When thinking about the value of a minority shareholder’s shares, it is sometimes said that a “minority discount” applies. This price reduction may reflect the inability of a minority to influence the company, or perhaps the undesirability of being in business with the majority shareholder.

In a recent decision of the Victorian Supreme Court, Joint v Program IT Pty Limited & Ors [2020] VSC 867, the Court considered the right price for the sale of the minority shareholder’s shares, including whether the discount applied.

A minority shareholder recently applied to the Court for orders requiring the majority shareholder to by their shares.

All parties agreed that a share purchase was best. What was not agreed upon was the price. The majority shareholder said that a minority discount should apply.

The law is clear in this area: if there has been oppressive conduct, there will be no minority discount.

The facts in the matter were complex.

For many years, the minority shareholder had owned their shares and had previously won an oppression suit, requiring another party to buy them. However, the would-be buyer became insolvent, and that sale fell through.

Later, a company director became the majority shareholder and brought the company back “into the black”; doing hard work in the years 2009 to 2012 to improve the company’s financial performance.

From this time, that director was paid substantial fees.

In 2015 that directed transferred their shares to the current majority shareholder and began to cause them also to be paid fees, and for both to be paid for travel expenses. Later, in 2020, the director caused the appointment of administrators after the legal proceedings had been commenced.

The Court found the payment of post-2012 fees, payment of travel expenses, and appointment of administrators was oppressive and that the majority shareholder would have to pay “full whack” for the shares, with no minority discount.

When thinking about a company’s shares or structuring your affairs, it is essential to get expert advice to avoid the problematic situation that the minority shareholder found themselves in, described above.


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