Article by Matthew Holzer
Regrettably business is not always plain sailing. Personal and business relationships breakdown and sometimes you or your organisation might feel that your interests in a business are not being properly looked after. Indeed, you might even feel that you are being excluded from important decisions regarding the operation of a business entirely.
In circumstances where you own a minority shareholding within a business you might feel as if your options are limited. However, this is not the case.
Section 232 of the Corporations Act2001 (Cth) (the Act) provides that the Court can make various orders in circumstances where the conduct of a company’s affairs, including an actual or proposed act or omission, resolution or proposed resolution is either:-
Contrary to the interests of the shareholders as a whole; or
Oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
Examples of oppressive and unfair conduct include:
conduct by directors or shareholders that excludes a shareholder from management of the company or deprives them their right to participate in board meetings;
excessive payments made to directors;
issuing of shares to decrease minority shareholding;
inadequate payment of dividends;
misappropriation of company funds;
refusal to grant access to information or books and records;
The court can make various orders including orders:-
That the company be wound up;
Regulating the conduct of the company’s affairs in the future;
For the purchase of shares with an appropriate reduction of the company’s share capital;
While historically, the Court has been reluctant to order perfectly solvent companies be wound up this approach appears to be changing particularly in circumstances where it is not practical or commercially viable for a minority shareholder’s holding to ‘bought out’.
This is precisely what happened in the Full Court of the Federal Court (on appeal) case of Hillam v Ample Source International (No 2)  FCAFC 73 (‘Hillam’). In this case, the Full Court upheld the trial judge’s decision to wind up a solvent company in circumstances where the minority shareholder had been oppressed because, among other reasons, in the absence of any offers to buy the shares of the minority or of the majority at a fair price a liquidator could sell the Company’s assets on the open market and divide the proceeds appropriately.
While a wind up order may appear to be ‘extreme’ in circumstances where a Company is solvent, as indeed was argued in Hillam, the Court observed:
“The real question is whether a winding up order was appropriate to deal with and address the grounds for relief which had been established. The answer to that question must be found in the facts of the particular case.”
The genuine threat of a windup order being obtained should serve as a sobering reminder to all parties to shareholder dispute that they should use their best endeavours to resolve their differences or pay fair market value for a minority shareholding rather than risk the large investments of time and money that have been spent developing a business.
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The information in this article is of a general nature and is not intended to address the circumstances of any particular individual or entity and should not be relied upon as legal advice or applied to any particular circumstances without further consultation with a member of our litigation team. We do not guarantee that the information on our website is accurate on the date that it is read nor that it will continue to be accurate in the future in circumstances where this area of the law continues to evolve and this article is not updated on a day to day basis.