Shareholder oppression - protecting your rights as a shareholder

When you invest your time, money and energy into a company, you expect to be treated fairly and to have your rights as a shareholder respected. But what happens when those rights are ignored, or worse, actively undermined? Shareholder oppression is a serious issue that can have significant financial implications. If you suspect that your rights are being compromised, it’s important to act promptly to protect your interests.

What is shareholder oppression?

Pursuant to section 232 of the Corporations Act 2001 (Cth) (the Act), conduct or proposed conduct of a company’s affairs is oppressive if it is:

• Contrary to the interests of the members as a whole; or

• Oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members whether in that capacity or in any other capacity.

If the Court finds that conduct or proposed conduct is oppressive, it has the power under section 233 of the Act to grant relief it considers it appropriate in relation to the company.

What constitutes oppressive conduct?

The overarching principles of sections 232 and 233 remains in the High Court case of Wayde v New South Wales Rugby League Ltd [1985] HCA 68, where Brennan J outlined the following principles:

• Proof of oppression or proof of unfairness is required. Proof of mere prejudice or discrimination against a member is insufficient to attract the Court’s jurisdiction to intervene;

• Prima facie, it is for the director (and not for the Court) to decide whether the furthering of a corporate objective which is contrary to a member’s interests should prevail over those interests or whether some balance should be struck between the competing interests;

• The director’s view is not conclusive but is an element in assessing whether a member has been treated unfairly; and

• Whether conduct is unfair is a question of fact and degree for the Court, taking into account the directors’ views and their particular skills and expertise.

Ultimately, the test of unfairness is objective. It requires the Court to adopt the position of the commercial bystander and question whether there has been unfairness, namely conduct that is so unfair that reasonable directors would not have thought the conduct or decision to be fair.[1]

Further, the Courts have held that conduct that is oppressive does not depend upon the motives behind the actions. Rather, it is the effect of the acts on the affected member that is material.[2]

Examples of oppressive conduct

Oppressive conduct can take many forms, and the Courts have provided guidance on what may be considered oppressive, unfairly prejudicial, or unfairly discriminatory. Some examples include:

• Exclusion from management of the company including minority shareholders, especially where there is a right or expectation of participation[3]

• Being prevented from accessing information of the company

• Unfairly refusing to declare dividends to the company despite company profits

• Misappropriation of company funds

• Unfairness arising from a breach of collateral agreement

• Directors or shareholders diluting other shareholders’ shares in the company

• Another director diverting the business opportunities to another company, in which certain shareholders have no interest in, without their consent.

It is important to note that this list is not exhaustive, and other forms of conduct may also be deemed oppressive depending on the circumstances.

Who can make an oppression claim?

Section 234 of the Act outlines who is entitled to make an application for relief under section 233. This includes:

• current shareholders and directors;

• former shareholders and directors;

• persons removed from the register of members; and

• individuals deemed appropriate by the Australian Securities Investment Commission (ASIC) based on its investigations into the company’s affairs.

What relief is available?

Section 233 of the Act provides that the Court can made any order it considers appropriate in relation to the company to relieve the shareholder of the oppression. This includes, but is not limited to orders:

• that the company be wound up;

• that the company’s existing constitution be modified or repealed;

• regulating the conduct of the company's affairs in the future;

• for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

• for the purchase of shares with an appropriate reduction of the company's share capital;

• for the company to institute, prosecute, defend or discontinue specified proceedings;

• authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;

• appointing a receiver or a receiver and manager of any or all of the company's property;

• restraining a person from engaging in specified conduct or from doing a specified act; and

• requiring a person to do a specified act.

The objective of section 233 of the Act is to provide the Court with a wide discretion to do what is considered fair and equitable, in all the circumstances of the case, in order to put right and cure, for the future, any unfair prejudice that a member has suffered in relation to the conduct of the affairs of the company.[4]

Insights from Court decisions

The following cases highlight the circumstances under which the Courts have found conduct to be oppressive or not, and the remedies available in such situations:

• In Re Rafic Pty Ltd [2017] NSWSC 1013, the Court reiterated and reaffirmed that the breakdown of shareholder relationships, including situations where disgruntled and frustrated minority shareholders are unable to sell their shares, is insufficient to establish a case of oppression.

• In Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104, the Court reiterated that a mere breakdown in personal relations is not sufficient by itself to establish oppression. However, it may be a relevant factor when combined with other circumstances.

• In Millsave Holdings Pty Ltd v Connective Group Pty Ltd [2023] VSCA 326, the Court held that once oppressive conduct is established, the appropriate remedy should be the minimum relief that is necessary to neutralise the effect of the oppression.

• In Morara Pty Ltd v Kingslane Property Investments Pty Ltd [2024] WASCA 123, the Court clarified that the statutory concept of oppression is rooted in the principles of equity. The Court emphasised that while it may preserve the foundational understandings upon which the members of a company became associated, it does not have the authority to re-write those understandings.

How we can help

If you’re facing challenges as a shareholder or have concerns about potential oppression, 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

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