In the recent decision of Yelland v Plus Architecture  VSC 416 the Supreme Court of Victoria considered whether a shareholder’s sale of shares at a discount was a breach of a shareholders agreement or, indeed, where it was corporate oppression.
Y owned and controlled a company, P. P was a shareholder in the companies in a group that operated a national business. Y was one of the directors of the companies in the group.
Y was terminated as a director of each company in the group and, and by operation of the various shareholders agreements for each company in the group, P’s shares were transferred to the other shareholders at a discount. P accepted this discount transfer under protest.
P relied on s232 of the Corporations Act to challenge the discount; alleging termination of Y was unfair.
Separately P claimed the discount was a breach of the various shareholders agreements that related to each of the companies in the group.
The Ds said the termination was appropriate due to Y’s poor behaviour, and was not motivated by the share discount.
In 2017 Y and the other directors, had fallen into serious dispute.
The disputes concerned possible share dilutions of each shareholder’s holdings in order to let in new shareholders, pay for senior staff, governance, and the future direction of the business.
There was evidence Y bullied staff.
Y sought to renege on a more recent shareholder purchasing a departing shareholder’s shares.
This led to a mediation process.
Following mediation, the group’s board sent a letter to Y proposing resolutions that Y be terminated as a director at a board meeting a month later.
The next day, Y purported to resign giving 3 months notice.
Roughly a month later (and before the 3 month resignation notice period expired) the resolutions terminating Y passed.
The Court found the group’s board had good reason for terminating Y i.e. to bring to an end the problems Y was causing. It was not a mere share discount manouver.
The Court noted the terms of the various shareholders agreements had been accepted by Y and P, so being held to them was not inappropriate.
P’s primary oppression claim failed.
P also complained the discount was a breach of the various companies’ shareholders agreements and constitutions.
Whether the discount applied depended on whether termination or resignation took effect first. P argued that Y’s resignation took immediate effect, despite a 3 month notice period.
The resignation would take effect 3 months after notice was given, so the termination resolutions passed in the intervening time took precedence.
P did not show that applying the discount was a breach of the agreements.
The discount was found to be OK.
This decision shows the importance of harmonious relations at board level for the prosperity of an enterprise, and the vital importance in making sure whatever document you are signing up to actually says what you want it to say.