Know the Signs - Understanding Corporate Oppression Under the Corporations Act
Jye Hopkins & Kale Venz
Understanding these aspects of corporate oppression is crucial for any shareholder to ensure that their interests and investment are protected from any oppression. If you are in a position where you are being oppressed as a shareholder, the experienced team at CJM Lawyers can work with you to advise on and resolve any dispute which has or may arise.
Sections 232 and 233 of the Corporations Act 2001 (Cth) provide the members (the shareholders) of the company a claim and relief against the conduct of a company which is deemed to be oppressive or commercially unfair.
As a member of a company, it is important to be able to understand and recognise conduct which may amount to corporate oppression to protect your investment. Conversely, directors of a company must be aware of the potential implications of their conduct which may be found by a Court to be oppressive.
The experienced team at CJM Lawyers is well versed in protecting our client’s interests in the event of a corporate oppression claim.
What is Corporate Oppression?
Corporate oppression is dealt with by two sections of the Corporations Act. Section 232 of the Act establishes when the conduct of a company’s affairs will amount to corporate oppression while section 233 of the Act prescribes the orders a Court may award to remedy the oppression.
The remedies that the Court may award are extremely broad and may make any order it considers appropriate. Although, the two most common remedies seen in cases of corporate oppression are a share buy-out or the winding up of the company.
Who Can Be Oppressed?
Under the Corporations Act, corporate oppression may arise where either (a) the oppression is contrary to the interests of the members as a whole or (b) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members as a whole. In either case, the oppression must affect the members (shareholders).
In the majority of corporate oppression cases, it is often the minority shareholders in small to medium sized companies who will be oppressed because these members do not have the freedom to readily dispose of their shareholding. Shares in small companies are not liquid to the same extent as a large company as there is often no market or demand for those shares. Accordingly, these members are often unable to leave the company where they are being oppressed.
What Constitutes Corporate Oppression?
The conduct which may be found to be oppressive is vast. While it has proven difficult for the Courts to assign one definitive test, conduct which traditionally amounts to corporate oppression is seen as conduct that is ‘commercially unfair.’ The following are examples of conduct that may amount to corporate oppression:
- Refusing requests for financial information - Denying or excluding shareholders from accessing the company’s records.
- Diversion of corporate opportunity – For example, entering into transactions that benefit certain shareholders at the expense of others.
- Director’s failure to act in the interests of the company – For example, denying or preventing the company from taking a corporate opportunity.
- Restricting Dividends – The redirection of earnings or otherwise the structuring of the company’s financials in order to dilute a shareholder’s entitlement to dividends.
Disclaimer: This article is for general understanding and should not be used as a substitute for professional legal advice. Any reliance on the information is strictly at the user's risk, and there is no intention to create a lawyer-client relationship from this general communication.
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