What can a shareholder of a company do, if they feel they are being unfairly treated or excluded from important decisions of a company?
When a company acts or proposes to act in a way that is contrary to the interests of its shareholders, or is oppressive, unfairly prejudicial to, or unfairly discriminatory against, a particular shareholder or shareholders, this conduct may fall foul of section 232 of the Corporations Act 2001 (Cth) (the Act). An aggrieved shareholder may make an application under this section to cure the unfair treatment or conduct.
The unfairness test is objective
The language of section 232(e) (“oppressive to, unfairly prejudicial to, or unfairly discriminatory against”) requires there to be, at minimum, unfair conduct according to ordinary standards of reasonableness and fair dealing.[1] The test is whether, objectively in the eyes of a commercial bystander, there has been conduct that is so unfair that reasonable directors would not have thought the conduct fair. Answering this question will not depend on the motives for which the conduct or act is done – rather, what is relevant is the effect of the conduct or act. In that regard, acts done by persons who think they are acting properly may still be found to be oppressive.
Members may seek a wide range of orders from the Court, which include the grant of authority to institute proceedings on behalf of the company, injunctive relief, or, in the most extreme cases, an order that the company be wound up.[2] The Court has wide discretion to determine the appropriate remedy in each particular case.[3] Despite this, the Court must choose a remedy that is the least intrusive, and granting orders to wind up a company is usually a last resort.[4]
Courts must come to a conclusion about oppression or unfair prejudice at the time that proceedings were commenced, and their determination of the relief must be contemplated at the date of the hearing. An illustrative example of this in practice can be found in the case of Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304. In this case, the High Court noted that wrongfully excluding a shareholder from managing the affairs of a corporation could be a form of oppression. Despite this finding, the Court refused to grant the relief sought as the company had appointed a provisional liquidator, which caused the oppressive conduct towards the shareholder to cease.
Another instance of oppressive conduct includes the dilution the shares of a minority shareholder, resulting in gains to other shareholders. In this case, more appropriate relief may be for the aggrieved party to seek orders from the Court to compel the other party(ies) to purchase their shares.
Can I apply for relief?
If you are a member of a company and are subject to oppressive conduct, you may have standing to make an application to the Court to seek relief pursuant to section 232 and 233 of the Act. Generally speaking, the intent of any such application is to intervene in the affairs of a company, in circumstances where an aggrieved party does not have the power itself to prevent the oppression. This is most commonly the case where a party is a minority shareholder, but does not have the voting power to prevent the conduct.
If you have any queries regarding shareholder oppression, please get in touch with the experienced team at EMS Legal.
[1] Catalano v Managing Australia Destinations Pty Ltd (2014) 314 ALR 62, [9].
[2] Corporations Act 2001 (Cth) s 233.
[3] Munstermann v Rayward; Rayward v Same [2017] NSWSC 133.
[4] United Rural Enterprises Pty Ltd v Lopmand Pty Ltd [2003] NSWSC 910.