Given the scope of company law and breadth of varying divergence between majority and minority shareholders, let us consider the most common disputes whereby the company’s affairs are contrary to the interests of its members or are oppressive, unfairly prejudicial or unfairly discriminatory against a member(s). Examples 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.
S 232 of the Corporations Act 2001 (the Act) states that 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 by all, or by a class, of the shareholders, must be:
- 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,
in order for an application to be considered.
The court has jurisdiction under this provision to give relief if it were to hold the opinion majority shareholders were being oppressive toward the minority. It is more common within closely held companies that oppression poses greater risk to minority shareholders who are frequently involved in the management of the company, whereby they could be deprived of remuneration or even suffer termination as a result.
S 234 of the Act provides that the following persons can apply for an order seeking relief for oppressive conduct:
- A member of the company, on behalf of himself or another member,
- A person who has been removed from the register of members, or has ceased to be a member under circumstances which are the substance of the application,
- A person to whom a share in the company has been transmitted by will or by operation of law, or
- Any other person, with the consent of the Australian Securities and Investments Commission, in connection to a current or prior investigation into the company conducted by ASIC.
The court has discretion to make the following order(s) as it thinks appropriate under s 233(1):
- Wind the company up;
- Modify or repeal the existing constitution regulating the future conduct of the company’s affairs;
- Purchase of the share of any shareholder by other shareholders or a person to whom a share has been transmitted by will or by operation of law;
- Purchase of the shares with an appropriate reduction of the company’s share capital;
- The company institute or defend legal proceedings or authorise a shareholder to institute or defend legal proceedings in the company name;
- Appoint a new receiver or receiver and manager;
- Restrain a person from engaging in specific conduct or form doing a specified act.