Shareholder remedies – minority oppression rules

Date: May 12, 2014
Document Type: Article

As one shareholder among many, you may often feel powerless and without influence in the decision making process of a company. This most often occurs when conduct or decisions advantage a large group of members to the detriment of a group of minority shareholders. In certain circumstances minority shareholders can seek a remedy for treatment which is regarded as ‘unfair’ or ‘oppressive’.

What constitutes oppression?

The existence of this protection for minority shareholders does not mean that every decision made in a company that you do not agree with will constitute oppression.

Oppression only occurs if, in the conduct of a company’s affairs, actions or omissions by or on behalf of a company or shareholder resolutions are either:

  • Contrary to the interests of the shareholders as a whole; or
  • Oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members.

Whether conduct is ‘oppressive’ or ‘unfair’ is interpreted narrowly by focusing on the conduct at the time when it occurred as opposed to the effects. The court will consider objectively whether a reasonable bystander (with commercial sensibilities) would have regarded the action as oppressive or unfair at the time it was made.

Examples of oppressive conduct

Oppressive conduct can be perpetrated by directors, majority shareholders, substantial shareholders or the company itself. A few examples of conduct that could be considered oppressive include:

  • Misuse of company funds
  • Improper share issue
  • Payment of excessive remuneration to directors
  • Unfair restriction of dividends
  • Improper diversion of business
  • Exclusionary or oppressive conduct at meetings
  • Denial of access to information

What can I do about it?

If you feel your rights as a member are being oppressed you can apply to the courts for an order. The courts have a broad discretion to make a variety of orders ranging from targeted relief such as repealing modifications in a constitution or restraining a person from engaging in specified conduct to more extreme remedies such as  winding up a company. It should be noted that courts tend to avoid winding up solvent companies if they can help it.

Can I apply?

Both current and former members of companies can apply to the court for an order.

Current members can apply on their own behalf even if the act was committed against them in a capacity other than a member. They can also apply on behalf another members so long as the conduct was committed against them in their capacity as a member.

As a former member, you can apply if you have been removed either due to selective reduction or some other reason related to your application.

In addition, you can apply in relation to oppressive conduct that occurred in the past and has now ceased or even threatened conduct. You do not need to have been a member at the time the oppressive conduct occurred.

Whilst the nature of a shareholding system means that you won’t always be happy with the decisions made, you should not put up with truly unfair conduct which takes advantage of your minority standing. If you think you have been affected by oppressive conduct, please do not hesitate to contact us for advice.

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