How minority shareholders might take action against corporation wrongdoing

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In the past, we have looked at some of the existing powers and proposed powers that the Australian Securities & Investments Commission (ASIC) has with respect to corporate wrongdoing (see our previous article here). Today we take a look at a remedy which can be taken by minority shareholders and members of a company when the company’s affairs have been conducted in an “oppressive, unfairly prejudicial or unfairly discriminatory manner” against members of the company. The so-called ‘oppression remedy’. This provides an option for redress for minority shareholders even where some conduct is approved or instigated by majority shareholders.

minority-shareholders
minority shareholders

Note, these introductory notes do not constitute legal advice. For advice on your particular situation, please get in touch with us and we can refer you to the right expertise.

Sections 232 and 233 of the Corporations Act 2001

Section 232 of the Corporations Act 2001 sets out the requirements of this remedy. This remedy applies where the conduct of a company’s affairs; an act or proposed act or omission on behalf of a company or a resolution, or proposed resolution of members of a company, is

  • contrary to the interests of the members as a whole; or
  • oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

Section 233 provides that, in these cases, the court may make orders:

  • that the company be wound up
  • that the company’s constitution be modified or repealed
  • regulating the conduct of the company’s affairs in the future
  • for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;
  • for the purchase of shares with an appropriate reduction of the company’s share capital;
  • for the company to institute, prosecute, defend or discontinue specified proceedings;
  • authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute,
  • prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
  • appointing a receiver or a receiver and manager of any or all of the company’s property;
  • restraining a person from engaging in specified conduct or from doing a specified act;
  • requiring a person to do a specified act.

Section 234 specifies that action may be brought by a member of the company (and those dropped from the register in certain special circumstances), and by ASIC.

Was the conduct towards minority shareholders “oppressive, unfairly prejudicial, or unfairly discriminatory”?

This is the test that has usually been used under section 232. The general approach for tests like this (whether in the existing law, in predecessor provisions or in foreign jurisdictions), has been to interpret the three phrases not as separate alternative bases for the remedy, but as matters to be taken together, each phrase colouring the others.

Whether or not some particular conduct falls within the scope of this provision depends on the facts of the case, but some examples of conduct that have been considered to have fallen under the scope of section 232 include:

  • Conduct of board meetings. Such as where a director who may be a majority shareholder, acts as if they ‘are’ the company;
  • Conduct by directors or members which acts to exclude people from management in a company, where they have a right to be involved;
  • Excessive payments to directors;
  • Share issue with the intent of decreasing a minority shareholding.

For further information on the ‘oppression remedy’, the Victorian Law Reform Commission provides a useful resource at http://www.lawreform.vic.gov.au/content/3-oppression-remedy-corporations-act.
*As well as some other individuals listed in section 234 of the Corporations Act 2001.

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