s 233(1)(e) requires the company itself to purchase the shares, with an appropriate reduction of its share capital.
Will my shares be discounted because I hold a minority interest?
Not usually. Where a sale is compelled because of oppression, courts commonly value the shares at fair value without a minority discount. The valuation method and valuation date can still be contested, so early valuation advice is important.
When will a company be wound up for shareholder oppression?
Winding up is a last resort. The Court is generally reluctant to wind up an operating and profitable company, but may do so where a buy-out is impractical or no other order will fairly resolve the oppression, as in Snell v Glatis (No 2) [2020] NSWCA 166.
Do I have to choose between a buy-out and winding up when I apply?
Not necessarily. The Court may make any order it considers appropriate under s 233, and applicants often seek a buy-out with winding up as alternative relief. The right approach depends on the company’s position and should be settled with legal advice before proceedings are commenced.
Which court hears shareholder oppression applications in Queensland?
Oppression applications under the Corporations Act are usually brought in the Supreme Court of Queensland or the Federal Court of Australia. The appropriate court depends on the circumstances, including any related claims.
Key takeaways about shareholder oppression remedies
- If oppression is established under s 232 of the Corporations Act, the Court may make any order it considers appropriate under s 233(1).
- A buy-out order under s 233(1)(d) is the most common remedy and aims to return the value of the oppressed shareholder’s interest. A buy-back order under s 233(1)(e) is a separate remedy.
- Winding up is a last resort, especially for operating and profitable companies.
- Snell v Glatis (No 2) shows the Court will not uphold a buy-out order that cannot practically be performed.
- Whether the business is viable, whether a buy-out can be funded and how readily the assets can be realised all influence which order is made.
- Valuation, existing exit clauses and the other side’s capacity to pay should be assessed before deciding which remedy to seek.
Need advice about shareholder oppression remedies? Call Dundas Lawyers on 07 3221 0013 or submit an enquiry online.
Our approach to resolving shareholder oppression disputes
Dundas Lawyers combines commercial litigation experience with practical business experience. We help shareholders identify the oppressive conduct, preserve evidence, assess the value of their interest and choose the remedy most likely to deliver it, whether through negotiation, a buy-out or Court proceedings.
Further reading
For further reading on shareholder oppression remedies, see the following articles written by the team at Dundas Lawyers.
- Valuation can decide the outcome – how shares are valued is often the central issue once a buy-out is ordered. See: Shareholder oppression – valuation issues
- The valuation date matters – the point in time at which shares are valued can materially change the price. See: Point in time valuation and minority shareholder oppression
- Winding up on just and equitable grounds – when the Court will wind up a company in an oppression dispute. See: Just and equitable winding up – shareholder oppression
- Oppression and liquidation – whether oppression orders remain available once a company is in liquidation. See: Is it possible to obtain oppression orders during company liquidation?
- Deadlock clauses can avoid litigation – how a shareholders’ agreement can provide an exit before a dispute reaches Court. See: Shareholders’ agreements & deadlock clauses
Further information
If you need assistance about shareholder oppression remedies, contact us for a confidential and obligation‑free discussion.
Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
T: +61 7 3221 0013 (preferred)
M: +61 419 726 535
E: mburrows@dundaslawyers.com.au
Disclaimer
This article contains general commentary only. You should not rely on the commentary as legal advice. Specific legal advice should be obtained to ascertain how the law applies to your particular circumstances.
[1] Corporations Act 2001 (Cth) s 233(1).
[2] Snell v Glatis (No 2) [2020] NSWCA 166.
[3] Snell (n 2).
[4] Snell (n 2).
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