Where are my rights? The oppressive conduct regime for shareholders under the Corporations Act 2001 (Cth)

Being a shareholder of a company requires investment and can often come with significant responsibilities and decision making powers regarding the day to day operation of a business. In return for such investment, shareholders are often provided with various rights including the capacity to attend shareholder meetings, voting rights over key issues, access company reports and announcements, and the receipt of dividends and other distributions to name a few.

However, what happens when such rights are being curtailed?

The rights of the shareholder are protected by virtue of both the law under the Corporations Act 2001 (Cth) and through the company constitution itself.

Under the Corporations Act shareholders have various avenues to enforce their rights. An important avenue for shareholders is the ‘oppression remedy’. The oppression remedy seeks to ensure that minority shareholders are not unfairly discriminated against by persons that have control of the company. The remedy is particularly relevant if the company is unlisted.

The oppression remedy provides the Court with the power to make orders to remedy conduct that it deems to have been oppressive or unfairly prejudicial to, or unfairly discriminatory against a shareholder of the company[1]. Such circumstances are referred to as being “oppressive”.

So, what is oppressive conduct?

There is no single definition by the Courts that outlines the boundaries of oppressive conduct. In determining whether oppressive conduct has taken place, focus needs to be placed on the question of fairness. This involves balancing the prejudice or detriment suffered by the shareholder against the benefit provided to the company as a whole. As part of this balancing exercise, the Court may look at the conduct of the parties over an extended period, rather than one specific occasion.

Examples of oppressive conduct

It is worth noting that the mere disagreement between parties is generally not sufficient to say that oppressive conduct is present. There are certain types of behaviours and/or actions that the Court has deemed to be oppressive, including:

• The improper diversion of business of the company by a person to themselves, their associates, or a business that they control.
• The misuse of company funds, that is not in line with the best interests of the company.
• Refusing to register share sales or transfers of the company in bad faith.
• Unfair conduct with respect the Board meetings of the company, which may include:
• Amending the company constitution to the remove the right of a shareholder to appoint independent directors to the Board of the company;
• The repeated refusal to call directors’ or members’ meetings of the company;
• Boardroom tactics which are employed to prevent someone from participating in Board meetings of the company.
• Share restructures of the company that are conducted in bad faith.
• Refusing to give shareholders or directors access to information, such as books and financial records, where it is reasonable to do so.
• The improper exclusion of a person from the management of the company, particularly where the company is a joint venture vehicle.
• Unfair conduct with respect to the dividend policy of the company.
• Any breach in the duties of the directors of the company.

What orders may the Court make?

The Court may make any order that it considers appropriate to remedy the oppressive conduct that has taken place. Due to this, any order made by the Court will specific to the circumstances, and what is just and equitable in those circumstances, including the winding up of a company or the amendment of the company constitution. The Court may also sanction those who have acted in a manner deemed to be oppressive.

What do I do now?

The first thing to do if you feel that your rights as a shareholder may have been oppressed is to seek legal advice. Issues around shareholder rights and oppressive conduct can often be resolved by way of negotiation, however sometimes Court proceedings are required. Our Litigation & Dispute Resolution Team at Coulter Legal are experienced in providing advice in respect of oppressive conduct and working with clients to resolve matters in an efficient and time-effective manner.

[1] Corporations Act 2001 (Cth) s 232.