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Class 18 Shareholders’ remedies: Oppression
Corporations Act ss 232-235.
CORPORATIONS ACT 2001 - SECT 232
Grounds for Court order
CORPORATIONS ACT 2001 - SECT 233
Orders the Court can make
(a) that the company be wound up;
(e) for the purchase of shares with an appropriate reduction of the company's share capital;
(f) for the company to institute, prosecute, defend or discontinue specified proceedings;
(g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(i) restraining a person from engaging in specified conduct or from doing a specified act;
(j) requiring a person to do a specified act.
(b) with such changes as are necessary.
(3) If an order made under this section repeals or modifies a company's constitution, or requires the company to adopt a constitution, the company does not have the power under section136 to change or repeal the constitution if that change or repeal would be inconsistent with the provisions of the order, unless:
CORPORATIONS ACT 2001 - SECT 234
Who can apply for order
Note 2: For selective reduction , see subsection 256B(2).
CORPORATIONS ACT 2001 - SECT 235
Requirement for person to lodge order
Note: For strict liability , see section6.1 of the Criminal Code .
Shareholders’ remedies: Oppression
Under Part 2.F1, a court may grant a much wider variety of orders to members where the affairs of the company are being conducted in a manner oppressive to them.
S232: Grounds for court order for oppressive conduct
S233: Range of orders available that the court can make
S234: Who can apply for an order
S235: Requirement for person to lodge an order
Thomas v HW Thomas Ltd: The terms “oppressive, unfairly prejudicial or unfairly discriminatory” in s232(e) overlap and should be read compositely.
Re Jeffrey: The requirement for the applicant shareholder to prove that some action was “unfairly prejudicial” or “unfairly discriminatory” is broader than “oppressive”, hence less onerous to prove.
Courts’ test for grounds for oppressive conduct:
Morgan v 45 Flers Ave. Pty. Ltd.: Whether objectively in the eyes of a commercial bystander, there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair.
Wayde v NSWRL: Test of unfairness. Whether a reasonable director weighing the furthering of the corporate object against the disadvantage, disability or burden, which their decision will imposes, would consider the decision not to be fair to impose it.
Case Law Application of “Oppressive”, “Unfairly Prejudicial and Discriminatory”
[8.200] Wayde v NSWRL Ltd (1985)- HCA
NSWRL incorporated to conduct rugby league competition. Objects included fostering and controlling the game and such action as may be conducive to its best interests. It gave authority to its board to determine which teams should participate in the competition. Decided to reduce the number of teams from 13 to 12, and Wests’ application was rejected. Wests brought action seeking relief against decision.
It is not necessarily unfair for directors in good faith to advance one of the objects of the company to the prejudice of a member where the advancement of the object necessarily entails prejudice to that member or discrimination against him
The Court must determine whether reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other, would have decided that it was unfair to make that decision.
There is no suggestion that the board failed to give regard to relevant considerations.
The decisions were made in exercise of power that is conferred to the board.
The board possessed special expertise and experience and power was exercised bona fide and properly – it was not unfairly prejudicial action. The decision to reduce the number of competitors and exclude Wests was taken with full knowledge of the disadvantage to Wests, but this was weighed against the dangers of a larger competition.
[8.205] Re G Jeffrey (Mens Store) Pty Ltd
Shareholding in 2 companies was passed through inheritance to 2 sons R and A (30%), 2 daughters (10%) and widow (20%). The widow and 2 sons became directors. Each son became MD of a company, but later R took over both companies because one company languished under A. R bought shares off his sister and treated the company as his own, supported by the widow. A became unhappy with R’s power. He also desired a greater distribution of dividends. Eventually, A tried to sell his shares to R, but the price offered was regarded as unrealistically low. A sought that R’s conduct in offering low dividends and retaining most of the cash as well as not offering a reasonable price for his shares were oppressive.
Defined “oppressive” in the same way as was done in Re HW Thomas Ltd (1983): “Oppression must import that the oppressed are being constrained to submit to something which is unfair to them as the result of some overbearing act or attitude on the part of the oppressor”.
In relation to the retention of profits, as long as MD was acting bona fide and acting in a manner in which he honestly was in the best interest of the company’s members – judge unprepared to take action.
Ongley J Re HW Thomas: “Fairness or unfairness of any conduct relating to the company’s affairs cannot properly be considered in relation to an individual shareholder except against the background of fair treatment of the whole body of the shareholders”.
In this case, no active wrong has been done to A – the business is conducted in substantially same manner prior to inheritance and applicant was not discriminated against as he was treated in same manner as other members.
The basis of A’s complaint is that he is required to abide by the decisions of the majority shareholders and directors which he disagrees with. There is nothing unfair about this, thus it cannot be said that he has been unfairly prejudiced.
Mere refusal by other shareholders to accommodate A getting his money out of the companies by purchasing his shares does not amount to conduct that is prejudicial or discriminatory.
Acting in a discriminatory manner means acting in a manner which makes a difference or distinction between one shareholder and another.
In this case, A was treated no differently to any other shareholder, thus A’s claims were disregarded.
[8.210] Thomas v HW Thomas Ltd (1984)- NZ COA
Founder had been first MD which under an article conferred all powers of the directors on him, and which required any other director to conform to his directions. Alan was now MD under the same article, holding 40 shares. Malcom held 1000 shares, and was not an employee of the company. Other members of the family held the balance of the shares. Financial management of the company was conservative with modest dividends, relying on internally generated funds for plant and industrial property. Malcom unsuccessfully moved a motion for certain assets to be sold, and invested in income earning investments. He then wished to sell shares, but nothing further ensued. He complained that he was locked into the company and that the conduct of its affairs were oppressive, unfairly discriminatory and prejudicial.
The detriment may be to the financial interests of the member or it may be conduct which is adverse to his interests in other capacities (e.g. exclusion from mgt).
Fairness was determined by looking at history and structure of company, and reasonable expectations of members
It is assumed that the company is carried on for financial benefit, but does not mean shareholder wealth maximisation is the overriding goal – as family company, such considerations will have to be borne in mind.
Issue here is that Malcolm is not complaining about exclusion from participating in management, only that the manner in which the affairs of the company have been conducted precludes him from obtaining proper commercial returns.
Whilst trading profits are inadequate, the ownership of valuable industrial property, and potential returns in the future years, and the fact that other members are satisfied, led the court to find the company’s actions were not oppressive, prejudicial or discriminatory.
(Reading Materials pp 26:1) Morgan v 45 Flers Ave Pty Ltd (1986)
It has been accepted, since Wayde, that one no longer looks at the word oppressive in isolation but rather asks whether objectively in the eyes of a commercial bystander there has been unfairness, namely conduct that is so unfair that reasonable directors who consider the matter would not have thought the decision fair.
A court now looks at sub-s 2(a) as a composite whole an the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion, namely commercial unfairness.
(Headnote in Reading Materials pp 27:1-2) Coombes v Dynasty Pty Ltd (1994)
Coombes was a minority shareholder of Dynasty. The majority of shares were held in interests associated with T. Dynasty claimed that T had caused affairs of D to be run in manner oppressive and unfairly prejudicial to C. These included a) unfair nature of proposed restructuring of D, b) failure to keep C informed of affairs and meetings and c) using money owed by C to company as a means of exerting leverage over C to purchase his shares for amount less than full value
Applied the test in Morgan.
The restructuring of the company disregarded minority rights, failure to provide information, and use of debt as...
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