Shareholder oppression

Our Lawyers advise on all aspects of shareholder oppression and directors disputes as these terms are commonly referred to.  Shareholder oppression also called minority shareholder oppression (Oppression) is something that can occur when a “majority” of shareholders misuse their power to oppress the minority.  Oppression is not limited to situations of majority and minority, it can occur when the disputants control equal shareholdings but for some reason there is an imbalance of control (or power) caused by a variety of statutory and contractual controls that were either agreed to or implemented during the evolution of the relationship.  It is the undue exertion of this control which is the hallmark of Oppression.  

Shareholder disputes lawyer – the legislation

Section 232 of the Corporations Act 2001 (Cth) (Corporations Act) sets out the grounds on which a Court may make an order under section 233.  This section empowers the Court to make any orders necessary as a remedy if the conduct of the company’s affairs is either:

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

Section 234 of the Corporations Act lists the persons entitled to apply for relief under section 233 and includes current and past shareholders.

Shareholder oppression law – background

The key concept emerging from the case law is the requirement of an object assessment of “fairness” which will depend upon the context including the nature of the company and its operations.  For example, conduct that is “fair” as between arm’s length business people might not be considered fair in the context of a family company.

• “Commercial fairness” in the context of a commercial Company is to be assessed objectively by a commercial bystander.
• “Fairness” in a family Company is to be assessed from the perspective of the reasonable person involved with the type of Company under examination.
• Lord Cooper in Elder v Elder and Watson (1952) S.C. 49, stated:
  “The conduct complained of should at the lowest involve a visible departure from the standards of fair dealing and a violation of the conditions of fair play on which every shareholder who entrusts his money to a Company is entitled to rely.”
• In Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97, Spigelman CJ observed that the statutory formulation of “oppression” confers a wide-ranging remedial jurisdiction on the court and that jurisdiction should not be confined by technical distinctions.
• The test propounded by Young J in Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 704 suggested that the Court should ask:
  “… whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair…” Young J’s test has been cited frequently with approval.”

Corporate narcissists and shareholder oppression

The unfortunate reality is that a large majority of shareholder oppression matters involve the actions of people who would seem to have “narcissistic personality disorder” and its many variants, including some sociopaths.  What’s important to understand is that people with this disorder are incapable of feeling empathy towards those whose lives they damage.  We are not psychologists or psychiatrists however we’ve had first-hand experience in dealing with corporate narcissists in the context of shareholder oppression matters.

What conduct has been held to be oppressive?

While each case depends on its own facts and the underlying tests of fairness, there are certain recurrent themes in the cases law from which “categories of conduct” emerge that have been held to be oppressive:

• the improper diversion of business to another entity related to the controller;
• payment of excessive remuneration to a controller or associate;
• failure to prosecute an action;
• the improper issue of shares;
• the improper exclusion from participation in management of the Company;
• denying access to information;
• misuse of Company funds; and
• oppressive conduct at board meetings.

The categories of conduct are not closed.

What remedies are available for oppressed shareholders?

The Court has wide powers under section 233 of the Act to make any order it considers appropriate.  If a shareholder can prove that the conduct of a Company’s affairs is oppressive, the Court may give relief including orders:

• that the Company be wound up;
• that the existing constitution be modified or repealed;
• regulating the future conduct of the Company’s affairs;
• for the purchase of the shares of any shareholder by other shareholders or a person to whom a share has been transmitted by will or by operation of law;
• for the purchase of the shares with an appropriate reduction of the Company’s share capital;
• that the Company institute or defend legal proceedings or authorise a shareholder to institute or defend legal proceedings in the name of the Company;
• appointing a new receiver or a receiver and manager;
• restraining a person from engaging in specified conduct or from doing a specified act; and
• requiring a person to do a specified act.

Remedies available prior to commencing proceedings for oppression

Mareva orders

Where conduct involves financial malfeasance it may be possible to seek a mareva order to freeze a bank account or to protect against the dissipation of assets where there is evidence that funds have been transferred without authority.

Obtaining access to information

One of the early warning signs of shareholder oppression is withholding access to information such as bank accounts, accounting systems and detailed financial statements.  See our article – Shareholders’ right to information.  Depending on the circumstances an aggrieved shareholder may have a basis to compel the party withholding the information to provide it.

How do you know whether you have an action for oppression?

The question of whether the conduct passes the sniff test – if it “looks, smells, sounds” or “feels” unfair, there is a good chance it is. Each case will of course turn on its own facts and in the end the remedy may not be for oppression, but something else.

Recent videos about shareholder oppression by Dundas Lawyers®

Disclaimer
This page contains contains general commentary only about shareholder oppression.  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.

Why choose Dundas Lawyers^® as your shareholder oppression lawyer?

Having exerted Blood Sweat and Years^® and having actual personal experience in shareholder oppression matters we understand the angst that these sorts of matters involve. We are a team that you want on your side to use our extensive experience acting for shareholders and company directors to resolve disputes.

• Our team has actual business acumen and can assist you to gather collate and document admissible evidence from a variety of accounting systems (we are not just lawyers!).
• We offer fixed fees (where there is a fixed scope of work).
• We are shareholder oppression experts with hands on experience in dealing with complex issues associated because of director’s conduct.
• Our Uncommon Nous^® ensures we provide out of the box, client centric solutions.

Need a lawyer to advise on shareholder oppression?

For a confidential, no obligation initial telephone call to find out how we can help your business gain an uncommon advantage in initiating or defending allegations of shareholder oppression please phone our team on either 1300 386 529 or 07 3221 0013.

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

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