Shareholder oppression – valuation issues

Shareholder oppression or minority shareholder oppression can occur when the majority (shareholder(s)) in an entity misuse their majority to oppress or control the minority shareholders.  There are is not a limited number or combination of activities which the majority may engage in to oppress the minority, sometimes referred to as “sharp practice” or “board room tactics”, the possibilities are almost infinite.  See our article on shareholder oppression here.

Section 233 of the Corporations Act 2001 (Cth) (Act) allows the Court to make a range of orders granting relief to oppressed shareholders.  One of these orders is described as a “buy out order”.   If a buyout order is made, the question is at what price will the Court order that the majority buy out the minority.

The ‘buyout order’ remedy

The Court has wide powers under section 233 of the Act to order remedies it thinks fit in the circumstances once oppression has been established.  One such remedy is that the majority are ordered to buy out the interests of the minority.

What point in time must the price of the interest to be sold be valued at?

There are clearly competing tensions here between the interest of justice and the Court’s ability to make what could be described as an order that is ‘punitive’ in nature.  Where oppression is held to have occurred the question that follows in terms of a buyout order is “how is the value of the minority’s interest determined”?

As was said in the case of BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192 (2 August 2019) (BAM) by Derrington J at 89:

“The purpose of granting a remedy between parties in an oppression case is to “to compensate the oppressed shareholder for the oppression which has taken place”[1].  In cases where the relief to be granted is the compulsory purchase of shares, that object is achieved by the Court having a wide discretion to fix a price that “represents a fair value in all the circumstances”.

It was further said by Derrington J in the same passage that:

“That does not necessitate fixing a price only by reference to ordinary valuation principles[2]. The question is to identify the price which should be paid in the circumstances”.

Derrington J from paragraph 90 of BAM proceeded to cite cases which provide a useful analysis of the principles that the Court will follow in determining the price to be paid to the oppressed minority.

Principles to be followed to determine the valuation of the minority interest

The principles which can be distilled from BAM and applied to determine the amount to be paid for the shares of the minority is reflected in the following principles:

  • Valuation to be conducted is if it was business as usual

Citing Scottish Co-operative Wholesale Society v Meyer [1959] AC 324, Derrington J stated that the principle is that the oppressors should not obtain the benefit of their oppressive conduct.[3]  In this case it was said by Lord Keith that this is not the case that can be determined with mathematical accuracy.

  • Put the oppressed shareholder in the position as if there had been no oppression

In Fitzpatrick v Cheal [2012] NSWSC 261, Ward J articulated a similar idea at 374-375 [223] to the notion of valuing the shares as if there was no oppression.  It was said, ‘the aim is to put the applicant (the minority) in the same position as if there has been no oppression.

  • The price to be paid must be ‘fair’

Derrington J citing ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536 at 540 emphasized the notion of ‘fairness’ as being given significance.   A fair price is the one that should be paid if there had been no oppression.

What valuation methodology should be adopted

One of the often contentious issues in oppression matters is the valuation methodology used by the valuer. Interestingly the Australian Securities and Investments Commission (ASIC) publishes ‘Regulatory guide RG-111 Content of expert reports’ (RG-111) which has the stated purpose of “providing guidance on the content of expert reports and how an expert can help security holders make informed decisions about transactions”.  Whilst it would appear that RG-111 is somewhat biased towards publically traded securities this does not exclude its application to securities that are not continuously quoted.

Unfortunately there is no prescriptive rules and a formulaic approach does not exist.  That said, Part C of RG-111 provides some guidance on the ‘choice of methodology’ to be adopted and principles that valuers should follow.

Takeaways from RG-111 on the valuation methodology adopted

The choice of valuation methodology is up to the expert.  They should use their own skill and knowledge to select the most appropriate methodology and must have a real or ‘tenable’ basis for choosing that methodology. [4]  ASIC considers that an expert preparing a valuation should:

  • use more than one valuation methodology in order to reduce the risk that the value is distorted because of the methodology;[5]
  • compare the figures derived from using different methodologies and comment on the differences;
  • use its own skill and judgement and chose methodologies that are appropriate in the circumstances;
  • justify its choice of methodologies;
  • discuss how much weight is placed on each methodology used in the valuation;
  • use any of the methodologies as prescribed by RG: 111.69;
  • discount any highly speculative situations that no value can be ascribed to them;
  • the assumptions made should be fully described;
  • include a range of values that is as narrow as possible – RG111.78 ad RG111.79.

How is evidence of the value to be adduced?

The usual position is that the parties to an oppression matter lead evidence in the form of a valuation by an expert.  In BAM the plaintiff relied on the valuation provided by a chartered accountant, Mr Frank Cassells (Cassells), who provided a formal valuation which was based on financials prior to the conduct of the defendant in restricting the business.  The valuation methodology proffered was “Estimated Future Maintainable Earning[6] the appropriateness of which was ‘slightly’ cross examined by Counsel for the defendant with the witness providing evidence that the multiplier used was derived from ‘industry standard, sourced from the Master Builders Association’[7].  The plaintiff’s submissions at the end of the trial were that the evidence of Cassells remained ‘wholly intact’.[8]

It was up to the defendant to attack or undermine the validity of the valuation and it was held that he failed to do this.  Because of this, there was no reason not to accept the valuation of Cassells.

What orders did the Court make in BAM

Because the evidence of Cassells on the value of the overall business was not discredited by the defendant and taking into account the nature of the oppression, the Court ordered that the scope of s233 of the Corporations Act 2001 (Cth) was wide enough to make the order that the defendant buy out the interests of the plaintiff at the amount reflected in the plaintiff’s submissions.

In addition to legal costs and interest, the plaintiff sought and obtained orders to provide for security for payment to the defendant to ensure that what little was left was not dissipated.

Links and further references

Articles by Dundas Lawyers

Shareholder’s inspection allowed despite distrust
Just and equitable winding up for shareholder oppression
Shareholder’s agreements and deadlock clauses
What is shareholder oppression?
Shareholder oppression – Victorian Supreme Court adopts pilot program to resolve oppression claims
Shareholders’ right to information


Corporations Act 2001 (Cth), s 232
Regulatory guide RG-111 Content of expert reports


BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192
Brady Queen Pty Ltd v 280 Queen Street P/L & Anor (No 3) [2019] VSC 307
Dr Shanahan v Jatese Pty Ltd [2019] NSWCA 113
ES Gordon Pty Ltd v Idameneo (No 123) Pty Ltd (1994) 15 ACSR 536
Fitzpatrick v Cheal [2012] NSWSC 261; (2012) 264 FLR 313
Gregory v Federal Commissioner of Taxation (1971) 123 CLR 547
Munstermann v Rayward [2017] NSWSC 133
Patterson v Humfrey [2014] WASC 446
Re Dreamscape Networks Ltd; Ex Parte Dreamscape Networks Ltd [2019] WASC 412
Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324
Spencer v Commonwealth (1907) 5 CLR 418
Udaipur Lake Pty Ltd v Michael Sklovsky Pty Ltd [2019] VSC 114

Further information

If you need advice or further information about shareholder oppression and the conduct of legal proceedings to maximise the value of your interest, please contact me for a confidential, obligation free discussion.

Malcolm Burrows B.Bus.,MBA.,LL.B.,LL.M.,MQLS.
Legal Practice Director
Telephone: (07) 3221 0013
Mobile: 0419 726 535


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] Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd [2004] FCAFC 153; (2004) 207 ALR 136, 146 [72].
[2] Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd [2004] FCAFC 153; (2004) 207 ALR 136, 146 [73]-[78]); Re Bird Precision Bellows Ltd [1986] 1 Ch 658, 669.
[3] BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192 at 90.
[4]Regulatory guide RG-111 Content of expert reports’, at 290-291.
[5] Regulatory guide RG-111 Content of expert reports at RD 111.65.
[6] BAM Property Group Pty Ltd as trustee for BAM Property Trust v Imoda Group Holdings Pty Ltd [2019] FCA 1192, at 97.
[7] Ibid.
[8] Ibid.

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