Shareholder oppression explained

by Elicia Lin

Shareholders may seek a wide range of remedies in circumstances where the controllers of a company unfairly misuse their positions of power or breach their duties.  The oppression remedy in Part 2F.1 of the Corporations Act 2001(Cth) (the Act) provide an important safeguard for shareholder rights.  It is usually used in conjunction with an application for winding up on the grounds that it is just and equitable under s 461 of the Act.

Who may apply?

Section 234 of the Act sets out who may apply for an order under s 232.  The accepted applicants are:

a shareholder of the company;
a person who has been removed from the register because of a selective reduction;
a person who has ceased to be a shareholder and the application relates to the circumstances in which they were removed;
a person to whom a share in the company has been transmitted by will or by operation of law; and
an appropriate person, in the opinion of Australian Securities and Investments Commission (ASIC), after having conducted an investigation into the company’s affairs.

 

A shareholder may apply for an order where the act or omission is either against the shareholder in a capacity other than as a shareholder, or against another shareholder in their capacity as a shareholder.

 

Conduct where a remedy may be sought

Section 232 of the Act allows a court to grant relief to applicants if it is of the opinion that:

the conduct of a company’s affairs; or
an actual or proposed act or omission by or on behalf of a company; or
a resolution, or a proposed resolution, of shareholders or a class of shareholders of a company,
is either:

 

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


The ‘company’s affairs’ includes conduct of the directors, majority shareholders, substantial shareholders as well as the company itself.   The definition of ‘company’s affairs’ in s 53 of the Act also includes a reference to:

the promotion, formation, membership, control, business, trading, transaction and dealings, property,
liabilities, profits and the income, receipts, losses, outgoings and expenditure;
the internal management and proceedings; and
the power of persons to exercise, or to control the exercise of, the rights to vote attached to shares in the company or to dispose of, or to exercise control over the disposal of, such shares


Examples of oppression

 

The oppression remedy is commonly considered as being operative where the oppression occurs in relation to a minority shareholder.  Examples of oppressive and unfair conduct include:

improper diversion of a business to another entity;
payment of excessive remuneration to a controller or associate;
failure to prosecute an action (although this may now also involve the statutory derivative action but this does not necessarily exclude an oppression action);
improper share issue;
improper exclusion from participation in management;
denial of access to information;
misuse of company funds;
oppressive conduct at board meetings.


Remedies for oppressed shareholders

 

The court has wide powers to make any order it considers appropriate if shareholders can prove that the conduct of a company’s affairs is contrary to the interests of the shareholders as a whole, oppressive, unfairly prejudicial or unfairly discriminatory.  Examples of orders that may be appropriate are set out in s233 of the Act which include:

that the company be wound up;
that the existing constitution be modified or repealed;
regulating the future conduct of the company’s affairs;
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;
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.

 

The policy behind ss 232 and 233 of the Act is to enable an oppressed shareholder to be released from the company in the circumstances set out in s 232.  Where an order is made under s 233 of the Act, the applicant must lodge a copy of the order with ASIC within 14 days after it is made.


If you are a shareholder and have concerns in relation to the conduct of your company, please do not hesitate to contact us.

 

 

 

Elicia Lin  B.Bus.,LL.B.,GradDipLegalPrac
Solicitor 


Findlaw

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