Shareholder oppression – Victorian Supreme Court adopts pilot program to resolve oppression disputes

On 1 October 2014 (Commencement), the Victorian Supreme Court commenced a pilot program to deal with applications under section 232 of the Corporations Act 2001 (Cth) (Act).  Practice Note No. 5 of 2014 (Practice Note) describes the new process for dealing with applications to Court seeking relief under section 233 of the Act.  The Practice Note states that the Court will operate a six (6) month pilot program (Program) to deal with oppression actions, for the stated aim of “just, efficient, timely and cost-effective resolution of the real issues in dispute”.

What is shareholder oppression?

Section 232 of the Corporations Act 2001 (Cth) (Act) sets out the grounds on which a Court may make an order under section 233.  This section states the Court will make an order if the conduct of the Company’s affairs, an actual or proposed act or omission by or on behalf of a Company or a resolution or proposed resolution is either:

1. contrary to the interests of the members as a whole; or
2. oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members.

See our commentary on Shareholder Oppression.

Contents of the affidavit

The commencement of any application to the Victorian Supreme Court under section 233 must follow the procedure as outlined in the Practice Note.   Applications are to be made by originating process and supported by affidavit that:

1. is of no more than three (3) pages;
2. sets out a clear and succinct summary of the facts alleging oppression;
3. exhibits a current Australian Securities and Investments Commission search of the Company; and
4. does not contain any other exhibits.

Lawyers are advised by the Practice Note to refer to the authorities which provide examples of the “type of conduct” that may be oppressive according to section 233.  See our commentary on what has been determined to be oppressive conduct here.

On the return date

The application will be made returnable before an Associate Judge (Associate) where an initial conference will take place where:

1. the parties and their lawyers will be required to attend; and
2. the Associate will explore whether the application can be resolved or whether other steps should be allowed such as a party being permitted to file affidavit material (of not more than three (3) pages before continuing).

If orders are sought that are beyond the powers of the Associate, then the matter will be referred to a judge and it will progress outside the realms of the Pilot Program.

If the matter is not resolved at the initial conference the Associate will make directions for the further conduct of the matter usually including orders such as orders for the inspection of the accounts or a valuation of the company.  After these steps have been completed and the dispute is still not resolved then the matter will be referred to a judge.

Impact of the Pilot Program

It is our view that in shareholder oppression matters emotions run high and the parties’ behaviour often leave a lot to be desired.  Injecting a mediation process, much like a compulsory conference in the Queensland Magistrates Court may (or may not), as the case may be, introduce the Courts to the levels of emotion of the Parties.  Simplifying the application process by limiting the amount of material which is allowable would appear to encourage lawyers to be concise and to narrow the issues in dispute.  That said, in our view the Victorian Supreme Court should be applauded for at least making attempt to resolve shareholder oppression matters more simply.

Time will tell whether the pilot program is a success and whether other states are apply to apply the lessons learnt by the Victorian Supreme Court.

Links and further references

Practice Note No. 5 of 2014 – Applications Under s233 Corporations Act 2001 (Vic) – oppressive conduct of the affairs of a company

Please note: this practice note has been archived.  Please see see current Supreme Court of Victoria practice notes here.

Further information

If you need further information about a dispute with other shareholders, please contact us for an obligation free and confidential discussion.

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 circumstance.

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