The sometimes complex area of corporate oppression is easily misunderstood. Occasionally a shareholder will be disappointed with the way a company is being run, or feel “shut out”, but that is not always enough to move the Court to make orders pursuant to s233 of the Corporations Act 2001 (Cth).
The recent decision In the matter of Candy-Vend Pty Ltd  NSWSC 1735 is an example of the problem apparently “shut out” shareholders can face.
A company had five shareholders, each of whom were brothers. The company, which had previously been operated by the shareholders’ father, owned 40% of some real property and did little else.
Two brothers, the plaintiffs in the proceedings, said the conduct of the company was oppressive, and that they should have some relief (either their shares in the company should be bought, or they should become owners of a portion of the property). Alternatively, they said the company should be wound up.
The plaintiffs made several allegations in support of their claim.
They said the company was a “quasi-partnership” and they had been excluded. However, the Court found this was not shown by the evidence.
The plaintiffs then said they were oppressed because the company had not paid dividends (when in fact it had – by way of reducing loans owed by the plaintiffs to the company). The Court went on to find that even if dividends had not been paid, then the plaintiffs were not oppressed because all shareholders would have had to deal with an absence of dividends, not just the plaintiffs.
The plaintiffs complained about payments made by their father in the past. The Court found that payments made years ago did not found their oppression claim and – in any case – the plaintiffs acquiesced to those payments being made at the time.
In seeking a share sale, the plaintiffs valued the assets of the company as including all loans owed by shareholders to the company, including loans owed by the plaintiffs (which increased the company’s value). During the proceedings, the company cross-claimed seeking repayment of those loans, and the plaintiffs said that cross-claim was oppressive.
The Court held that the plaintiffs could not use the loans to increase the value of the company on the one hand, and then say it was oppressive of the company seek payment on the other hand.
Not all the shareholders were joined to the proceedings. The Court considered the implications of this in relation to a potential order to wind up the company.
The Court held that while it may have the power to make a wind-up order in the absence of all shareholders, the Court should not as a matter of procedural fairness.
The plaintiffs’ oppression claim failed.
To avoid finding yourself “shut out” of a company you own shares in and without a remedy, it is always wise to enter into a shareholders agreement as soon as possible.
(Assisted by; James d’Apice)
Interested in learning more on Corporate & Commercial Law?
Click our recent articles below to find out more: