Oppression of a minority shareholder - a common dispute

Disputes between shareholders are common. In most companies, control rests with the majority, and the manner in which the directors and majority shareholders conduct the company’s affairs is often critical to its success.

Where directors or majority shareholders act in a way that unfairly prejudices, disadvantages or oppresses a minority shareholder, the minority shareholder may have a legal claim.

What is oppression of a minority shareholder?

To establish oppression, the conduct in question must be more than a decision with which the minority shareholder simply disagrees. There must be a lack of fair dealing or unfairly prejudicial conduct, although the conduct does not need to be unlawful.

Examples of oppressive conduct may include:

• excluding the minority shareholder from the affairs of the company;
• denying the minority shareholder access to information; or
• diverting a legitimate corporate opportunity to the majority shareholder or an associate.

What may a Court order if oppression is found?

If oppression is established, the Court has broad powers to make orders to resolve the dispute and protect the minority shareholder.

Those orders may include:

• that the company be wound up;
• that the company’s constitution be modified; or
• that the oppressed minority shareholding be purchased by the other shareholder or shareholders.

In many cases, a buyout order will involve a valuation of the shares on the basis that the oppressive conduct had not occurred.

The valuation process is often critical. The Court will commonly order an expert valuation at an early stage of the proceeding so that the real commercial position can be assessed promptly.

Lessons

A company must conduct its affairs in a way that does not oppress minority shareholders.

Where oppression does occur, court proceedings are often commenced. The Supreme Court has a list dedicated to these matters and is able to deal with them efficiently.

Hunt & Hunt is well equipped to advise in oppression matters. To discuss your circumstances, please contact Principal Catherine Ballantyne at [email protected] or on +61 3 8602 9200.