Two directors, Benjamin Aulich and Peter Woodhouse, unsuccessfully appealed a ruling that they had diluted Joanna Scott’s shareholdings through unjustified share issues and were personally liable to compensate her for the loss.
In October 2025, Scott v Aulich [2025] FCA 1329 was heard before Justice Angus Stewart, who had found that the directors had unfairly diluted Scott’s shareholdings through share issues made for an improper purpose.
Why Were the Share Issues Found to Be Oppressive?
The primary judge found that Aulich and Woodhouse engaged in oppressive conduct by issuing shares in ACL and APT, “for the improper purpose of diluting Ms Scott’s shareholding in order to minimise her interest in the company”.
Did the Directors Have a Genuine Commercial Reason for the Share Issues?
The Full Court considered that the funds raised circulated existing money within the group, the shares were issued at a significant undervalue, and Aulich’s failure to give evidence indicated that he could not provide a “commercial reason for the share issue in ACL rather than in other companies in the group”.
The appellants argued that the primary judge placed too much emphasis on Aulich’s intention to dilute Scott’s shareholding rather than objectively assessing whether the share issues were commercially unfair.
They also challenged the finding that there was no genuine commercial reason for the share issues, arguing that the primary judge had overlooked relevant financial information, despite the court finding that “the absence of any revision to the financial position was relevant”.
Why Did the Full Court Reject the Appeal?
The Full Court rejected all five of the appellants’ arguments, agreeing that the share issues were objectively unfair and stating that “constitutional authority to allot shares does not answer the oppression question”.
Section 233 of the Corporations Act gives the court discretion to grant appropriate relief for oppressive conduct, including compensation, even where the oppression is no longer ongoing.
The court upheld the order requiring the appellants to personally compensate Scott, with her shares valued at $710,800 at the time of the oppressive conduct, aiming to place her in the financial state she would have occupied absent the oppressive actions.
What is the Significance of the Decision?
The decision reinforces that directors cannot rely on their formal power to issue shares where the purpose or effect of the issue is to unfairly prejudice a shareholder. The Full Court confirmed that share issues made for the improper purpose of diluting a minority shareholder’s interest may constitute oppressive conduct, even where the directors have constitutional authority to allot shares. The judgment also highlights the court’s willingness to order directors personally to compensate affected shareholders where such relief is necessary to remedy the consequences of oppression.
Key Takeaways for Company Directors and Shareholders
- Directors’ powers must be exercised for a proper purpose. Even where a company’s constitution authorises the issue of shares, directors must ensure that share issues are undertaken for genuine commercial reasons and not to alter voting power or economic interests unfairly.
- Minority shareholders are protected from oppressive conduct. The oppression provisions in the Corporations Act 2001 (Cth) provide a broad remedy where conduct is commercially unfair, including where share issues dilute an existing shareholder’s interest.
- Commercial justification is critical. Directors should be able to demonstrate and document the business rationale for any capital raising or share issue, particularly where the issue affects existing ownership interests.
- Personal liability remains a real risk. Courts may order directors personally to compensate shareholders where their conduct causes loss and forms part of oppressive conduct.
- Relief is available even after the conduct has ended. The court’s powers under s 233 of the Corporations Act extend beyond stopping ongoing oppression and may include compensation designed to restore a shareholder to the position they would have occupied but for the oppressive conduct.
