Member’s Remedies

Introduction:

• Types of remedies:

  • Statutory remedies:

    • Statutory derivative action Part 2F.1A

    • Oppressive conduct part 2F.1A

    • Injunction 1324

    • Winding up 461

  • Personal actions

  • Common law remedies are no longer important due to 236(3) which abolished the right of a person at general law to bring, or intervene in, proceedings on behalf of a company. The common law remedies are still relevant when members seek to enforce personal rights.

• In addition to remedies already discussed including:

  • Breach of statutory contract 140

  • The right to inspect book 247A

  • Remedies for unlawful variation of class rights 2F.2

  • Overcoming procedural irregularities that cause injustice 1322

• Derivative Actions and Oppressive Conduct compared:

  • Oppression emphasis the impact of conduct on the applicant / member (objective test) whereas derivative actions based on a breach of directors’ duties emphasis the directors’ knowledge and conduct

  • Oppression action considers cumulative effect of oppressor’s conduct whereas derivative action is concerned with specific wrongs

  • Standing under oppression remedy is not difficult to establish whereas need leave of court to bring derivative action

  • Court has wide discretion re appropriate relief in oppression actions whereas usual relief in successful derivative actions is monetary remedy for company

  • Costs orders not being made re derivative actions

Statutory Derivative Action Part 2F.1A (ss236-242)

1. Exhaustive code - s 236(3) precludes the bringing of derivative actions under general law

2. NB: This is NOT a personal legal action for the shareholder. Shareholders can take action on behalf of the company for a wrong done to the company.

3. General approach

   • Member requires leave to bring a statutory derivative action, and leave will only be granted if the court is satisfied it is in the best interests of the company and involves a serious issue to be tried

   • The benefits of the derivative action accrue to the company, not to the member who brings it – yet the member may be responsible for the costs of the litigation

   • Members right is derived from the company’s right

4. Who has standing?

   • S 237(1) – “A person referred to in paragraph 236(1)(a) may apply to the Court for leave to bring, or to intervene in, proceedings.”

   • S 236(1)(a) - the person is:

     • a member, former member, or person entitled to be registered as a member, of the company or of a related body corporate; or

     • an officer or former officer of the company

       • Note a member or officer could apply for leave in relation to conduct that occurred before they became a member or officer

   • S 236(2) – “Proceedings brought on behalf of a company must be brought in the company's name.”

5. When will leave be granted? s 237(2)

   • (2) The Court must grant the application if it is satisfied that:

     • (a) it is probable that the company will not itself bring the proceedings, or properly take responsibility for them, or for the steps in them; and

       • e.g., if the wrongdoers are on, or have a dominant influence on, the board.

     • (b) the applicant is acting in good faith; and

       • Involves at least two factors Swansson v R A Pratt Properties Pty Ltd

         • Honest believe that a good cause of action exists and has reasonable prospects of success; and

         • Applicant is not bringing it for a collateral purpose that would amount to an abuse of process.

       • Absence evidence of mala fide, assume bona fide

       • In considering these factors, examine the objective facts and circumstances, as well as the subjective assertions of the applicant Ragless v IPA Holdings Pty Ltd

       • Could be a lack of good faith if the action is designed to advance the applicant's personal interests rather than the interests of the company as a whole Chapman v E-Sports Club Worldwide Ltd; Chahwan v Euphoric

     • (c) it is in the best interests of the company that the applicant be granted leave; and

       • See rebuttable presumption

       • Swansson v R A Pratt Properties Pty Ltd (2002)): take into account all relevant circumstances, including:

         • the character and business (if any) of the company

         • the availability of alternative means to achieve the redress sought

         • the defendant’s ability to meet the judgment

       • Relatively high standard Swansson. The court must be satisfied that the proposed derivative action is on balance of probabilities in the best interests of the company.

       • Should enhance the value of the company - potential compensation to the company should outweigh the costs of the proceedings

       • Fact applicant may also have a personal interest that will be advanced is not of itself determinative that it is not in the best interests of the company Metyor Inc v Queensland Electronic Switching Pty Ltd

       • What if the company is in liquidation? Chahwan v Euphoric Pty Ltd

     • (d) if the applicant is applying for leave to bring proceedings - there is a serious question to be tried; and

       • Designed to prevent claims that are frivolous or vexatious [Explanatory Memorandum, para 6.46] – therefore standard is relatively low

       • Show an arguable case – court will not, at this stage, probe into the depth of the issues Chahwan v Euphoric Pty Ltd

       • Applicant is only required to show that proceedings should be commenced, not a high threshold Swansson

     • (e) either:

       • (i) at least 14 days before making the application, the applicant gave written notice to the company of the intention to apply for leave and of the reasons for applying; or

       • (ii) it is appropriate to grant leave even though subparagraph(i) is not satisfied.

         • Perhaps if the company is in liquidation

6. Rebuttable presumption – s 237(3)

   • “A rebuttable presumption that granting leave is not in the best interests of the company arises if it is established that:

     • (a) the proceedings are:

       • (i) by the company against a third party [defined in s 237(4) related party]; or

       • (ii) by a third party against the company; and

     • (b) the company has decided:

       • (i) not to bring the...

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