What is Shareholder Oppression?

Disputes between the shareholders of companies of all sizes are common although it is particularly common in smaller private companies with multiple shareholders. Basically, the idea of shareholder oppression is that the dominant shareholder or shareholders are acting in a manner that is oppressive to the interests of the minority shareholders. This may manifest itself through the denial of directorships or other management positions in the company. It may be because the company fails to allocate dividends fairly or organises a company buy back of shares in a manner that disregards the interests of the minority shareholders. Shareholder oppression suits can exist in relation to public companies as well although these dealings are on a much larger scale than what is normally seen in smaller private companies.

In common law countries, there is an extensive body of case law which deals with the concept of shareholder oppression. However, the action in its most basic form is derived from the Part 2F.1 of the Corporations Act 2001(Cth). Sections 232 and 234 of the legislation allow shareholders to make oppression applications or former shareholders or even persons determined by ASIC to be entitled to do so. If an application is made, the courts must find that the conduct of a companies affairs is oppressive by reason of it being contrary to the interests of the shareholders as a whole or oppressive, prejudicial or unfairly discriminatory against a shareholder or group of shareholders. The term company’s affairs is defined very broadly and basically refers to anything which involves the management and operation of the company and its affairs. Oppression could involve the diversion of corporate opportunities, excessive renumeration, manipulation of share issues, withholding information, boardroom tactics or misappropriation of company funds.

The courts have a broad discretion to deal with such activity. Courts may order that a company be wound up, one shareholder purchase the shares of another shareholder or that a receiver be appointed. It is not uncommon for shareholders to seek recompense from a company in which they own share where their interests have been overlooked by the management of the company. If you need to know more about shareholder oppression suits, please do not hesitate to contact us.

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