Corporate Law Case Study: Remedies for Minority Shareholder Oppression

This case study explores the remedies available to a minority shareholder who is facing oppression and discrimination from majority shareholders. It discusses the relevant sections of the Corporations Act 2001 and highlights the importance of protecting minority shareholders' interests.

Running head: CORPORATE LAW
CORPORATE LAW
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1CORPORATE LAW
The instant case study assignment is concerned with a private company named “The
Grumpy Grande Pty Ltd’ which was created by 5 Brown brothers in 2010. Tim was the youngest
of all the brothers. The business was about making premium quality of coffee, collected and
brewed fresh from the mini van to directly to the access of people in any social gathering,
corporate programmes, cultural events or sports ceremony. The business was successful since the
beginning and the 5 brothers were successful from the beginning. They equally shared the profits
among themselves. However, with time, their business got deteriorated and they were unable to
earn much profit. This created stress and coalition among the brothers specially between Tim and
his 4 brothers.
The eldest 4 brothers were suspecting that Tim may quit the business due to its lack of
success in present days and thus they have become against him. They even started bullying him
and started using every opportunity to use the majority of votes against him. As per the
constitution of the company, all the brothers are the directors and share holders of the company.
Moreover, as per the constitution of the company, all the decisions must be taken by votes and
following the majority rule and these 4 Brown brothers were using their majority votes to block
Tim to take any decision or take part in any decision.
In the constitution of the company, it is held, that if any brothers want to sell his portion
shares, he has to sell them to the directors of the company after seeking consent from other
directors of the company. Thus, if Tim wants to sell his shares, he needs prior permission from
his brothers but he heard his eldest brother talking to someone over phone that they are planning
to get his shares by forcing him to quit the company. In this way, they will not be required to pay
Tim the cost of shares.

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As a result of this, Tim is stressed and unsatisfied and wants to seek remedies for him by
bringing action against his 4 elder brothers. In this respect, Tim may refer to the Corporations
Act 2001 to get the appropriate remedy for his situation.
The affairs and management of any company is handled by the share holders, there can
be single share holder who controls the activities of the company or may be a group of share
holders who take part altogether in the management of the company. However, those who
possess majority of share, are found to be the controller of the management as well as operation
of the company. Thus, the minority share holders do not have any control or opinion in the
operation of the company because they are mostly ignored or opposed by the majority share
holders. In this case, Tim was also subjected to this by his 4 brothers who are the majority voting
powers in the company.
To resolve this disability of the minority share holders, the Corporation Act 2001
provides a weapon to them under section 232 of it. This section of 232 provides various remedies
to a minority share holder who can seek them when he feels oppressed or ignored by the majority
share holders. Section 234 provides the list of persons who can apply remedies under section 232
of this act. The member who has been registered in the company can avail relief under section
232. It was decided in the case of Niord Pty Ltd v Adelaide Petroleum NL (1990) 54 SASR 87.
Thus, Tim being a registered member of the TGG company can seek remedy as per the
provisions of section 232.
However, to avail remedies for discrimination and oppression, the affairs and conduct of the
company must be such that it results in to oppression to a member or a section of members of the
company as given in section 232. Here the meaning and explanation of the term ‘oppression ‘ is

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provided in the decision of Scottish Co-operative Wholesale Soc Ltd v Meyer [1959] AC 324 at 364
which states that oppression does not necessarily mean physical or mental pain or torture but it also
means lack of transparent dealings and partiality among the members. The conduct or dealings of the
company to be oppressive does not need to be unlawful or illegal, it can be just unfair or improper or
biased. It was held in the Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 case. Thus
the courts while determining whether an action is oppressive or not, it must note down the interest,
liabilities and rights of both the majority and minority share holders. The court must also take in to
consideration the history of transaction of the company and also the past behavior of the
shareholders as put forwarded in the Wayde v NSW Rugby League Ltd (1985) 180 CLR 459 case.
Few instances of the unfair transaction or oppressive behavior in this regard that put focus on
the importance of the protection of the minority share holders are enumerated below. It includes
denying of providing adequate information or opportunities to the minority share holders as held in
the cases of Shum Yip Properties Development Ltd v Chatswood Investment and Development Co
Pty Ltd [2002] NSWSC 13 and In Re Back 2 Bay 6 Pty Ltd (1994) 12 ACSR 614. Again in the case of
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97, it was held that not including a share
holder in the decision and management of the company affairs also amounts to oppression or unfair
conduct. Again in the Re Bright Pine Mills Pty Ltd [1969] VR 1002 and Scottish Co-operative
Wholesale Soc Ltd v Meyer [1959] AC 324 cases, it was decided that diversion of a corporate
opportunity to the majority shareholders also accounts for unfair dealings or oppression. However,
these conditions are not exhaustive; the court may consider any other fact that it regards suitable as
per the facts and circumstances of the each case. Thus, by considering the above referred points, Tim
can also avail protection to protect his interests.

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If the conditions of oppression or unfair transaction can be proved in the court, then the court
can make decisions and grant suitable relief as per section 233. The chief objective behind the
section 233 is to provide adequate compensation to the concerned member or the minority share
holder. There lies another motive behind section 233 which is to stop completely the oppression or
discrimination made by the majority share holders which was held in the Re Hollen Australia Pty
Ltd [2009] VSCC 95 case.
In this regard, the court can make orders as laid down in section 233 whichever it thinks to be
appropriate. As per section 233 (1) (a), the court may order the company to be wound up, or as per
section 233 (1) (b), the court can repeal or even modify the constitution of the company. It can even
give orders for purchasing the shares of a member of the company by other member or members or
to whom, by will or operation of law, a share has been allotted. It is given under section 233 (1) (d).
It may even make order to regulate the company affairs as given in section 233 (1) (c), or even
appoint a receiver or manager or both as given in 233 (1) (h) of the act. It can also give order as per
section 233 (1) (i), to stop any person to take part in the company affairs. Many other types of orders
are also given under section 233 (1) of the act. The court may also give order that the majority of the
share holders must buy the shares at a price such that the oppressive behavior had not occurred as
observed in the Scottish Co-operative Wholesale Soc Ltd v Meyer [1959] AC 324 case.
It was decided in the case of Profinance Trust SA v Gladstone [2002] 1 BCLC 141 that the
valuation of the remedy must be made on the date of delivery of the order by the court and not on the
date the case was filed. This observation was again made in the case of In re London School of
Electronics Ltd [1986] Ch 211, 224 by Nourse J.

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In the Dynasty Pty Ltd v Coombs (1995) 59 FCR 122 case, the Federal Court approved the
decision made by Justice Nourse in the above referred case and further held that the date to be
considered for assessing the remedy was the date when the order was given and not the date when
the petition was filed in the court by the claimant. Similar type of observation was again found by
Young J in Short v Crawley (No 30) [2007] NSWSC 1322 in the Supreme Court of NSW. The court
does favor the early assessment of the remedy as it will be disadvantageous to the claimant. It was
again put forwarded in In re Elgindata Ltd [1991] BCLC 959. Hence Tim if applied to the court, he
will get remedy as per the decision made by the court considering the facts of the case.
However, in addition to the above mentioned remedies, Tim has another relief too.
According to the Federal Government decision in respect of the rearrangement and amplification of
the rights of the share holders of the company as enumerated in the Part 2F. 1A of this act, the share
holders are given an additional remedy of derivative actions that they can avail against any company
or the directors of company (Chen 2017).. It was provided in section 237 of the Corporations Act
2001. Due to this, the share holders are given extra power to institute statutory derivative action
either in the company’s name or in its behalf. This section 237 provision is also available against any
shareholder who has infringed his duty or the company’s constitution.
The rule given in the Foss v Harbottle (1843) 67 ER 189 case restricts an individual to sue or
bring any action in the court for any irregularity or misconduct done in respect of the company’s
interest. To overcome this rigid rule of Foss v Harbottle, the statutory derivative principle was
developed to empower the share holders of the company (Tang 2016). It was given in the Chahwan v
Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 65 ACSR 661 case.

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In the given case study, Tim is also empowered to bring statutory derivative actions against
his brothers who are the directors of TGG as found in Vigliaroni v CPS Investment Holdings Pty Ltd
[2009] VSC 428; (2009) 74 ACSR 282 case. Thus Tim can bring action against his brothers under
sections 233 and 237 of the act.
Moreover, in surplus of the remedy under the act discussed above, Tim can also avail
suitable remedy in the equitable courts of justice also. This type of remedy can be obtained in the
case of breach of fiduciary duties of any person as enumerated in Swansson v Pratt [2002] NSWSC
583. It is available for the infringement of non fiduciary duties as found in Nicholls v Michael
Wilson & Partners Ltd [2012] NSWCA 383 case.
Thus, Tim has also option to avail under the principles of equity against his 4 brothers. It is
not needed to show any pecuniary or physical loss that he suffered to the court. He can also institute
a suit based on the mental stress and pressure he had gone through due the behavior of his brothers.
In the case of Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383, it was observed that
the court of equity does not apply the strict path followed in the common law courts, instead it tries
to bridge the gap between the common law and administration of justice (Dal Pont 2015). Thus he
will be entitled to avail both statutory as well as equitable remedies if he brings an action against the
courts of appropriate jurisdiction.

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References:
Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304
Chahwan v Euphoric Pty Ltd t/as Clay & Michel [2008] NSWCA 52; (2008) 65 ACSR 661.
Chen, V., 2017. The Statutory Derivative Action in Malaysia: Comparison with an Australian
Judicial Approach
Dal Pont, G., 2015. Equity and trusts in Australia
Dynasty Pty Ltd v Coombs (1995) 59 FCR 122
Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd [2001] NSWCA 97
Foss v Harbottle (1843) 67 ER 189
In re Elgindata Ltd [1991] BCLC 959.
In re London School of Electronics Ltd [1986] Ch 211, 224
Nicholls v Michael Wilson & Partners Ltd [2012] NSWCA 383.
Niord Pty Ltd v Adelaide Petroleum NL (1990) 54 SASR 87
Profinance Trust SA v Gladstone [2002] 1 BCLC 141.
Re Back 2 Bay 6 Pty Ltd (1994) 12 ACSR 614
Re Bright Pine Mills Pty Ltd [1969] VR 1002
Re Hollen Australia Pty Ltd [2009] VSCC 95.
Re London School of Electronics Ltd [1985] 3 WLR 474 at 484

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Scottish Co-operative Wholesale Soc Ltd v Meyer [1959] AC 324
Scottish Co-operative Wholesale Soc Ltd v Meyer [1959] AC 324
Scottish Co-operative Wholesale Soc Ltd v Meyer [1959] AC 324 at 364
Short v Crawley (No 30) [2007] NSWSC 1322
Short v Crawley (No 30) [2007] NSWSC 1322
Shum Yip Properties Development Ltd v Chatswood Investment and Development Co Pty
Ltd [2002] NSWSC 13
Swansson v Pratt [2002] NSWSC 583
Tang, S.S., 2016. Corporate avengers need not be angels: rethinking good faith in the derivative
action. Journal of Corporate Law Studies, 16(2), pp.471-491
The Corporations Act 2001
Vigliaroni v CPS Investment Holdings Pty Ltd [2009] VSC 428; (2009) 74 ACSR 282.
Wayde v NSW Rugby League Ltd (1985) 180 CLR 459
Youyang Pty Ltd v Minter Ellison Morris Fletcher [2003] HCA 15; (2003) 212 CLR 484 at [44]

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