Photo credit: Alexandra Marcu, Unsplash
Oppressed shareholders need to know they have options.
In this article, I’ll take you through real-life cases to give you an idea of when courts in Australia help oppressed shareholders.
And, shareholders are able to bring an action against an oppressive board because of section 232 of the Corporations Act 2001 (Cth).
First, do courts help?
Even if a court finds that a shareholder is oppressed, they may not grant relief.
This was the case in Re Peninsula Kingswood Country Golf Club . Oppression was proven but because the shareholder took too long to bring forward their claim the court did not help.
Moral of the story… if you have a good claim based on legal advice, don’t delay, take action!
The court decides if in balancing the interest of the whole company against minority interests, that the directors have acted to unfairly prejudice the minority: Jenkins v Enterprise Gold Mines NL (1992).
According to John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia) Pty Ltd (1991) (Starr), these actions are not oppressive:
If a shareholder simply disagrees with a decision of majority shareholders and directors, they aren’t being oppressed.
Also, simply being a minority shareholder does not constitute oppression: Shelton v NRMA Ltd (2001).
High pay for directors: Shamsallah Holdings Pty Ltd v CBD Refrigeration & Air-conditioning Services Pty Ltd (2001) and salary bonus paid to directors: French v Smith  was not oppressive.
Also, using company funds for litigation: Mavromatis v Haspaz Pty Ltd (1993) and an action taken by the company based on legal advice: Sanford v Sanford Courier Service Pty Ltd (1986) were not oppressive.
Now, if something is commercially unfair, it’ll get the courts attention: Morgan v 45 Flers Avenue Pty Ltd (1986). And, in considering commercial unfairness, these are the important elements:
Also, management conduct, prejudice, where there is no reasonable commercial justification for action taken or decision making can be oppressive: Re Spargos Mining NL (1990).
And in Marks v Roe (1996) the unfairness did not necessarily have to be commercial unfairness.
This is important because for not for profits, commercial unfairness is not relevant, but we’re not dealing with not for profits here.
The case of Wayde v NSW Rugby League (1985) remains a leading decision about oppressive conduct.
Now, while Wayde is a leading decision, other cases tell us more about the scope of section 232 as we’ll see below.
Good intentions, good faith and acting on legal advice are not defences for the oppressors: Re George Raymond Pty Ltd & Salter v Gilbertson (1999).
Below are examples of what the court may consider is oppressive conduct and therefore a breach of section 232 Corporations Act. The list is not exhaustive but gives you a good idea.
It’s not just minority shareholders that can be oppressed. Majority shareholders who don’t hold the majority of votes can be oppressed. And, courts will step in to help: Patterson v Humfrey .
Finally, if you believe you are being oppressed, get legal advice. It's better if you can resolve disputes out of court to save time and money.
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