In today’s CLE Session, Special Counsel James d’Apice speaks on ‘Companies and Courtrooms: How Corporations Can Handle Things When Disputes Arise’.
Hello! It’s a very good afternoon to you. So I’ll say good afternoon to you on YouTube. I’ll say good afternoon to you on Facebook. And I’ll now say good afternoon to you on Instagram. Hello there. It is great to have your company. My name is James . I am a special counsel here at chamberlains law firm. I’m a lawyer and for the next half hour 45 minutes or so, we are going to have a chat together about. Corporate oppression or a discussion that I’ve described as the corporation in the courtroom. And before we get started, look, there are a lot of funny misconceptions about corporate law, that it’s all suits and it’s all banging on tables and having aha moments and eating bagels and this sort of thing.
Today, as many of you will have experienced, a lot of the corporations we speak about will be the sort of corporations that you and I encounter a little bit more in day to day life. Corporations that run small businesses, the corporations that are owned by families that might hold assets important to the family and that sort of thing.
So, a big part of today is that I don’t want any of us to be scared. I’m sitting around and talking about corporations. You know, as far as the law is concerned, corporations are just like you and me. And so we’re going to talk about the corporation in the courtroom today. So what happens when there’s a dispute involving corporations, and very specifically, we’re going to speak about this fiddly area of the law.
Called corporate oppression. And you might hear the word corporate oppression right now, and it might sound a little bit clumsy or a bit confusing or a bit strange. That’s fine. Together, you and I are going to learn what corporate oppression is and how it can be relevant to you. In relation to the corporations that we all bump into on our day to day life.
Okay. The corporation in the courtroom, corporate oppression. What are we talking about? But firstly, let’s talk about another question. And that question is why are we talking about who cares about the law of corporate oppression and sorry, forgive me. I’ll just say thank you and wife, back to all these wonderful people joining us.
Hello, James. Hello Pfizer. Hello knickknack. Hello, Stina. Hhello to everyone. And this is probably a good moment, as well as say, if you’ve got questions or comments to make, as we continue our discussion, whether you are on Instagram, please don’t hesitate to ping in a little comment or ask a question at the bottom, or if you’re on Facebook or YouTube, please don’t hesitate to do that either.
I like to think that this is the sort of discussion that we can all learn a little something together. And so if there’s anything that I can hear from you that allows me to share a bit more knowledge. Then that’s a great outcome too. So please do not hesitate to opinion. Automatic comment.
That’s completely fine. So back to our question, why do we care about corporate depression? How does it assist us in understanding the corporation in the courtroom and the sort of corporations that we might bump into in our day-to-day life? Well, one of the most important reasons is that corporate oppression can sometimes concern the very existence of a company.
If a company is found to have engaged in conduct to have done some things that the court says are oppressive. Well, if that happens, there is a genuine chance that that company might be wound up. It might cease to exist. So the very nature of this law that can sound a bit confusing. The lore of corporate oppression is important because if we failed to understand it, and if we hold shares in a corporation, or if we’re employed by a corporation or anything like that, then that corporation can potentially cease to exist, based on the law of corporate oppression.
So. The is out of the way. I’m an invitation to you. I’ll repeat as if you’ve got questions or comments, please don’t hesitate to make those comments or ask those questions. And let’s now dive into the structure of today’s discussion for about the first 10 or 15 minutes. We’re going to have a pretty crunchy chat through some somewhat technical law.
So it’s going to be a little bit crunchy. We’re going to Farrow our browse a little bit, but hopefully we’ll learn a thing or two. But, it will be a little bit worse that our brains switched on. We’ll put on our thinking caps for the first section. The next thing we’ll do is we’ll move on to some examples.
So we’ll talk about some of the decisions that the courts have made and hopefully it’ll help all of us. Cause we’ll also be speaking about some of the facts that have led up to those decisions. So we saying the sort of people and indeed the sort of companies that are coming before the court that are the corporations in the courtroom, as we’ve named today’s talk.
So hopefully that will be of assistance. And then finally, I’ll make a few practical suggestions for the sort of approach that you might like to take in relation to some of the corporations in your life that might assist you. So let’s get started and start talking about the law of corporate depression.
What does the corporations act to tell us is another way to frame this one? Well, the relevant sections of the corporations act are section two, three, two, and two, three, three. And essentially what we learn and what we’re about to learn as we go through these sections. Hello there entrepreneur two, one nine, five, and some are LaBelle.
It is great to have your company. What we’re going to learn as we work through these sections is essentially this section two, three, two of the corporations act says in short, and we’re going to lengthen it out. Don’t worry. If a company does something unfair, then the court can make an order.
Pursuant to section two, three, three, right. And section two 33 is a list of a whole lot of orders. So two, three twos is. The court can, if there’s some unfairness, make some orders, two, three, three is a list of those orders and entrepreneur two, one nine five says, however, on what’s up, James, what’s up to you entrepreneur.
Two, one nine, five. Great to have your company. Oh, good to have all your generous people joining in it is lovely to see you all. Thank you, Instagram. Oh, and thank you everyone. Facebook and YouTube too. It’s great to have your company. I’ll just confirm that comments, questions, please. Don’t hesitate to send them in and we’ll try to make this a nice open forum.
So if there’s any, any questions you’d like to ask or anything I can help with please? Don’t. So let’s get into that crunchy law. Let’s turn our brains on, put those thinking caps on. And have a chat about the operation of section two, three, two, firstly. Now what section two, three, two says, I’m not going to read it up precisely for you and some are what a lovely comment.
Hopefully, this is a discussion. That’ll bring you some value. Thanks so much for your company. What section two 32 says is that the court may make a two, three, three order. And remember, section two, three, three. Hello there, Patrick. Very good to have your company. What section two or two says is that the court may make an order.
So it’s able to make it, you can order if the conduct of a company’s affairs, the things that company is doing an actual or proposed act. So something the company is doing has done or will do in future is. In respect of the members, either one or some of them contrary to their interests or prejudicial.
And hopefully that made sense, but if it didn’t, don’t worry, cause we’re going to work through it again. So section two, three, two says the court may make one of these various two, three, three orders. If a act done by the company in the past. An act of the company is currently doing, or an actor that might happen in future is unfair or prejudicial to one member or shareholder, some members of some shareholders.
We use the word member and shareholder a bit interchangeably or all of the shareholders. Right. So let’s just see if we can thread that together. Section two, three, three of the corporations act says that if the company did. Is doing or will do something that is unfair or prejudicial to one shareholder, some shareholders or all shareholders.
Then the court may make an order pursuant to section two, three, three. And we are going to work into those, two, three, three orders shortly. But let’s just linger on a couple of points from two, three, two, firstly, the court may make a two, three, three order. There is a discretion to the court. So the court sees a set of facts that says, Oh, this could be young.
Mothers could be unfair or prejudicial to one, some or all of the members of the company. The court may make an order and has the option to make and all that. And that’s an important thing for us to bear in mind. As we are working through the fact patterns, we’re going to come too soon. Secondly, there’s no limitation on what sort of conduct might be oppressive.
And indeed it doesn’t even have to have happened in the past or we happening now. It can be something in the future. So there can be something contemplated in the future that might be oppressive. So the range of conduct. That might be oppressive is extremely broad and it’s well worth bearing in mind when we’re thinking about it.
And then a final little point for us to take from section two, three, three, is that when we’re thinking about who, who are the potential victims as it were, who are the potential people to whom things could be unfair? Well, we’re talking about, it could be one shareholder. It could be some shareholders or it could be all shareholders.
So it’s important for us to bear in mind that there aren’t restrictions in that way. So it can be past, present or future in relation to when did the conduct happen? It can be one, some, or all in relation to what shareholders are allowed to apply for section two, three, three ordinance. Hope that makes sense.
We can work through it again. And as I say, delighted to take any questions you might have. Let’s continue. So as we’ve learned from section two or three, two, there are those certain circumstances in which the court may make a section two, three, three order. So what are section two, three, three orders. What can they be?
Well, here again, we see that can be a wide range of things. So a section two, three, three order, if you’ll forgive me for glancing over at the fairly long list, they can be the modification of a company’s constitution. That document that that serves as sort of the heart of the company, there can be orders made regulating the conduct of the company.
There can be orders made for the company to Institute certain proceedings or defend other proceedings that I’ve got to go and litigate. They can be ordered to require a specified person to do a certain act. And there’s a long list of two or three, three orders. But what we find in practice often is that there are actually only really two options that are really weighed up by the court and those options are, are we going to order a share sale on one hand or on the other hand, are we going to order a windup of the company?
And because corporate depression often happens when potties aren’t getting along. Well, the court will often say is, should we order party B to buy party I’s shares at a fair price? Or shall we just wind up with the whole company? And so often what we’re going to see in the case law we’re about to work through the court.
Doesn’t work through every single possible section two, three, three order that it might be able to make. It tends to dive into this dichotomy. These two alternatives, shall we go for a share sale? Shall we go for a wind up and that’s what we’re going to have a look at now, as we work through the law of corporate oppression is ideas of prejudice to share holders and commercial unfairness and these crunchy sort of issues.
It’s important for us to be gentle to ourselves. This, this stuff can be a little bit fiddly, a little bit confusing, and I promise we’re going to understand it a bit better once we get to our work examples. So if you’re feeling a little bit. A little bit, like you need to pull that thinking cap on super tight.
That’s fine. And that’s completely natural in this area. And with the greatest of respect, a lot of lawyers feel exactly the same way. So there’s nothing to worry about there and we’ll keep moving along. Now. There is a. Court decision and a judgment in 2017 called the Munsterman and Ray wood. And we’re going to get to the judgment of monster man and Ray with a little bit later.
But for our purposes now is a very helpful list in that judgment, given by the judge and justice Stevenson, where, his honor worked through a number of important points, for corporations to consider. Well for shareholders to consider in the context of corporate oppression, which is to say in the context of an application pursuant to section two 32, or the corporations act or pursue under section two, three, three of the corporations act.
So let’s work through some of those entries in the list and see what justice Stevenson has to teach us. Now the test of oppression, right? The question or easy, unfair to one, some or all members. Hi there. Wow. great to see you. The test. Is it unfair to one, some old members is, of objective unfairness. So it’s the test of what would an objective bystander thing, if an objective bystander was.
Sitting there and watching the conduct of the company, would that objective bystander say that’s unfair. And that is the question we have. I have to answer. Hello there, Linda. Great to have your company. I’m a director of a company can be acting in a way that is oppressive in the section two, three, two sense.
Not withstanding the fact they are acting in a way consistent with their duties. Put that in another way, it doesn’t have to be a breach of director’s duties to be sufficient, to ground an order for relief pursuant to section two, three, three. So it can make emotionally unfair, even if it doesn’t break any other law, if that makes sense.
Okay, conduct that paralyzes a company. So if you and I are directors of a company and I am doing something that is just trying to grind what our company does to a halt. If I’m stopping our company from going into business and doing what it’s meant to be doing, that can be found to be oppressive, a 50% shareholder.
Can Sue for a pressure because you remember the test in section two, three, two is the question, is, would an objective bystander, someone is watching the conduct think that that conduct is unfair to one shareholder or member some of the shareholders or members all of the shareholders or members. So if you’re a 1% shareholder, you can Sue for a 49%, you can serve 50%.
Yeah. 51%. Yep. 75%, 99%, 100%. Any composition of membership is able to Sue on the basis that there has been conduct by the company that is commercially unfair, whether they win. There’s another thing of course, but any composition of members or shareholders of the company are able to Sue now, there’s this one thing with regards to timing that I’d like us to have in our head.
And I’ll just remind you that we’re in the middle of the fiddly crunchy discussion about a law. This is the real technical legal bits. So if you’ve managed to not fall asleep now by this stage, you’re doing a really good job. And congratulations to you. The final thing, the final new thing I’d like to say when we’re talking about the law is about timing.
That’s an interesting point that we’ll be able to, we’ll go to an example that can explain it a little better probably than I will here. But the question about timing is a really interesting one in relation to section two, three, two. The court asks. The question of was the conduct unfair at the time proceedings were commenced.
So a lot of people who are involved in litigation, which is to say court disputes will understand that you begin a court dispute with a document called an originating process that you go in and file with the court. And that starts off the whole process of litigation. Now the day that document is filed is the day the court says now was the conduct of the company unfair on that day.
So let’s say we filed that in 2021, in on whatever the date in February, it is 10th of February, 2021. Let’s say we file it today. And today is the day. The court will have a think about whether what the company is doing is unfair. Wasn’t unfair as at 10, February, 2021. But then we think about section two, three, three, remember, section two, three, three is the section that has all those orders.
The court can make. If there is unfairness. And remember that, we also learned that often it’s just the court saying, right. Are we going to do a share sale or are we going to do a windup? But the time the court answers that question, this is an interesting bit, and it might not sound interesting, but we’ll get to an example that peruse it is the time that the court is going to answer that question.
Is it the date of the final hearing after all of the steps in the litigation that done and we’re finally before the court for the final dispute. So, if we go back to our example, let’s say we filed the originating process today. We went into the court and gave them the documents to get things started.
Let’s say we did that to that eight, 10, February, 2021. And let’s say there was a final hearing about mat or on 10 fib, 2020 for three years’ time, which would be reasonably good going, I suppose. So the question the court will face is, was it unfair? Section two, three, two, On 10 fed 2021. And the second question is what orders should we make today from the court’s perspective on 10 fair, 2024.
Does that make sense? So there’s this timing challenge because the point of any orders is the end of the oppression. And what we’re about to learn is that actually a lot can happen between the day we file the proceedings. The day we hit into court without documents. And the final day we come before the judge and ask for a final answer in relation to our dispute.
So that was the hard and challenging and difficult part of today’s talk. So if you felt a bit underwater or like you were swimming through the deep end, in a pool of mud or anything like that, that’s fine. There’ll be a lot of us who feel similarly. We’re now going to move into some examples, because I think you’d agree that the law of corporate oppression can be a little bit complex.
And if we’re talking about corporations in the courtroom, we can often get into some fiddly little bits of law like that. So what we’re going to do shortly is to dive into some examples. What I’d like to say at this stage is that if you have questions or comments to make I’m all ears or in data, I’m all eyes for you to make those comments, whether you’re on Facebook, YouTube, LinkedIn, like you guys.
I think in, or whether you’re on Instagram over here, like you guys, if anyone has any questions, that’s completely fine and now very, very odd to take those. And indeed, if you’re sitting here watching this live, congratulations. But we’re also gonna record the audio from this chat and probably turn it into a podcast.
So if you’re interested in that, please do follow the chamberlains law firm podcast to stay up to date with the sort of material we’re doing our best to share and trying to be as generous as we can with our expertise. Because if you know, chamberlains you’ll know about us, that that were with you and it’s not just a slogan, it’s something we take very seriously, indeed.
And where we’re really pleased to be able to share our knowledge with you. So delighted to have your company. Thank you. So let’s get to these examples. We’ve done the hard bit, right? We’ve learned how challenging stuff we’ve learned out lessons. And now it’s time for us to get into some examples of when the rubber hits the road.
What does corporate oppression look like in practice? What happens in the courts? What sort of disputes are they dealing with? Let’s turn to our first example and I’ll have a sip from my branded water bottle that you might enjoy. Chamberlains were with them.
This is a decision from 2018 to decision called Shanahan and . And essentially what happens in this decision is that the court considers the position of a company that operates an eye hospital. Now the shareholders in that company are the eye surgeons by other doctors who are performing eye surgery in the company’s hospital.
What happens is patient comes in to the company’s hospital. One of the doctors performed surgery, patients pay for the surgery and the company then distributes some of that money back to the surgeons who are also shareholders and things tick along happily things. These go reasonably well for a significant amount of time.
And. That’s all fine until a minority bunch of doctors or a bunch of shareholders retires and they head off to wherever it is, the retired eye surgeons head off to, they head off to the golf course, let’s say, but they remain shareholders. Right? So they continue to earn an income from the exertion of the ice surgeons who are still in the hospital.
All right. So we have the majority of the eye surgeons who are still working away. They’re applying themselves to doing whatever you’ve got to do to do good eye surgery. And then you have, they retired surgeons on the golf course who thanks to their status as shareholders, they’re able to just very happily sit there on the golf course and, take some of the.
Income from the exertion of the working surgeons as dividends. They’re enjoying that James Wrigley, lovely to have your company. And I’ll just prove with that, that anyone’s got any comments to make, delighted to read them. If anyone’s got questions, delighted to engage with those. So we’ve got our minority on the golf course.
There’s the discussion, Paul James. And I’ve had a few times, we’ve got our majority who continue to exert themselves in the eye hospital. And what we then have is the majority, for reasons of their own, but you and I might be able to speculate as to what they are. The majority appoints some directors to the company, and those directors are sympathetic to the position.
All of the working majority eye surgeons and what those directors do is firstly, they sort of get in the way of the appointment of a new ice surgeon. And while the company is not insolvent, the appointment of that new surgeon would have really allowed the company to sort of bounces back up again and get up to a really a high operating level.
So they stand in the way of that appointment of the surgeon. What they also do is they appoint voluntary administrators to the company, not withstanding the fact that companies still solvent and what the minority shareholders do from the, from the golf course, as it were, I can be a bit lighthearted is that they commence corporate oppression proceedings.
They say that’s unfair. They say standing in the way of the appointment. Of the surgeon is unfair and they say the appointment of voluntary administrators when the company is still solvent is unfair. So we’re going to Sue. Then something very interesting happens because after the minority file their documents, they commence the proceedings, bring the documents into court and they start off the litigation.
So that happens then a year or two, after that, there is a mediation. Where the majority and the minority sit down and they reach an agreement whereby the majority buy the minority shares and they bind the minority shares for about $1.7 million. That’s a significant amount. What then happens is even though the minority shares have been sold, the corporate oppression litigation that court dispute continues to roll.
And the matter comes before a judge final hearing and what the judge says is okay, preventing the appointment of the new surgeons was unfair causing voluntary administrators to come in. When the company is solvent was unfair. Today is the day of final hearing. I need to decide what section two, three, three orders removed.
We’ve got that big pallet of orders should be made. And we also remember that essentially the question the judge is asking themselves in a situation like this is, should I go for a share sale or a windup, but don’t forget. The court has a discretion. If there has been unfairness, the court may. Make an order.
And in this case, the judge decided that the court would not make an order. And the reason for that is that the judge worked through the valuation evidence. And do you remember how the minority sold their shares back to the majority? What the judge found when working through some valuation evidence was that the minority actually got a very good price for this year is a very competitive price.
And so they didn’t actually suffer any challenge or difficulty as a result of the commercial unfairness of the majority. And so what that meant having lost nothing, there was no oppression for the court to cure. And so the court didn’t make any section two, three, three orders, which means that our minority golf course directors proved that there was unfairness.
So they proved section two, three, two, But they did not get the court to make any orders about it. So they failed on section two, three, three, and here what the court said was that, well, minority golf course directors, if we can speak loosely, you were looking for some orders you failed. And so you have to pay the legal costs of the majority.
And as you might imagine, the minority said, well, hang on. We proved unfairness. That was the big issue we won on section two, three, two. We shouldn’t have to pay the costs. And what the court said was no, that’s not right. You were trying to seek some two, three, three orders. You didn’t get you two, three, three orders.
So you lost, so you should be forced to pay the legal costs of the majority. And that is what happened to him at this stage. I’ll throw the floor. Open for anyone who’s got any questions or comments to make, please do not hesitate to, make those comments or ask those questions and really, really delighted to have your company.
It’s nice to see these. You don’t want to rely on metrics or numbers apparently, but it’s nice to see these sort of metrics and numbers roll in so many, many things to you. And we might go for a couple more suggestions. Sorry. I withdraw that a couple more examples, to try to understand the law a little bit better.
Okay. Let’s turn to a decision in the Victorian court of appeal. And, the Victorian court of appeal had to engage in what was essentially the tale of two golf clubs. Right? So we’ve got a golf club and golf club be, let’s give them those original names and golf club and golf club B. In a financially difficult position, things are not going well for either golf club.
And so what they resolve to do is they resolve to merge together. And essentially the transaction works in a way that let’s say golf club Bay sells its golf course gets a lot of money in and then golf club, a. Continues to operate with a new merged name golf Bay brings all its members and brings all the money it made from the sale of it.
His golf course over the golf club. I and golf. The club I renamed itself golf club IEB and all the members of golf club bass is the important bit. The members of golf club B become members of golf club by because the directors have the power to do that. They’ve got the power to admit new members. What I member of golf club, I says, it says, Hey, that’s unfair.
The board has the power to admit new members, but there are reasons the board has those powers. And the reason the board has those powers ease not to affect a merger. They don’t merge the powers they were used for improper reasons. The power to admit new members shouldn’t have been used. This is what the, agitated member of club is saying.
And as a member that agitated member had a right to come to court and commence proceedings on the basis of section two, three to corporate oppression to come and allege that the transaction was commercially unfair and to seek some orders in relation to it. And so what happened was the member did come before the court.
And interestingly enough, the member did convince the court, hello there, catch the sunrise suns rise. Good to see you. The member deemed convince the court that the transaction, I withdraw that, that the, ah, Incorporation of members from club Bay into club. I was commercially unfair and the member convinced the court of that for the reasons I raised earlier, because the constitution of the company gave the directors the power to admit new members.
But the reason that power was given wasn’t to effect a merger, it was for other reasons. So the court said, yes, that’s unfair, but remember. Once section two, three, two commercial unfairness has been proven the court may. Make one of those section two, three, three orders. And as we all remember, there’s a broad range section two, three, three orders that might be made.
And so that’s the position the court finds itself in the court says, right? Found unfairness. Is this the sort of scenario where we’re going to make an order pursuant to section two, three, three short point is the court answers that question in the negative? There’s not a, and so not withstanding the fact that our member was able to prove.
That it was unfair for the new members to be brought into club a,
the member was unable to move the court to make any orders preventing that from happening or unraveling the transaction. And so the member failed application.
I’m trying to be respectful of your time and I’m trying to help you understand this area. So we might just do one or two more examples. I’ve got heaps because this is such a fabulous area of practice. I’ll say again at this stage, That, it’s delightful to have your company. My name’s James . I’m a lawyer here at Chamberlain’s and we’re really keen on this slogan.
We’ve got called where with you and you know, everyone’s got a slogan. That’s fine. Our slogan is all about, us being viable, us being generous with our knowledge, us being good to our clients, good to our opponents, good to the market, and good to anyone who comes into contact with us. So I’m really delighted to have your company and if you’ve got questions or things I can help with, do not hesitate please, or data.
If you’ve got questions or comments, don’t hesitate with those either. Okay. Let’s turn to our next example. This is a Queensland decision, and this is a decision that relates to a retailer. And this is a retailer who is in the organic goods space. There’s a little bit of corporate structuring involved in this decision.
So we might actually, hopefully our thinking caps on nearby. And I’ll probably need my thinking cap on to explain this one to you as well, but that is okay. So we have this trading entity and it’s a company and we’ve got our five shareholders in the company. The company is reasonably successful. And what everyone resolves to do is go through a restructure.
What happens then is there is a new company incorporated that new company is the trustee of a unit trust. And what happens is the trading company, our first company. Assigns all of its IP, all of its know-how over to the new unit trustee company. And what happens from there? Great to see your entrepreneur.
Two one nine five. What happens from there is the new unit trustee company. Charges the old trading entity fees for using the holding co sorry, the unit trustee entities IP says, all right, let’s get all these fees out of the trading entity. And of course those fees are in roughly the same proportion as the profits and by the trading entity.
And so the unit trustee then gets the money out of the trading entity that way. Trading entity continues to try it, but it holds no real assets. So we’ve removed that risk and we’ve made things just a bit more tax effective. Now, the unit holders in the unit trust. So the, our new trustee company that you’d like the unit holders, literally the people who hold units and then unit trust are the trustees of the family trusts of these five directors.
Right. We’ve got, one sort of married couple who is the, is a one family in relation to one of the family trusts. We’ve got another couple who is the family in respect of one of the family trusts. And we have another person and, their family is one of the family trusts. We’ve got these three trusts now.
Five shareholders. Three trusts. And remember the original company now has no money now has no assets. And so it’s great to see you, Tina. Good to see you. So we now have. Each of our five, who are shareholders in a company who has no assets, the only way they can get money out is that original company.
Oh, good to see you, Neil. The only way they can get money out is that original company pays money into, to the unit trustee. The unit trustee makes distributions to the family company, trustees, and then the five shareholders can only take money out. From their status as beneficiaries of each of these family, discretionary trusts sounds a bit complex.
Trading entity pays money to unit trustee. Unit trustee pays money to family trustees. Each of our five shareholders gets money from each of those family trusts. How’d that make sense? Then one of our couples in our five shareholders gets divorced. They separate. And one former married partners, entitlement to distributions from the family trust is reliant upon them remainder.
They married. So this shareholder who holds shares in the original trading entity now finds it no way of getting money out of this company. They own shares in a company that has no assets. They’re getting divorced. So they’re getting no money from the family trust. And so they say, well, this is, this is corporate.
This, this is oppressive. This is corporate oppression. We’ve got Tiana in the house as well. Tiana. Great to see you. So they say we’ve got no way of getting any other money out of this entity. This is oppressive. And what the court says is, well, the outcome may be oppressive, but corporate oppression relates to conduct.
You need to actually show something that the company did you need to say the director or the company, or indeed, in some cases, the majority shareholder. Did something impressive. And that is what I’m complaining about here. Our disappointed, divorced wife who lost her entitlement to take a distribution from the family, a discretionary trustee, with that, with that set up with our trading entity pane over to our unit trustee, paying down to our family trust and distributing.
And from there. That outcome might’ve felt a bit sharp, but it is a structure that all five of the shareholders and all the other relevant entities got advice on and entered into on the basis of advice. And what they did from there was go ahead with this scenario for a number of years and are disappointed.
Plaintiff was unable to point to any, unfair conduct, nothing the company did that could be nailed down as unfair. Which meant that our plaintiff failed in that application and for anyone with a good understanding of family law, including a number of, out of my Chamberlain’s colleagues who have joined our discussion, you’ll be pleased to know that the court noted.
That the judgment in relation to the corporate oppression issues did not affect the plaintiff’s rights to pursue a family law recovery. I’ve got to comment on that because it is outside of my area of expertise. I think we’ve got one more time for maybe one more quick example, guys. I don’t want to keep you too long.
And I’m going to look for an early Mark for you all. Can I just repeat that? Delighted to accept any questions and you’re welcome to make any comments you’d like, and we’re here at Chamberlain’s, as I might, as you might’ve heard me say earlier, we’re very big on this slogan. That sounds a bit touchy, feely.
It’s called where with you and, this discussion today, we’re going to have a number of similar discussions coming in the recent weeks. It’s all about where with you. It’s all about us trying to be as generous as we can with our expertise and trying to make ourselves available to you. If you’ve got questions for us or comments you’d like to make, we are very much a firm that is about being approachable and rigorous.
So we’re good at the law. But hopefully we’re also good at being available to chat to you about it. And that’s very much. What we’re trying to communicate when we talk about where with you. So please don’t hesitate to ask any questions or make any comments you’d like, all right, let’s move on to this final decision.
We’re going to discuss today. One of Munsterman and Ray wood, we’ve got a company and its company operating on the gold coast in the South of Queensland.
Yeah. It operates a business that relates to some strata titled apartments. It helps with the maintenance management of various apartments in the gold coast. So two directors, two shareholders, those directors and shareholders are the same person. And each director shareholder owns a 50% share. I hope that makes sense.
And as we said, one shareholder director is in Sydney and sadly they are quite ill. The other director is the managing director who is on the tools, working away in Queensland, managing the company the way it does things. Now in the background of this is the Sydney director making an offer to the Queensland director, seeking to sell their shares to the director, says, buy my shares.
Queenslander. I got says, no. And so the Sydney director then engages in a course of conduct that I’m going to have to turn to my notes for, because, as you are about to guess, and, I think as your intuition is going to improve, right, it’s a, a challenging course of conduct as Sydney director attempts to be reinstated as financial controller.
Of the company, not withstanding the fact that role is already being performed by a current employee and it’s just completely not needed. There’s a new director tries to set himself themselves, an unjustified salary, the Sydney director issues and invoice to the company for 16 grand. When there’s no evidence that the work was requested, there’s no evidence.
The work was conducted and the Sydney director. Oh, what was the name of the case? Asks entrepreneur two one nine, five months to a minute. And Ray would 2017 decision new South Wales Supreme court free three.
three monster and Ray wood and happy for you to ping a direct great message. If you didn’t catch that, that’s fine. The Sydney director has set themselves an unjustified salary, so just cause themselves to be overpaid. The Sydney director required that all payments for minor items, such as staples were agreed in a minuted director’s meeting.
So just put huge roadblocks on the efficient running of the company, send an all staff email to the effect that the company had run out of money and couldn’t pay salaries and couldn’t pay super well. In fact, that was not the case and the company didn’t have enough money to do those things. And generally, this is the proposition that the Sydney director accepts and cross-examination so the Sydney director says, yes, that’s right.
Sydney director says, yes, that’s right. That I held the company at ransom. So that I could get what I wanted. And, you might be unsurprised to hear the court found this conduct to be oppressive. And so the court ordered a share sale. And what you might say is, well, hang on, isn’t a share sale. What the Sydney director was after at the start of all this.
And the answer to that is, well, maybe, but I suspect with the greatest of respect, That it might not have been. I share style at fair value. The city director was after. And whenever you make an order for a share sale in corporate oppression proceedings, the price must be at fair value. Okay. Today’s discussion team.
We’ve had a really big ugly talk about the law, where we all got a little bit confused and jumped in the deep end that we’ve worked through lots of examples. Now I’m going to make some practical suggestions, and I’ll just say that if you missed out on any of this talk, it’s going to be up recorded sort of forever on the chamberlains law firm, YouTube channel.
So you can head there to check it out. It’ll be on the Chamberlain’s little phone Facebook page. I think we can save it to Instagram as well. And I think it will be on our podcast. So I wouldn’t want you to worry at all for a moment. If you haven’t caught all of the talk, you also welcome just to DM the firm or DMA, and I’m happy to provide you with a copy of the materials I’m reading from.
That’s fine as well. So just quickly, a couple of short suggestions for you. If you’re a practitioner or if you’re someone who is involved with. Corporations who wants to, really manage the challenges that can come in this sort of space. You really, all your options are frankly, either to agree, enter into a shareholders agreement.
And your other option is to hello. There are your other options to litigate. So if there’s a dispute, either you settle it with an agreement that you then record in writing, or you litigate. Now when’s the best time to get a shareholders’ agreement. The answer is 20 years ago. And if you didn’t get one 20 years ago, the next best answer is today.
And so I’ve got all these fabulous comments coming in. And so if you are someone who is confronting a challenge in relation to the corporation, the might be in your life now is the time to think about a shareholders agreement. And if you are someone who is confronting a challenge is unable to agree that litigation is the next option, and you’ll be running through the sort of scenarios that, a lot of what we were discussing just there I will be relevant to.
And so, what I hope you took from today is that the law of corporate depression can have some real complexity and it could apply to lots of different corporations in lots of different spaces. What I hope you took from today was just a little bit more knowledge of what happens with the corporation in the courtroom.
And what I hope you took from today was that here at Chamberlain’s, we are with you and we’re really keen to bring value into your life. However, we can, now that ends the formal part of the talk. There’ve been a few comments that have come in that I’ll get to. I’ll reiterate that if you want a copy of the paper or check into the podcast, it will be recorded and distributed in all those different channels.
We have a comment here from Somar interesting to see the court is concerned with commercial unfairness, even in the absence of a breach and some are asks, could there be a breach and a plaintiffs still fails in establishing commercial unfairness? Short answer is yes. So, so you might be referring to a breach of contract or breach of director’s duties, or I’ll just assume that to be the case.
So a court can say that some conduct is oppressive, but not a breach of director’s duties. Alternatively, a court can say some conduct is a breach of directors duties, but is not a breach. Oh, sorry, but it’s not oppressive. And so I’ve got, I’ve got over here, some requests for the paper. That’s fine. I don’t have a pen and paper in front of me, obviously.
So if you email the firm or message the Facebook account or the count here, I will be able to go into that. Here we are. Oh, here we are. We’ve got a couple of requests. Oh, we’ve got just a request for the piping here. That’s fine. If he’s message the message of the firm’s account, that will be great. And team I’m inclined to leave it there if you’ve taken any value from this talk.
That is fantastic. What were Chamberlain’s would love to do would be to be considered to be part of any of the legal. Wrinkles that emerged in your life. We’re here to help. We’re very much with you and, I have been with you for this time and I’ve been delighted to be a part of it. So thank you very much for being so generous to share your time with me.
I’ve had a really good time. What I will ask is that if you can tune in the same time next week, We’re actually going through and having a lot of our expert lawyers give presentations like this at Wednesday, 1:00 PM Sydney time. And it’s just been a delight to have you here. We’ve got a few subscribers to the podcast there that’s very kind and delightful to have at your company.
Thanks very much onshore. I should also say if you’d like my manner talking about the law, I use an account called coffee and a case note, which you can find on. Instagram and YouTube and Facebook and a few other places. So if you liked the way I look down the camera and talk about the law coffee and a case note is the account would love you to give me a follow there.
I talk about lots of different cases there, but for the moment we’ll end the broadcast. Hope you have enjoyed the session and thank you for joining.