Corporate Law Essay: Protecting Minority Shareholders in Australia

This essay delves into the realm of corporate law, specifically addressing the remedies available to minority shareholders in Australia. The essay begins by outlining the fundamental roles of directors, officers, and shareholders, emphasizing the importance of protecting minority shareholder interests against the potential for unfair treatment by majority shareholders. It then explores both common law and statutory remedies, including equitable limitations on majority voting power and remedies provided under the Corporations Act 2001 (Cth). The discussion of equitable remedies covers limitations on the unfair use of majority power, including instances of improper purpose, such as amendments to the constitution that disadvantage minority shareholders or the expropriation of voting rights. The essay further analyzes statutory remedies available under the Corporations Act 2001 (Cth), particularly Part 2F.1 concerning oppressive conduct, and examines the application of the Wayde v NSW Rugby League test for determining oppressive behavior. The essay concludes by applying these legal principles to a case study involving Tim and his brothers, providing advice on the available remedies based on the specific facts and circumstances presented.

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Every corporation needs some natural people to act on its behalf. These people are known as
directors and officers of the company and form management of the company. Directors have the
power to perform the functions on behalf of the company and can make decisions for the same.
Here this is to state that not every power lies with directors and there are some matters are
required to be decided by shareholders. Shareholders are the true owner of the company and
significant matter are to be decided by them (Merritt, 2019). Different shareholders have a
different number of shares and they have voting powers accordingly. In this manner, majority
shareholders decide important matters related to the business of the company and many times
ignore the interest of minority shareholders. As the name implies minority shareholders are those
shareholders who have least shares in the company. Law is concern about such shareholders and
provides them protection against dominating decisions of the majority. Decisions of majority
shareholders seem to be valid if the same does not affect minority shareholders in a negative
manner. Therefore, at events where the majority takes an unfair and unjustified decision, then
common law, as well as statutory law, acts as a protector. In this essay, some remedies will be
discussed that can be allowed to Tim as per his situation presented in the given case. These
remedies will include the most relevant common law and statutory remedy.
Starting from the equitable remedy on majority voting power, this is to state that it puts a limit on
unfair use of majority power in various manners. Here law does not seem to have any issue with
the performance of powers by the majority but with unjust use of the same. Some people know
this remedy as equitable limitations. This remedy prevents majority shareholders by deciding any
matter, passing any resolution and by taking any decision that is for an improper purpose. Many
of the matters are there that can be treated as “for an improper purpose.” It mainly includes
amendment or alteration of the constitution in a manner that can prove a disadvantage for

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minority shareholders, purchase of company’s property on a price less than the actual one,
alteration in share capital with an intention to increase their overall voting powers and others.
These incidents can fall in one of two categories. One is cases that are not related to the
amendment of the constitution or cases that are related to changes in the constitution. In order to
discuss this remedy further in detail, this is to state that in the first category that cases that do not
propose any changes in the constitution of the company but are unfair for the minority
shareholders falls. These types of cases involve two situations. The first situation is given in the
case of Ngurli Ltd v McCann [1953] HCA 39; 90 CLR 425. It was held in this case, that in those
cases where majority shareholders use their power to the company’s property or other rights then
such use of powers falls under the category of unjust use. The second was given in the case of
Biala Pty Ltd & Anor v Mallina Holdings Ltd - [1997] FCA 165, where it has been granted that
the resolution will be treated as invalid when the same prevent company by taking legal action
against such majority shareholders. As mentioned earlier, some cases are also there which are
related to the changes in the constitution and treated as invalid for the purpose of subjective
remedy i.e. equitable limitation.
It was given in the case of Gambotto v WCP Ltd (1995) 13 ACLC 342 that such cases can be
divided into two categories. The first category consists of those amendments of the constitution
that permit expropriation of voting rights. Such amendments must be developed for improper
purpose with the intention of oppression. An amendment seems to be oppressive when applicable
and procedural fairness are missing from the same. In other words, this is to say that amendment
can be made when the same is not oppressive and made for a proper purpose. Here procedural
fairness refers to a requirement where it becomes the liability of majority shareholders to
disclose all the related information along with a reason to other shareholders. On the other side,

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substantive fairness refers to a requirement where the shares prices are required to prove as fair
(Bottomley, Hall, Spender and Nosworthy, 2017). Another category is also provided under
Gambotto v WCPLtd. As per this category, a resolution seems to be in breach of equitable
limitation rule when the same give rise to a conflict of interest. Those cases that not expropriate
minority shares but rise conflict also falls in this category. As per the provisions of this remedy,
an amendment that rise to a conflict of interest can be held valid if the same is done for the
purpose of the company and if the same is not oppressive for minority shareholders. Principle
provided in the case of Gambotto v WCP Ltd is not applicable where the company chose
procedure mentioned under Corporations Act for reduction of share capital. In order to conclude
this remedy, this is to say that if a case/resolution/decision of majority shareholders falls in either
category provided under Gambotto v WCP Ltdi , then the court can held such resolution invalid.
Now, the time is to discuss statutory remedies that are available to minority shareholder under
Corporations Act 2001 (Cth). This legislation carries corporate law of Australia. Part 2F.1 of the
act carries provision related to oppressive conduct of affairs. Section 232 to 235 of the act forms
this part (Austlii.edu.au, 2019). Turning to the discussion of these sections, this is to say that a
resolution proposed by the company itself or any particular class of shareholders can be held
invalid if the same is conflicting to the interest of all the members or if the same is unfair or
oppressive for one or more than one shareholder of the company. Here it is typical to decide
whether a resolution is oppressive or not. To resolve this issue, a test has been given in the case
of Wayde v NSW Rugby League (1985) 180 CLR 459. It was provided in this case, that the
resolution/decision of majority shareholders is treated as oppressive if the same is not reasonably
made (Shareholderlaw.wordpress.com, 2019). It means as per this case, the decision of majority
shareholders or directors cannot be treated as oppressive if a group of reasonable directors would

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also have done so. Here this is necessary to mention that for the purpose of this test, the intention
of directors/majority is irrelevant and one court will make the focus on impact. It means if such
people act honestly but their action brings unreasonable impact to minority then the decision will
be treated as oppressive. Many of the cases have happened in the past where the court held
different decisions as oppressive. For instance, as per the facts and decision of the case of
Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324, a decision of directors is
treated an oppressive where they divert the business opportunities to them from the company.
Hogg v Cramphorn Ltd [1967] Ch 254 is another important case that determines the action of
directors oppressive where they prevent minority shareholders by taking part in the management
of the company. It means all the situations where directors do not behave in a reasonable manner,
are treated as oppressive conduct.
When a resolution is in breach of section 232 of the act, then the court can take appropriate
actions under section 233 of the act . As per the provisions of section 233 of the act, the court has
the power to consider the situation and to take any such decision in favor of minority
shareholders such as regulation of company’s affairs, issuing winding up orders for company,
amendment of company’s existing constitution and so on (Wipo.int, 2019). The remedy granted
under this section is more relevant in cases of small companies because such companies have
few people in the management and generally, two or three people hold the whole shareholding.
In such a situation, people who have very nominal shares in these companies find many issues.
The majority does not hear their side and take those decisions that are good for them. However,
section 232 of the act does not prescribe every act, which can be termed as oppressive, but it has
a wider scope and this remedy is one of the significant ones for minority shareholders as they can
raise their voice against unfair conduct of directors and majority shareholders.

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In order to discuss Tim’s situation in the provided case and to advise him with the remedy, this is
to state that restriction on majority voting power is the equitable remedy that seems to be
available to him. This remedy has been discussed in this essay earlier. In the given cases his four
brothers have the intention to take company’s assets on a price less than the market price. The
case falls in the first category namely cases not involving changes in the constitution. They have
the intention to use their voting rights to take away the property of their company named The
Grumpy Grande Pty Ltd". Only this one conduct is not there which is oppressive but another one
is also there. Other directors, who are also majority shareholders of the company, wan to prevent
Tim by selling his shares, especially to an outsider. As per the test given in the case of Wayde v
NSW Rugby League, this conduct of other shareholders does not seem to be reasonable under
section 232. Further as per the provisions of section 232 of the act too, Tim can bring an action
against majority shareholders as the same has an adverse impact on the interest of Tim, a
minority shareholder.

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References
Austlii.edu.au. (2019). Corporations Act 2001. [online] Available from:
http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/ [Accessed on 16/05/2019]
Biala Pty Ltd & Anor v Mallina Holdings Ltd - [1997] FCA 165
Bottomley, S., Hall, K., Spender, P. and Nosworthy, B (2017) Contemporary Australian
Corporate Law. Australia: Cambridge University Press.
Corporations Act 2001 (Cth)
Gambotto v WCP Ltd (1995) 13 ACLC 342
Hogg v Cramphorn Ltd [1967] Ch 254
Merritt, C. (2019) Are the Common Stockholders True Owners of the Corporation? [online]
Available from: https://smallbusiness.chron.com/common-stockholders-true-owners-corporation-
67008.html [Accessed on 16/05/2019]
Ngurli Ltd v McCann [1953] HCA 39; 90 CLR 425
Scottish Co-operative Wholesale Society Ltd v Meyer [1959] AC 324
Shareholderlaw.wordpress.com. (2019) Wayde v New South Wales Rugby League Ltd (1985) 180
CLR 459. [online] Available from: https://shareholderlaw.wordpress.com/2016/12/27/wayde-v-
new-south-wales-rugby-league-ltd-1985-180-clr-459/ [Accessed on 16/05/2019]
Wayde v NSW Rugby League (1985) 180 CLR 459

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Wipo.int. (2019). Corporations Act 2001. [online] Available from:
https://www.wipo.int/edocs/lexdocs/laws/en/au/au196en.pdf [Accessed on 16/05/2019]