Oppressive conduct proceedings for Pty Ltd’s minority shareholders

As a shareholder in a company (“Pty Ltd”) you may find yourself involved in management and / or holding a minority of the votes and have little, if any, control or influence over the Pty Ltd which may result in decisions being made or activity contrary to your interests and consequentially loss or damage to you.
Part 2F of the Corporations Act 2001 (Cth) (“Act”) introduces a recourse in these circumstances known as oppressive conduct proceedings.

  1. What is Oppressive Conduct?
    (a) conduct of a Pty Ltd’s affairs;
    (b) act or omission (actual or proposed) by or on behalf of a Pty Ltd; or
    (c) resolution (actual or proposed) of members or a class of members of a Pty Ltd;
    is either:
    (d) Contrary to interests of the members as a whole; or
    (e) Oppressive to, unfairly prejudicial to, or unfairly discriminatory against, member(s),
    Then oppressive conduct may be ordered by the Court .
  2. When has Oppressive Conduct Occurred?
    The Court examines all your relevant facts and circumstances and applies an objective test of whether the conduct adheres to accepted standards of corporate behaviour or is in accordance with how reasonable directors would act in attending to the affairs of the Pty Ltd to determine if the oppressive conduct above has occurred.
    Examples of oppressive conduct:
    Mopeke Pty Ltd v Airport Fine Foods Pty Ltd
    Facts • Langerlow family owned 60% of shares ($3,600,000) and Bradfield family 40% ($1,440,000)
    • Three Directors (2 Langerlow and 1 Bradfield)
    • Bradfield director resigned and brought oppressive conduct proceeding on grounds forced to resign given he was not included in the Pty Ltd’s management.
    Held • Bradfield was successful as it was found unfair or oppressive conduct as Pty ltd operated as quasi-partnership between two families and it was unfair to exclude Bradfield from day-to-day management of company affairs.
    Remedy • Langerlow to purchase Bradfield 40% of shares ($1,440,000).
    Vigliaroni & Ors v CPS Investment Holdings Pty Ltd & Ors
    Facts • 33% ownership between three owner/controllers through their respective family trusts with each having a corporate trustee.
    • One-unit holder commenced oppressive conduct proceeding on several matters including denied access to information and that the director who had seized control of the Pty Ltd had preferred his own interest to those of other members.
    • Unit Holder sought separation of parties’ interests to be effected by an order requiring the Defendant to sell to their shares of the trustee company and units in the trusts to him at a fair value.
    Held • Oppressive conduct includes where a member of trustee company is acting in that member’s capacity as a beneficiary of the trust of which the company is the trustee
    • The unitholder requesting and being denied access to Pty Ltd’s books and records was oppressive.
    • Pty Ltd’s funds used by Defendant to defend proceedings was not justifiable and oppressive.
    • Profit on loan account was paid to Defendant where mutual understanding of unit holders that profits would be loaned back to the trusts immediately upon distributions being declared.
    Remedies • Defendant’s resignation as director
    • Purchase of Defendant’s interests, including units held with parties to determine appropriate valuation (taking into consideration Defendant’s misappropriation and misuse of Pty Ltd’s funds and loan account).
  3. Remedies
    If oppressive conduct is established the Court (in their discretion) may order:
    (a) the Pty Ltd be wound up;
    (b) the Pty Ltd’s existing constitution be modified or repealed;
    (c) Conduct of the Pty Ltd’s affairs be regulated in the future;
    (d) Purchase of shares by member in certain circumstances;
    (e) Appointment of receiver;
    (f) Pty Ltd’s institute, defence or discontinue proceedings; or
    (g) Restraining or requiring a person to do a specified act .
    Compulsory winding up is also available if directors have acted in their interests rather than in the interests of the Pty Ltd as a whole and where the Court deems it just and equitable to be ordered .
  4. Jurisdiction

Oppressive conduct proceedings can be heard at the Federal Court, Family Court of Australia, Federal Circuit Court and the Supreme Court of Victoria .
Practice Note SC CC 8 (Supreme Court of Victoria) and Practice Note C&C1 (Federal Court) set out procedure for bringing oppressive conduct proceedings.
Please contact Elamine Lawyers if you require further details or want to discuss your circumstances.

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