Shareholders Oppression: Determining Minority Shareholders Oppression by Majority Shareholders

SHAREHOLDERS OPPRESSION
PROBLEM QUESTION
INTRODUCTION
Issues of minority shareholders oppression are common in private limited companies and family
business companies. In public companies, the oppression is rare since there is no restriction as to
disposal of shares. The shareholders can sell their shares to any member of the public. Issues
such as compulsory acquisition of shares and compulsory purchase of assets from minority
shareholders constitute oppression. Other instances of oppression include discrimination and ill
treatment of minority shareholders during board meetings among others. The case scenario
between Tim and his brothers raises critical issues of determining minority shareholders
oppression by the majority shareholders. He is oppressed in two ways; the first way is the
brothers selling all the company assets to themselves without his consent and approval and the
second way is preventing him from selling out his shares yet the four brothers are not willing to
buy out the shares from him. The majority shareholders therefore wanted him out of the business
without any benefits. The case scenario also constitutes oppression within a family business
setting which forms the bulk of shareholder oppression cases in Australia.
Issue
Whether the four brothers’ actions against their younger brother amounted to oppression and
what would be the equitable and statutory remedies thereof?
Relevant law
Actions of minority shareholder oppression through excessive powers of the majority
shareholders can be limited and protected in two ways; equitable limitation of the voting powers
and statutory protection as explained below;
a) Equitable Limitation of the voting powers
The aggrieved party can institute a case in the court on the account of violation of personal rights
or file a derivative suite claiming violation of the interest of the whole company. Under
derivative suit one must prove that the director’ or shareholders’ actions amounted to gross

violation of a company’s interests. It the case of Gambotto and Anor v WCP Ltd and Anor1 the
federal High court issued an injunction barring majority shareholders from compulsorily
acquiring minority shareholders’ shares as an equitable remedy among other statutory remedies
under the corporations law.
b) Statutory protection
Statutory protection under Corporations Act provides for what can amount to oppression and
also gives the appropriate remedies. According to the Act, the court can make orders stated under
section 233 of the Act under various grounds. Such grounds include; where a company’s affairs
are prejudicial or unfair to the rights of the whole company or certain members of the company
or the decisions of the majority shareholders are discriminatory to the minority members.2
Where oppression is proved, the court may make various statutory remedies depending on the
case circumstances. Such remedies could include an order for change or repeal of a company’s
constitution; sell out of shares and reduction of capital; an order for winding up; an order for
receivership or administration among others.3 The Corporations Act also provides for a person
who can make a court application and that includes a shareholder who is being oppressed.
Commercial fairness in a business setting may differ from fairness standards in a family
business. Tim’s case scenario is involves a family business because the five shareholders of
Grumpy Grande Company are all brothers. In the case of Morgan v 45 Flers Avenue Pty Ltd4 the
court stated that the unfair conduct should be evident in the eyes of a commercial bystander that
a director acting reasonably will not take that course of action.
Statutory protection against oppression of minority shareholder was illustrated in the case of
Scottish Cooperative Wholesale Society Ltd v Meyer.5 In the case above the cooperative society
formed a company with two other people who became the directors while the cooperative society
produced three directors to the company who were also the directors of the cooperative society
itself. The cooperative society used its voting power to transfer all the business to one of its
1 Gambotto and Anor v WCP Ltd and Anor (1995) High court of Australia 8 March 1995
2 Corporations Act 2001 s 232
3 Corporations Act 2001 s 233
4 Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 704
5 Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324