Shareholder oppression - inconsistency between the Act and company constitution

A company constitution is often treated as an internal governance document, but when it conflicts with the Corporations Act 2001 (Cth) (Act) or is applied in a way that affects shareholder rights, it can become central to a dispute. For directors and shareholders, these inconsistencies can create uncertainty around the validity of corporate decisions and, in some cases, form part of a broader claim of unfair or oppressive conduct.

This article follows our earlier piece, Shareholder Oppression: Protecting Shareholder Rights which examined the legal framework governing oppressive conduct and the remedies available to affected shareholders. In this article we explore how inconsistencies between the Act and a company’s constitution are addressed, and the circumstances in which they may become relevant in shareholder oppression claims.

The governance of companies in Australia is primarily regulated by the Act and, if one is adopted, the company’s constitution. The Act provides overarching statutory obligations and powers whilst a company constitution serves as a foundational document outlining the internal rules and procedures of the company. Although the two generally operate together, inconsistencies may arise between the provisions of a company’s constitution and the Act, particularly with respect to the powers and responsibilities of directors and members. Such inconsistencies may give rise to significant legal implications, including the potential for oppressive conduct towards members.

How the Corporations Act and company constitutions interact

The Act operates as the paramount legal framework governing companies in Australia.

Section 140 of the Act establishes that a company’s constitution and any replaceable rules, if adopted, have effect as a contract between:

• the company and each member;

• the company and each director and company secretary; and

• a member and each other member.

However, it is widely acknowledged that the contractual nature of a company’s constitution does not allow the constitution to override the Act. Where inconsistencies arise, the Act prevails due to its statutory authority.

The Act provides that companies are bound by mandatory provisions of the Act that cannot be displaced or modified by any such constitution. This includes sections 180 to 183 of the Act, which require directors to:

• exercise their powers and discharge their duties with the degree and care of a reasonable person;

• act in good faith in the best interests of the corporation; and

• act for a proper purpose.

Conversely, the Act also contains replaceable rules, which under section 135, may be displaced or modified by the company’s constitution. A company’s failure to comply with a replaceable rule is not, of itself, a contravention of the Act, however, the replaceable rules that do apply to a company operate as a contract.

Resolving inconsistencies

When inconsistencies arise between the Act and a company’s constitution, the resolution typically depends on the nature of the conflicting provisions. The following is important to keep in mind for directors and shareholders:

1. Mandatory provisions of the Act prevail

As noted above, the Act contains mandatory provisions that cannot be overridden, displaced or modified. Courts have consistently upheld this principle, ensuring that the statutory obligations remain enforceable even where they may be contrary to the provisions of a company’s constitution.

In Shafron v ASIC [2012] HCA 18, the High Court emphasised the mandatory nature of directors’ duties under the Act.

2. Interpretation in Harmony

Where possible, the Courts will seek to interpret the constitution and the Act harmoniously to avoid conflict and ensure that the Court does not unnecessarily intervene in, or otherwise take control of, the company’s management.

In HNA Irish Nominee v Kinghorn (No 2) [2012] FCA 228, Emmett J at [507] observed that the Court will not interfere with the traditional roles of directors and shareholders in managing and controlling a company, as provided for in its constitution, unless appropriate cause is shown.

3. Judicial intervention

In circumstances where disputes arise regarding the interpretation or application of inconsistent provisions, the Courts may intervene under their equitable jurisdiction to provide clarity. These judicial decisions often serve as precedents for resolving similar conflicts in the future.

Can inconsistency amount to shareholder oppression?

• Where a company’s constitution is inconsistent with the Act, the Act will prevail to the extent of the inconsistency;

• The exercise of powers contrary to the Act may be invalid;

• However, inconsistency alone does not automatically amount to oppressive conduct;

• A company’s exercise of its powers is not merely invalid because it is contrary to an express prohibition in the company constitution (section 125 of the Act);

• If conduct is found to be oppressive, the Court has powers to remedy such conduct, including by modifying or repealing a company’s constitution (section 233(1) of the Act).

For the purposes of sections 232 and 233 of the Act, the conduct of a company’s “affairs” is given a broad definition under section 53 of the Act. These include, amongst others:

• the promotion, formation, membership, control of the company; and

• the internal management and proceedings of the company.

The Court in Les & Zelda Investments Pty Ltd v Whitehaven Coal Ltd (No 4) [2026] NSWSC 107, in the context of shareholder oppression, cited Hoffman J in the landmark English Court decision, Re a Company (No 00477 of 1986) [1986] BCLC 376, as follows:

“But its application (section analogous to 232 of the Act) must take into account that the interests of a member are not necessarily limited to his strict legal rights under the constitution of the company. The use of the word ‘unfairly’ in s 459, like the use of the words ‘just and equitable’ in s 517(1)(g), enables the court to have regard to wider equitable considerations.”

In Morara Pty Ltd v Kingslane Property Investments Pty Ltd [2024] WASCA 123 at [130(d)], the Court provided the example that a common circumstance in which oppression or unfairly prejudicial conduct may be found is that in which a director has been excluded from management of the company, strictly in accordance with a company’s constitution, but contrary to the foundational understanding upon which the company was established.

Practical implications for directors and shareholders

The potential for inconsistencies between a company’s constitution and the Act underscore the importance of careful drafting to ensure that a company’s constitution aligns with the mandatory provisions of the Act.

For directors and shareholders, understanding the interaction between a company’s constitution and the Act is critical. Although an inconsistency will not, of itself, amount to oppressive conduct, it may become highly significant where it forms the basis of decisions affecting shareholders' rights or interests. In those circumstances, the Court's focus will be on the practical effect of the conduct and whether it is unfairly prejudicial, discriminatory or oppressive.

How we can help

Disputes involving shareholder rights, company constitutions and allegations of oppressive conduct often require careful consideration of both the statutory framework and the company's governing documents. If you have concerns about the operation of your company's constitution or believe your rights as a shareholder may have been affected by oppressive conduct, we’re here to help. Please do not hesitate to contact Christina Cavallaro or Haya Kaiyum at Bartier Perry to discuss your situation and find out how we can assist you in protecting your rights and interests.

Authors: Christina Cavallaro & Haya Kaiyum

See also: Shareholder oppression - protecting your rights as a shareholder

This publication is intended as a source of information only. No reader should act on any matter without first obtaining professional advice.