• Latest News
  • Statutory Oppression Remedy Under the Corporations Act 2001 (cth)

Statutory Oppression Remedy Under the Corporations Act 2001 (cth)

Thursday, September 21, 2017

The law regarding the statutory remedy of oppression is contained in Part 2F.1 of the Corporations Act 2001 (Cth) (“CA”) which comprises sections 232 to 235.

-  Section 232 sets out when the court can make an order under s 233.

-  Section 233 sets out the remedies available under this Part, ie the orders the court can make.

-  Section 234 sets out who can apply for an order under s 233.

1.    Can the person apply for the oppression remedy - s 234

People who may apply are for the oppression remedy are:

-  Members may apply even if the application relates to an act or omission that is against a member in their capacity other than as a member (s 234(a)(i)) or another member in their capacity as a member (s 234(a)(ii)). 

-  Former members may apply if - They are a person who has been removed from the register of members because of selective capital reduction (s 234(b)); or they are a person who has ceased to be a member if the application relates to the circumstances in which they ceased to be a member (s 234(c)).

2.    You may also apply if:

*    The applicant was not a member at the time of the relevant conduct; it is enough that they are members as the time of brining the the application: Re Spargos Mining NL (1990) 3 ACSR 1. This has been confirmed in s 234(a).

*    A majority shareholder will not be excluded from brining an application; however a court may be reluctant to grant it because of the expectation that a majority shareholder would have the remedy of the general meeting. However there have been cases where even the sole shareholder of the company has had a successful application: Gooze v Graphic World Group Holdings Pty Ltd (2002) 42 ACSR 534.

*    If the applicant is seeking an order not with the genuine object of obtaining the relief claimed, but with the predominant object of exerting pressure to achieve a collateral purpose, the court will dismiss the application as being an abuse of process: Re Bellador Silk Ltd [1965] 1 All ER 667.

*    A minority shareholder cannot bring an oppression action where the company is in liquidation – rather the liquidator should bring the action on behalf of the company, or the members may apply to the court for authority to bring an action in the company’s name or compelling the liquidator to bring an action on such terms of indemnity as the court considers appropriate: Zempilas v J N Taylor Holding Ltd (in liq) (No 6) (1991) 5 ACSR 28 per Debelle J at 30.

3.    Is it a situation where the court can make an order under s 233?

Does the action relate to either of the following?

a.    The conduct of the company's affairs (s232(1))

Section 53 states that the affairs of a company include, but is not limited to (ASC v Lucas (1992) 36 FCR 165):

*    The establishment, membership, control, business, trading, transactions and dealings, property liability and finances of the company: s 53(a).

*    The internal management and proceedings of the company: s 53(c).

*    The ownership of shares in the company (s 53(e)) including the circumstances under which a person bought or sold shares in the company (s 52(h)).

*    Matters concerned with the ascertainment of persons who are or have been financially interested in the success or failure of the company or are or have been able to control or materially influence the policy of the company: s 53(g).

Limitations:

-  It must be the company’s affairs – for example, an expectation that a shareholder would not sell his or her shares without the consent of the other shareholders does not relate to the affairs of the company: Re Leeds United Holding Plc [1996] 2 BCLC 545.

-  It remains unsettled whether the affairs of a related company can be the affairs of the company defending the oppression action.

b.    An actual or proposed act or omission by or on behalf of the company (s 232(b))

Here, it is not necessary to establish that there was a breach of directors’ duties: Wayde v NSW Rugby League [1985] HCA 68.

c.    A members resolution (or proposed resolution) (s 232(c))

Again, it is not necessary to establish that there was a breach of directors’ duties: Wayde v NSW Rugby League.

4.    The application must still satisfy s 232(d) or (e)

Once you have established that the conduct in question relates to either s 232(a), (b) or (c), you must still establish that it is either:

*    Contrary to the interests of the members as a whole: s 232(d) – this is typically met in the case of a breach of directors’ duties; OR

*    Oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in another capacity: s 232(e).

Oppressive conduct” is to be interpreted narrowly and focuses on the nature of the conduct rather than its effect. It includes conduct which “lacks the degree of probity which the members are entitled to expect in the conduct of the company’s affairs”: Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042.

As regards “unfairly prejudicial” or “discriminatory conduct”, merely prejudice or discrimination is not enough: Wayde v NSW Rugby League. The court must determine whether a reasonable board would have decided that is was unfair to make that decision. The court will give respect to the decision of the board where there is nothing to suggest unfairness: Wayde v NSW Rugby League. Where there is a visible departure from the standards of fairness the court may itself be required to decide where the balance of competing interests lies: Wayde v NSW Rugby League.

According to Wayde there will not be unfair prejudice or discrimination where simply the following is proven:

-  The directors in a company are expressly empowered to prejudice one of its members;

-  The directors exercise that power; and

-  The directors act in good faith and for proper purpose.

NB: the consideration here is the impact of the action, not the motive.

It is not necessary that the oppression be continuing at the time of the application or the time of the hearing, but that will be relevant to the type of relief granted: Re Spargos Mining NL.

Examples of oppressive and unfair conduct:

*    Improper diversion of business: Scottish Co-op Wholesale Society Ltd v Myer [1959] AC 324; Re Bright Pine Mills Pty Ltd [1969] VR 1002

     -   Where a director of a company or the majority members of a company divert business opportunities to themselves or to other companies which they control, but in which the minority member bringing the oppression action has no interest.

     -   The diversion of business opportunities may also involve a   breach of the fiduciary duties of directors.

*    Improper exclusion from management: Hogg v Dymock (1993).

This will attract relief where it is not in accordance with the company’s constitution.  Even if it is in accordance with the constitution, an exclusion may be oppressive where it is inconsistent with a common understanding between members outside the company’s constitution which gave rise to a member’s legitimate expectation of participating in management: see Hogg (above).

*    Unfairly restricting dividends – minority excluded from management and excessive remuneration paid to directors out of profits: Sanford v Sanford Courier Service Pty Ltd (1987) 5 ACLC 394.

     -   NB: a decision by directors to pay themselves large bonuses and fees it not necessarily oppressive and unfair. It may be fair where the company’s profitability had increased significantly because of their enterprise.

     -   NB: a bona fide decision by directors to adopt a conservative financial policy and not pay high dividends is not oppressive if agreed to by the majority of members in the absence of any other factors pointing to unfairness: Thomas v HW Thomas Ltd (1984) 2 ACLC 610.

*    Corporate wrongs: Re Spargos (as above); Jenkins v Enterprise Gold Mines NL (1992) 10 ACLC 136; Re Dalkeith Investments Pty Ltd (1985) 3 ACLC 74.

     -   Applies where directors breach their fiduciary duties and their actions can be held to be oppressive or unfair.

5.    Does the applicant have 'clean hands'

Although this is not an independent requirement, it will be relevant to whether the conduct complained of is unfair or it may affect the exercise of the court’s discretion in relation to whether it grants an order under s 233 and, if so, the type of relief the court thinks is appropriate.

6.    Orders which may be granted

Although this is not an independent requirement, it will be relevant to whether the conduct complained of is unfair or it may affect the exercise of the court’s discretion in relation to whether it grants an order under s 233 and, if so, the type of relief the court thinks is appropriate.

Section 233 confers upon the court the power to make such orders as it considers appropriate, including but not limited to those set out in s 233. The remedy/order that is the least intrusive that will eliminate the oppression should be considered by the court.

a.   An order that the company be wound up - s 233(1)(a)
If such an order is made, the provisions regarding winding up apply as if the orders were made under s 461 with such changes as are necessary: s 233(2).

Considerations which may justify this order:

-  Continuing animosity between shareholders

-  Risk of further oppression

-  Where the nature of the company’s activities are very limited in nature

b.   An order that the company's existing constitution be modified or repealed – s 233(1)(b)

If such an order is made, the company does not have the power under s 136 to change or repeal the constitution if that change or repeal would be inconsistent with the provisions of the order, unless the order sates that the company does have the power to make such changes or the company first obtains leave of the court: s 233(3).

c.  An order regulating the conduct of affairs of the company in the future – s 233(1)(c)

For example, in Re Spargos the court made orders:

*    Replacing the existing board of a listed company with a board chosen by the court: s 233(1)(c)

*    Extreme, but considered appropriate considering the serious mismanagement of the company

*    Altering the company’s constitution so as to secure the position of the court appointed board by deleting the articles that permitted the board or the members to remove and appoint directors and ordering that neither those articles nor any similar articles be introduced without the leave of the court

*    Directing the new board to investigate several transactions and initial legal proceedings where appropriate

d.   An order for the purchase of shares of any member by other members or by the company (with a reduction of capital)– ss 233(d) and (e)

This is the most common order where the applicant wants to leave the company.

NB: the difference between (d) and (e) – (e) is an order for purchase/buy back by the company with a consequent reduction of capital.

The valuation or buy out price set by the court can be done in a way that takes into account the conduct of the parties. The value of the shares is assessed by establishing what their value would have been but for the oppressive conduct: Rankine v Rankine (1995) 124 FLR 340.

e.    An order directing the company to institute, prosecute, defend or discontinue specified proceedings or authorising a member to do so in the name of and behalf of the company – s 233(1)(f) and (g)

NB: the overlap with this order and a statutory derivative action.

f.    An order appointing a receiver and manager of property of the company– s 233(1)(h)

This order is used, for example, where the oppression puts the company’s property in jeopardy: Re Enterprise Gold Mines NL.

g.    An order requiring a person to do a specified act or thing – s 233(1)(j)

This order is used, for example, to pay compensation to the company for wrongs done to the company if those issues can be dealt with by the court in the context of the oppression application. This order can also be used to alter or add to the constitution of the company: Re Spargos.

Liability limited by a scheme approved under Professional Standards Legislation.

Back to News

promo-footer.jpg