The avid readers of InDispute may recall that each year our commercial Litigation and Dispute Resolution team act in numerous shareholder dispute matters. These past 12 months have been no exception.
These disputes generally arise due to a break down in the relationship between shareholders (and usually the Directors) of a company, often with one of the shareholders being the oppressed.
We recently settled a shareholder dispute that was brought against our client’s company by its former shareholder.
In that matter, the former shareholder (who had sold his shares in the company a year before commencing the court proceeding) made allegations that he was pressured into selling his shares and that the sale which ensued was significantly below the real value of the shares.
The allegations were totally unfounded. There was no evidence to support the allegations of oppression, duress or that the consideration the shareholder received was less than the value of the shares. On the contrary, the evidence established that the value assigned to the shares was based on current and independent valuation.
The proceeding had been commenced due to the former shareholder suffering from a bout of ‘seller’s remorse’.
Whilst in that case it was evident that the former shareholder had not be oppressed. It is not always as simple to ascertain whether an act of oppression has occurred. This leads to an interesting question which is often asked: What constitutes oppression?
This question has been asked on numerous occasions by the Court. We have set out below some examples of what constitutes oppression (within the meaning of section 232 of the Corporations Act 2001 (Cth))
Examples of oppressive conduct
- Appointment of a voluntary administrator in an attempt to close the company and harm the minority shareholder’s interests
- Shutting-out a Director (who is also a shareholder) from the management of the company
- Refusing to attend Directors’ meetings
- Failure to call meetings
- Preventing a minority shareholder from participating in meetings
Examples of conduct which does not constitute oppression
- High remuneration of Directors
- Using companies funds to defend or commence court proceedings
- Paying Directors a bonus on top of their salary
- The mere exercise of power by the majority shareholders
- The restructure of a corporation to a new entity in which the minority shareholder had no interest in circumstances where the minority shareholder had agreed with the restructure
This article originally appeared in the autumn 2016 edition of InDispute. Other articles in this newsletter included:
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