S. 232 of the Corporations Act (the oppression remedy) is one of the most important remedies that a member of a company has against a company. It is a very broad provision which seeks to protect members of companies from commercially unfair conduct carried on the company or the people that control the company.
Frequently breaches by directors of s. 181 (duty to act in good faith), s. 182 (duty to not use the position for improper purpose) s. 183 (Duty not to use information improperly) can amount to conduct which is not in the interests of the members of the company as a whole.
What is oppression?
Oppression includes unfairness where the unfairness results from abuse of majority power or control. This in practice can be a difficult concept. The Court’s have noted that:
- the mere subordination of the wishes of the minority by the exercise of the voting power of the majority is not oppressive;
- the acts of oppression must result from some overbearing act or attitude on the part of the oppressor;
- oppression may occur even though all members of a company may be treated equally;
- the mere fact that a member of a company has lost confidence in the manner in which a company’s affairs are conducted does not lead to the conclusion that he is oppressed; nor can resentment at being outvoted nor mere dissatisfaction with or disapproval of the conduct of the company’s affairs, whether on grounds relating to policy or to efficiency, however well founded.
What is unfairness and how important is it? The Court’s consider unfairness to be the most important issue to trigger s. 232. It has been said that unfairness may lie in harm suffered as a result of conduct of management and any prejudice caused by such conduct, a lack of reasonable commercial justification for the course undertaken, or simply in the company’s decision making processes.
The test for unfairness is whether the eyes of the commercial bystander the conduct would be seen to be so unfair that if reasonable directors were to consider the matter they would not have considered the matter fair.
Unfairness may be inferred where the transaction does not provide sufficient commercial value to the company to outweigh any possible conflict of interest on the part of directors of the company. It may also arise in circumstances where directors seek to conduct the company’s business in such a way as to advance their own interests or the interests of others of their choice to the detriment of the company or of other shareholders. It may also arise where a director may be excluded from management or in circumstances where the relationships between directors have irretrievably broken down and are no longer functional.
Examples of oppression
- Refusing to attend directors meetings
- Freezing out a director from management
- Appointing a voluntary administrator in an attempt to close the business and harm the minorities interests
- An unfair dividend policy and or the failure or refusal to revise a dividend policy
- Failure to call meetings
- Preventing minority shareholders from participating in meetings
- Attempting to dilute shareholder’s interests
- Cancellation of membership to try and prevent a person’s election to the board
- Payments to directors
- Misappropriation of a business opportunity
What can the Courts do about oppression?
The Courts can make the following orders:-
- That the company be wound up
- That the company’s constitution be modified or repealed
- That the company’s future conduct be regulated
- What the value of a person’s shares are and that a person’s shares be purchased and that the company’s share capital be reduced
- That the company or that someone on the company’s behalf, institute, prosecute, discontinute or defend proceedings
- Appointing a receiver or a receiver and manager to any or all of the company’s property
- Restraining a person from engaging in specified conduct – for example the holding of a meetingRequiring a person to do a specified act – for example requiring a company or its directors to convene a meeting.
Who can apply for an order?
- A member of a company
- A person improperly removed from the register of members of the company
- A person whom ASIC thinks is appropriate having regard to an investigation that ASIC is conducting into the company’s affairs or relating to the company’s affairs.
This is a very powerful and useful remedy in circumstances particularly in small proprietary companies where directors and or shareholders have fallen into dispute or their relationships have irretrievably broken down.