When courts in Australia help oppressed shareholders

By Vivian Michael | Shares

When courts in Australia help oppressed shareholders

Photo credit:  Alexandra Marcu, Unsplash 

Oppressed shareholders need to know they have options.

They can communicate with the company’s board, meditate or go to court.

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?

No.

When courts won’t help oppressed shareholders

Delay

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 [2014].  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!

Contrary to the interests of the shareholders as a whole 

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). 

More actions that are not oppressive

According to John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia) Pty Ltd (1991) (Starr), these actions are not oppressive:

  • not granting the wishes of the minority because they did not have voting power is not itself oppressive; and
  • A shareholder losing confidence in company management.
Disagreements are not oppressive 

If a shareholder simply disagrees with a decision of majority shareholders and directors, they aren’t being oppressed.

Being a minority

Also, simply being a minority shareholder does not constitute oppression: Shelton v NRMA Ltd (2001). 

Director pay 

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 [2004] was not oppressive.

Legal action 

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. 

What do the courts say is 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:

  • oppressive conduct;
  • unfairly prejudicial; and 
  • unfairly discriminatory.

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.

Which case still matters?

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.

When courts help shareholders 

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.

Conduct
  • Persistent illegal conduct towards a shareholder: Re Tivoli Freeholds Ltd [1972];
  • Director conduct: director conduct will be unfair if there is insufficient commercial value to outweigh any possible conflict of interest: Jenkins v Enterprise Gold Mines NL (1992);
  • Personal interests: If directors put their own interests first to the detriment of the company or shareholders: Re Bright Pine Mills Pty Ltd [1969]. The director’s must have been acting in their capacity as directors;
  • Failure to litigate: Re Overton Holdings Pty Ltd [1985];
  • Appointing a voluntary administrator to close the business and harm minority interests: Saykan v Elhan [2004];
  • Attempting to dilute shareholdings to remove 50% shareholder and director from a position of control: Harrington v Sensible Funerals Pty Ltd (2007);
  • Cancellation of membership to prevent a shareholder from being elected to the board: Australian Securities Commission v Multiple Sclerosis Society (Tas) (1993);
  • Constitution: if a constitution allows discretionary powers, there may be oppression in the way the power is managed: Donaldson v Natural Springs Australia Ltd [2015];
  • Using company money to pay for the costs of majority shareholders: Re D G Brims and Son Pty Ltd (1995).
Meetings 
  • Failure to call meetings: Martin v Australian Squash Club Pty Ltd (1996);
  • Preventing minority shareholders from participating in meetings: John J Starr (Real Estate) Pty Ltd v Robert R Andrews (Australasia) Py Ltd (2007);
  • Misappropriation of business opportunity: Re Bright Pine Mills Pty Ltd [1969] and Sanford v Sanford Courier Service Pty Ltd (1986);
  • Misappropriation of company funds: Cowling v Mekken [2015];
  • Diversion of business opportunities from the company to a company associated with some of the company’s members: Catalano v Managing Australia Destinations Pty Ltd [2014]; and
  • Conduct by the majority shareholders requiring the plaintiffs to sell their shares at an undervalue, in contravention of the terms of a shareholder agreement: McCausland v Surfing Hardware International Holdings Pty Ltd [2013].
Votes matter as well 

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 [2014].

Conclusion

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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About the Author

Vivian Michael is a lawyer and founder of Michael Law Group. Vivian's mission is to make quality business legal services accessible to Australian businesses that would otherwise DIY, rely on legacy contracts or go without.

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