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Corporations remedies for minority shareholders

Statutory Remedies for Oppression of Minority Shareholders

In companies controlled by a share structure, minority shareholders, who do not have a controlling stake in the Company, are often to a large degree at the mercy of the majority shareholders who hold a controlling stake. Often, special protections for minority shareholders can be found within the Company Constitution or a Shareholders Agreement.

However, there are also legal protections for shareholders are also built into Australian statute law, in particular, the provisions governing ‘oppressive conduct’ in Part 2F.1 of the Corporations Act 2001 (Cth) (‘The Corporations Act’). These provisions set out the grounds on which a shareholder may make an application for a court order, who may make a court order, and what remedies are available. As Commonwealth law, these protections apply to all companies subject to an Australian jurisdiction.

Standing

In order to apply for a court order, a person must have standing to apply. Typically, a person applying for a court order must be a member of the Company, or a person who has been removed as a member who is applying for a court order in respect of his removal, or any other person which ASIC (the regulatory authority for companies in Australia) deems appropriate. The full list of possible applicants can be found in Section 234 of the Corporations Act.

Grounds

A person who meets the requirements above can apply on grounds in section 232 of the Corporations Act for a court order on the grounds that the conduct of the company’s affairs, or any actual or proposed omission by or on behalf of the company, or any resolution or proposed resolution, is either:

  • contrary to the interests of the members as a whole; or
  • oppressive to, or unfairly prejudicial to, or unfairly discriminatory against, other members of the company, whether in capacity as a member or in any other capacity.

The case law has further developed tests for when conduct is ‘unfair.’ The test for unfairness is whether the ‘reasonable person’ would consider it unfair.The criteria for what a reasonable person might think are not clear cut, and each case must be considered on the individual merits.It is not enough for unfairness that one party is disadvantaged by an action; there must be an element of ‘unfairness’in the act which is more than the mere disadvantage.

Examples of unfair conduct can include but are not limited to:

  • Excluding minority shareholders
  • Redirecting business opportunities to oneself or one’s associates
  • Failure to consider minority shareholders’ requests and provide information due to them.

Unfair or oppressive conduct can include conduct technically permitted under the constitution of the company, so if you feel that you have been treated unfairly by a company of which you are a member, even if it is technically within the company constitution, it is still prudent to seek legal advice.

Available Remedies

The remedies available to a court under section 233 of the Corporations Act to assist oppressed parties are varied to address a variety of circumstances, and include but are not limited to:

  • that the company be wound up;
  • that the company's existing constitution be modified or repealed;
  • for the purchase of shares with an appropriate reduction of the company's share capital;
  • restraining or requiring a person to do a specific act

If you think that you have been subject to unfair or oppressive conduct as a minority shareholder of a company, please talk to one of our lawyers, who will be happy to advise you on the law and help you consider your options going forward.

Disclaimer: This publication is general information only and does not purport to provide legal advice. We do not accept responsibility for any losses for reliance upon this publication.

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