Shareholder disputes and oppression

Aug 31, 2020 Ben

Minority shareholders do not hold sufficient votes to influence certain decisions made by a company. As such, where the affairs are being conducted oppressively, it may be necessary to consider brining a claim for oppressive conduct. The article below introduces the topic of shareholder oppression. 

Introduction to Shareholder Disputes

1. Just because you own shares in a company does not mean you can manage how the company is run on a day to day basis as that is typically left to the board of directors. However, as a shareholder you do have certain rights including the right to vote at general meetings. Normally, most companies function reasonably well with the management decisions left to the directors, however, issues do happen especially once money and power are thrown into the mix. Some of the problems that do arise include:

  • dishonest directors who take benefits improperly
  • a deadlocked company that cannot make decisions properly at board level
  • a dysfunctional company that cannot even get the basics right, and
  • oppressive conduct by the majority shareholders. 

What does shareholder oppression mean?

2. Traditionally, oppression meant the existence of unfair conduct. However, the Corporations Act 2001 (Cth) by s 232 targets conduct follows:

232 Grounds for Court order
…:
(a) …; or
(b) …; or
(c) …;
is either:
(d) contrary to the interests of the members as a whole; or
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
…

Minority shareholders are typically the victims

3. Shareholder oppression is mainly focused on the rights of minority shareholders. 
4. As a matter of logic, the majority shareholders would usually be in a position to do something about problematic conduct by reason of being able to exercise their voting rights. 

Is oppression still available if a liquidator is appointed?

5. In short no, however, if it is a provisional liquidator then the remedy may still be available.

Procedurally, what is involved in an oppression claim?

6. To bring an oppression claim you will need a court application, and affidavit in support and in some cases expert valuation evidence. 

What will be of interest to your lawyer in an oppression claim?

7. From a legal point of a view, there are quite a few things of interest including:

  • what made the conduct “oppressive” or contrary to the interests of members as a whole?
  • does the claimant have standing to bring a claim?
  • are the proceedings brought (or to be brought) in the Federal Court of Australia or in the Supreme Court of NSW, and if so what are the preliminary steps involved?
  • who should be joined as defendants?
  • what does the “plaintiff” want out of it i.e. purchase of shares or something else. 

What are examples that may attract this type of shareholder remedy?

8. If, contrary to the interests of members as a whole, the following applies:

  • corporate opportunities are taken for personal interest
  • the company engages in pointlessly wasteful conduct
  • etc. 

How does Litigant help minority shareholders?

8.4. We can help you by: 

  • explaining the cause of action in great detail 
  • looking at alternative options including derivative actions or alternative dispute resolution
  • considering whether the facts of your case mean you are likely to have a remedy
  • instructing counsel to settle your pleadings
  • assisting your oppression case each step of the way. 

8.5. Alternatively, we can assist majority shareholders who want to consider their options for opposing oppression proceedings. 

8.6. Our commercial litigation lawyers typically help with cases that involve more than $100K and where the minority shareholders are in a position to fund the litigation. 

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