What is the oppression remedy

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.

Conclusion

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.

Property ownership choices explained

In today’s real estate and investment world, there are many different groups of people purchasing properties. You may be investing with a spouse, a friend, a relative or a business partner. You may own property with a new spouse following the death of or divorce from a previous spouse or you may be buying your first property as husband and wife. Which form of ownership, should you be looking at to best suit your needs?

The two forms of property ownership to choose from are either a) “joint tenants” or 2) “tenants in common”. Whilst they sound rather similar, there are major differences between the two structures and not choosing the correct structure could have long-term ramifications.

Joint Tenancy

Joint Tenancy refers to ownership of a property by two or more people. Each owner holds an equal share. If one owner should die, his or her share will automatically go to the other owner (s) irrespective of any provisions made in their will. Instructions in a will cannot override joint tenancy. This form of ownership is commonly used for property owned by married couples and if for example, the husband should pass away, the wife then automatically obtains the husband’s share of the property.

Tenants in Common

Tenants in common is the alternative method for holding property. Tenants in common can be in equal or unequal parts. Should one owner pass away, his or her share of the property can be left to whomever they desire, as set out in their will. If there is no will then it forms a part of the deceased land owner’s estate and will be dealt with under the laws of intestacy.

If nothing adverse happens to the owners of a property during the period of ownership, there will be no problems but if the correct structure is not in place if something unforeseen then occurs, your wishes as to that property may not be upheld. Here’s an example. A woman loses her husband after many years of marriage. She and her husband had owned their home and had two children from the marriage. The children from that marriage were to inherit the property or the proceeds from it on their mother’s death. The woman marries again and she sells the original home. Together with her new husband who also has two children, they purchase another home. In this case, if they purchased the home as joint tenants, if the woman died, her new husband would inherit her share of the property and he may make a will which leaves all of his assets to his children when he dies. The woman’s children have now lost their inheritance. Had they purchased the home as Tenants in Common, each partner could have willed their share of the house to their own children, should they choose to do so. There can be agreements entered into that the remaining partner will continue to reside in the house until their passing and then the estate will be divided according to the will of each of the tenants in common.

Buying property with friends or business partners is another area where the correct decision regarding the form or ownership should be understood. Whilst you may be happy to purchase property with a friend, it does not necessarily follow that you would want them to inherit your portion of the property should you pass away.

In any situation where you are entering into the purchase of such a large asset, not only should you have a solicitor look over the purchase contract for you and undertake the correct searches for that property, but you should also ensure you have an appropriate succession and estate plan in place. Along with the correct form of property ownership and properly thought out and well implemented succession & estate plan will ensure your assets are distributed the way you wish and to whom you wish in the event of your death. Your estate plan should include consideration of a Will, Powers of Attorney and Enduring Guardianship.

Having the legal side of your life in order can make it so much easier for your family in the event of your death. Nobody plans it but it’s an inevitability.

Dooley & Associates will be happy to assist you in making the right decisions, that suit your circumstances in relation to any property transactions and or estate matters.

If you have any questions, please contact our office and one of our friendly staff will assist you with your enquiry.