Minority Shareholder Oppression

Minority Shareholder Oppression Overview

Under section 232 of the Corporations Act 2001 (Cth) (“the Act”), shareholder oppression occurs when the conduct or proposed conduct of the company’s affairs, including by way of a resolution or omission, is oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members.

It refers to actions taken by the majority shareholders that unfairly prejudices the interests of minority shareholders.

Common examples of shareholders oppression

• An improper diversion of business/business opportunities by the majority shareholder(s) to an entity related to the majority, or conducting the affairs of the company to advance the interests of the majority, or to the detriment of the majority.
• Denying access to information, particularly where there is a company document (e.g. company constitution or shareholder agreement) that provides the shareholder a right to access or request information.
• Selling the shares held in subsidiary companies at a significant undervalue in the absence of minority shareholder consent.
• The sale of land or business assets on commercially unjustifiable terms.
• Payment of excessive remuneration to a majority shareholder(s) or an associate of a majority shareholder(s).
• A failure to prosecute the misconduct of a majority shareholder director where there are grounds to do so under the Constitution of the company.
• Issuing shares to a majority shareholder to further dilute the minority shareholders to reduce minority shareholder voting power.
• An improper exclusion from participation in the management of the company. For example, not allowing a minority shareholder director to attend a meeting of the board that is otherwise controlled by the majority.

The above is not an exhaustive list. If there is any breach of either director’s duties, derivative action or oppression action then legal advice should be your first step. There is a limit to the wide powers or discretion which exist within corporations and these powers should not be abused.

Available forms of relief

The Court may grant a remedy appropriate to the circumstances pursuant to section 233 of the Act.

The Court can make one or more of the following orders:

(a) that the company be wound up;

(b) that the company’s existing constitution be modified or repealed;

(c) regulating the conduct of the company’s affairs in the future;

(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

(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;

(h) appointing a receiver or a receiver and manager of any or all of the company’s property;

(i) restraining a person from engaging in specified conduct or from doing a specified act; and/or

(j) requiring a person to do a specified act.

Choosing the type of relief

When shareholder oppression claims are filed, consideration must be given to the type of relief the shareholder is seeking as part of their claim. There needs to be a balance between rectifying the oppressive conduct and/or advancing the interests of the company.

It may be that the appropriate remedy is as simple as requiring a person to do a specific act or restraining a person from doing a specific act. Oppression proceedings can be injunctive in the sense that if a decision has been made at board level but not yet implemented, a minority shareholder may seek to stop the implementation of the proposed act before it can cause them damage.

Key takeaways

Shareholder oppression occurs when the actions or proposed actions of majority shareholders unfairly prejudice or discriminate against minority shareholders rights. Examples include diverting business opportunities, denying access to information, or selling assets at undervalue.

If such conduct is identified, legal advice should be sought without delay, as there are various forms of relief available. The Court can make diverse orders, from modifying the company’s constitution to appointing a receiver or restraining specific actions. Please contact one of our lawyers for more information.