Remedies for Minority Shareholders in Corporate Law

This essay discusses the remedies available to minority shareholders in corporate law, focusing on equitable limitations on majority voting power and statutory remedies under the Corporations Act 2001. It explores how these remedies protect the rights of minority shareholders and prevent oppressive actions by majority shareholders. Case studies and relevant legal provisions are examined to provide a comprehensive understanding of the topic.

Running Head: CORPORATE LAW 0
Corporate Law
Student’s Name
5/14/2019

Corporate Law 1
It is well known that a corporation is a separate legal entity that can perform its business
activities in its name. Nevertheless, this is also necessary to mention that the same is also an
artificial person and need some natural individuals to act on its behalf. Directors and
shareholders are two different groups that have the power to make a decision on behalf of the
company. Some powers are granted to directors but usually, major powers lies with shareholders.
Shareholders have voting power in a company and the majority number of votes decides
matters/resolutions. In such a situation, it has been seen in many of the cases that shareholders
misuse their powers in the company, as they are the true owners of the business. This situation
becomes worse when some of the shareholders use their powers against minority shareholders.
Here minority shareholders refer to those shareholders who have very less share in the business
of the company. The situation is good until a decision does not affect other’s right in an adverse
manner. Majority shareholders are aware that they hold majority shares in the business of the
company and are entitled to take to an ultimate decision and therefore they use their power for
their personal benefits. Many of the cases have happened there when majority shareholders used
unfair tactics against minority shareholders. In such a situation, it becomes necessary to protect
the interest of minority shareholders and for the same, some remedies are granted under common
law as well as statutory law. In the presented essay, the focus will be made on such remedies that
are available to minority shareholders. In addition to this, remedies available to Tim would also
be discussed in the provided case.
Law provides various options to minority shareholders in respect to make an application against
the unfair act of majority shareholders. Equitable limitation on majority voting power is one of
the important remedy available to a minority. Here while discussing this remedy, this is to state
that the law is not concerned about valid exercise of power by majority shareholders but it

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prevents the oppressive exercise of power. This can be understood by an example as that law
does not stop majority shareholders to use their regular powers such as the appointment of
directors but it stop those cases where they use their powers in order to make harm to minority
shareholders. Oppressive exercise of power includes many actions such as amendment of the
constitution in a manner that can disadvantage the minority in any way, alteration in share capital
for personal benefits, approval of the sale of assets of the company to themselves, and/or
approval of other benefits to themselves. Some of these cases are related to constitutional
amendments that will be further discussed in the following part. The selected remedy i.e.
equitable limitation on majority voting power is also known as “Equitable Limitations” as well
as “Fraud on the minority.”
In order to discuss this remedy, this is to state that the same stop majority shareholders by
passing any resolution that was not proposed for a proper purpose. Now the issue is to check how
to identify that a resolution is made and proposed for an improper purpose. A test is there to
resolve this question. According to the respective test, a resolution seems to be for improper
purpose if in the opinion of a group of reasonable people making of such resolution does not
come within the majority’s power. As mentioned above two scenarios are given in the case of
equitable limitations. Starting from the first scenario, this is to state that sometimes cases are not
related to amendments of the constitution but proves unfair for minority shareholders. This
scenario mainly includes two scenarios namely a case where majority shareholders use their
voting powers to take away assets of the company as decided in the case of Ngurli Ltd v McCann
[1953] HCA 39; 90 CLR 425. The second scenario was decided in the case of Biala Pty Ltd &
Anor v Mallina Holdings Ltd - [1997] FCA 165. It was given in this case that a resolution which
is not related to change in constitution will be held invalid where majority shareholders use their

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voting power to stop the company suing them or taking any legal actions against them. In other
words, to say, these cases do not include any constitutional amendment but come under the
category of equitable limitations. Another scenario is related to amendments of the constitution.
In respect to this scenario, study of one of the leading case namely Gambotto v WCP Ltd (1995)
13 ACLC 342 is important to conduct. In this case, the two companies were there viz. Industrial
Equity Ltd and WCP Ltd. The former company had 99.7% shares of later one. A persona named
Mr. Gambottos was a minority shareholder in WCP Ltd. The shareholder of WCP passed a
resolution in a meeting in relation to amendments in the constitution where Mr. Gambotto and
Industrial Equity Ltd did not attend the meeting. Mr. Gambotto knocks the door of court against
this resolution and the court provided a decision in his favor considering the subjective
constitutional amendment invalid (Ramsay and Saunders, 2011). In the decision of this case, a
test has been established that help in determining whether a constitutional amendment resolution
is valid or not. According to this test, such resolution seems to be held invalid in two situations.
The first situation is when the same allows expropriation of valuable rights or shares of a
minority. This kind of amendment can be held valid when the same is proposed for a proper
purpose and not make any oppression of minority shareholders. Here this is to mention that
oppression is not there when a resolution consists of procedural and substantive fairness. The
second situation is where such resolution gives rise to a conflict of interest. This kind of
amendment can be held valid when the same is proposed for the purpose of the company and not
make any oppression of minority shareholders. After the above-mentioned discussion, it is far
clear that court held resolution passed by majority shareholders in some of the situations and in
this manner protect the interest of minorities.

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As mentioned above, the statutory remedy is also available to minority shareholders in addition
to the equitable remedies. Before moving the discussion towards such remedy this is to state that
the same is a case of Australia, such remedies are mentioned under Corporations Act 2001 (Cth)
(hereinafter referred as an act for the purpose of this part of the essay). This is the corporate law
of the nation and consists of all the provisions and regulations related to working of the
Australian cases. Starting the discussion on statutory remedies mentioned under the act, this is to
state that oppression remedy is one of the important statutory remedy available with minority
shareholders. According to section 232 of the act actions of the majority, shareholders seem to be
invalid if they cause other minority shareholders to be oppressed, discriminated in an unfair
manner or unfairly prejudiced and the court can take action against such decision (Austlii.edu.au,
2019). Section 233 of the act plays an important part here which provides that if an action of
majority finds invalid pursuant to the provisions of section 232 of the act then the court has
power to regulate the affairs of the company, restrict a person taking part in the transaction of the
company, give order of winding up of the company, appoint a receiver, order to corporation to
buy shares of oppressed members, give injunctive relief and many others (Iknow.cch.com.au,
2019). In addition to these remedies, the court may also direct a person to do a particular act.
Here this is to mention that this remedy is most relevant in cases of the small proprietary
company as members are the directors of such companies and they are the decision makers.
Members who invest much money control the affairs of the company and minority shareholders
faces discrimination in such a situation. Further many of the times, the constitution of small
companies consists the restricted provisions in relation to sell of shares by members and in this
manner, minority shareholder feels locked in the company, as they cannot sell their shares
without the consent of majority shareholders. Wayde v NSW Rugby League (1985) 180 CLR 459

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is an important one to study here where it was given that in order to check whether directors/
majority shareholders acted oppressively or no, the court will check the reasonableness of the
decision. In this case, the board of directors of the NSW Rugby League Club decided to limit the
number of entries to 12 for 1985 Winfield Cup Premiership Competition due to some scheduling
difficulties. Because of this decision of the board, Western Suburbs District Rugby League
Football Club (Wests) became unable to take a part in the competition and initiated a claim
against the board of NSW Rugby League Club. In the claim made by Wests, two of the members
of this club argued that the decision of NSW club was oppressive as it prevented minority
shareholder (Wests) to take part in the competition and therefore an unequal treatment was made.
In the decision of this case, the court held the claim of Wests unsuccessful and provided that the
decision of the respective board was not in breach of section 232 of the act. In the reasoning of
the judgment of this case, the court provided that although the decision of the board was harsh
but the main objective behind the same was to resolve the scheduling difficulty and to work in
the best interest of the game.
It means while checking the oppressive nature of a decision court will ask the question that
whether a group of reasonable directors would have done so. If the same find the answer as no
then it will be decided that directors have performed their duties in an oppressive manner
breaching the provisions of section 232 of the act and no action will be taken under section 233
of the act. Further many of the cases have been held there where different conduct of directors or
majority shareholders declared as oppressive. For instance, it was given in the case of Strategic
Management Australia AFL Pty Ltd & Anor v Precision Sports & Entertainment Group Pty Ltd
& Ors [2016] VSC 303 at [148] that a conduct of raising share capital with the intention to
decrease minority shareholding will be treated as oppressive (Jhklegal.com.au, 2019). Hence in

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this manner, this is to say that no inclusive list is there that outlines the conduct which will be
treated as oppressive for the purpose of section 232 of the act but it all depends on the
circumstance of the case.
In order to decide the remedy for Tim in the presented case, this is to state that the same would
have equitable limitation remedy as well as statutory remedy. Applying the provisions of
equitable limitation remedy, the provided case falls under first category i.e. cases not involving
changes in the constitution and hence the relevant provisions will be applicable. Majority
shareholders of the company want to take the company’s assets on bargain price and hence this
conduct will be held invalid. Here Tim has the right to approach the court for the same and to
prevent other shareholders by passing such resolution. Further, another conduct of majority
shareholders i.e. restriction on sell of shares also seems to be held invalid under section 232 of
the act as it prevents rights to minority shareholders. As discussed above such situation is often
there in cases of small proprietary company and hence law protects the right of a minority
shareholder in such a situation. Applying the test given in Wayde v NSW Rugby League, the
conduct of Tim’s brother does not seem to be reasonable and therefore remedies mentioned
under section 233 of the act is available to Tim.

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References
Austlii.edu.au. (2019). Corporations Act 2001 - Sect 232. Retrieved From:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s232.html
Biala Pty Ltd & Anor v Mallina Holdings Ltd - [1997] FCA 165
Corporations Act 2001 (Cth)
Gambotto v WCP Ltd (1995) 13 ACLC 342
Iknow.cch.com.au. (2019). Corporations Act 2001, Section 233 Orders The Court Can Make.
Retrieved From: https://iknow.cch.com.au/document/atagUio486026sl14505661/section-233-
orders-the-court-can-make
Jhklegal.com.au. (2019). Oppression Remedies for Minority Shareholders. Retrieved From:
http://www.jhklegal.com.au/oppression-remedies-for-minority-shareholders/
Ngurli Ltd v McCann [1953] HCA 39; 90 CLR 425
Ramsay, I. and Saunders, B. (2011). What Do You Do With a High Court Decision You Don't
Like? Legislative, Judicial and Academic Responses to Gambotto v. WCP Ltd. SSRN Electronic
Journal.
Strategic Management Australia AFL Pty Ltd & Anor v Precision Sports & Entertainment Group
Pty Ltd & Ors [2016] VSC 303 at [148]
Wayde v NSW Rugby League (1985) 180 CLR 459

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