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Company Members’ Rights and Remedies – Part One

Introduction

Many investors see companies as an effective legal entity to carry out business ventures as compared to partnerships and joint ventures. Companies are easy to set up. Whilst business partners tend to enjoy a harmonious relationship at the beginning of their venture, it is sometimes not ever-lasting. The decision-making power of a company generally rests with its majority members, whether it is a decision about the company’s general policy by the board of directors or the removal or the appointment of a director by the shareholders. Some shareholders may end up being “bullied” by others using their decision-making power afforded by the constitution or shareholder agreements.

The first part of this series of articles will look at the rights and remedies of oppressed company members.

What is Oppression in a Legal Sense?

Fortunately, minority shareholders may find help from bringing an action for oppression.

The first legislated oppression remedy can be found as early as the 1940s in the United Kingdom’s Companies Act 1948. The modern oppression provisions in Australia now exist in section 232 of the Corporations Act 2001 (Cth), which reads as follows:
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“The Court may make an order under section 233 if:

a) the conduct of a company’s affairs; or
b) an actual or proposed act or omission by or on behalf of a company; or
c) a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

a) contrary to the interests of the members as a whole; or
b) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.”

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In the context of minority shareholders, put simply, if other members of the company and/or the company take or omit to take actions that result in some form of prejudice, discrimination, or oppression towards the minority members, appropriate orders may be made by the court.

What Actions Are Oppressive?

It can be difficult to summarise which conduct is considered to be oppressive and which is not. This is because whether actions amount to be oppressive is viewed objectively and depends on the degree and all the surrounding facts. Some examples include:

a) A majority shareholder who is also a director of the company, treating the company as his own and taking actions on behalf of the company solely for his personal benefit;
b) A member who had a managerial role was denied management rights or excluded from participating in management meetings;
c) Applying tactics that limit other members’ power to make decisions and to their disadvantage;
d) Denying payment of dividends to a particular group of members;
e) Making excessive payments to other members; and
f) Issuing new shares to dilute minority shareholders’ shareholding interests.

The legislation affords this protection to members of a company. This means you may find relief by bringing an action for oppression even if you are a director with no shareholding interests or a shareholder with no voting rights.

What Are Your Options?

If you think you have been unfairly oppressed, you should immediately start assembling evidence and obtaining copies of documents that support your claim.

You may be entitled to one of the remedies for oppression actions, including:

a) Orders to regulate future conduct or implement further management mechanisms;
b) That the company is wound up;
c) The oppressed shareholder’s shares are purchased by other shareholders or the company; and
d) Orders to do or not do a certain thing.

Are you feeling oppressed by your business partners or other directors of the company? Talk to one of the commercial litigation lawyers here at Ryan Murdoch O’Regan and discuss your rights.

Contact Us

Get the best representation. Contact our expert commercial litigation lawyers on 1800 999 529, email mail@rmold.newwebsite.live or submit an enquiry below.

We are available to meet with you at any of our local offices (Brisbane, Gold Coast, Beenleigh, Cleveland and Jimboomba) or by telephone or video-conference.

This article is for your information and interest only. It is not intended to be comprehensive, and it does not constitute and must not be relied on as legal advice. You must seek specific advice tailored to your circumstances.

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