When you are a shareholder in a company, you implicitly trust that the directors/management will conduct the business affairs properly and not in a manner that is unfairly prejudicial or discriminatory against a shareholder(s). But what happens when this is not the case and there has been improper conduct? The answer is that the shareholders may be able to bring oppression proceedings in the Supreme Court (or perhaps Federal Court).
This misconduct can potentially play out in a variety of ways including:
- Misuse of corporate funds
- Improper share issue
- Discrimination against shareholders
- Exclusion from management
- Withholding information
- Unprofessional or exclusionary board meeting conduct
- Unauthorized transfer of assets to another business entity
As a shareholder — especially a minority shareholder — you may feel vulnerable and powerless, but fortunately there are some safeguards and protections available to shareholders under the Corporations Act 2001. Specifically, when there is conduct that is unfairly prejudicial against a shareholder that member can bring proceedings seeking orders that may include orders that the company be wound up, that the constitution be modified or that the affected person’s shares be purchased and there be a method be applied for valuing the shares.
The courts have a wide discretion in these situations and each case is reviewed closely and decided on its own merits. In many cases the application will be by an originating process or if proceedings are already on foot then by interlocutory process. The costs of such an application can vary depending upon the evidence that needs to be placed before the court and whether the proceedings are contested.
Shareholder oppression can be a serious issue and bringing proceedings can be a complicated and expensive exercise. Litigant may be able to assist you in this type of corporate dispute, especially where the issues are significant and you are determined to have the problems addressed keeping in mind that legal costs can be substantial. If you would like to book a consult, simply call our litigation lawyers in Sydney, NSW at +61 2 8644 0663.
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