3 Things to Know about Oppressive Conduct in Corporations

Oppressive conduct is a risk to both corporations and shareholders. As such, it is important for all companies and shareholders to understand and avoid oppressive conduct. Oppressive conduct is captured in the common law as well as the Corporations Act 2001 (Cth).

Understanding Oppressive Conduct

Section 232 of the Corporations Act 2001 (Cth) defines oppressive conduct as conduct that is contrary to the interests of the shareholders as a whole, or oppressive to, unfairly prejudicial to, or unfairly discriminatory against a shareholder or shareholders. In this context, such conduct is often referred to as minority shareholder oppression. The common law considers conduct to be oppressive if a reasonable person would view the conduct as unfair. Here, prejudicial or discriminatory conduct alone, without an element of unfairness, is not sufficient to meet the bar of oppressive conduct.

Avoiding Risk of Oppressive Conduct

When shareholders use their influence for their personal benefit, as opposed to the benefit of the shareholders at large or the company itself, this is considered oppressive conduct. This type of conduct is illegal and can have long-lasting negative repercussions for the company, such as by reducing the value of company shares.

Oppressive conduct may include a failure to pay dividends, provide access to company records, properly use company funds, permit participation in board meetings or management, or properly issue shares. As there is no exhaustive list of circumstances giving rise to oppressive conduct, there are many other examples of oppressive conduct. As such, it is important to show due care and regard when making decisions in order to protect minority shareholders from unfairly prejudicial or discriminatory consequences.

However, there are some cases which may appear to be instances of oppressive conduct, but in truth are not. For example, should majority shareholders simply triumph over minority shareholders in a valid exercise of voting power, this conduct is not oppressive. This is also the case if minority shareholders simply lose their confidence in the board of directors.

Awareness of Court Remedies for Oppressive Conduct

Should a court find that a company has engaged in oppressive conduct, a number of remedies may be available to shareholders through section 233 of the Corporations Act 2001 (Cth). For example, an injunction may be granted against the corporation, or a director or majority shareholder may be required to refrain from undertaking a particular act. Importantly, the corporation itself may be required to purchase shares held by minority shareholders, or majority shareholders may be required to purchase shares held by minority shareholders at a price set by the court. In the most serious circumstances where no other remedy is available, the corporation may have to be wound up and a receiver appointed. The particular remedies ordered by the court will depend upon the type of oppressive action that was undertaken. 

Do you have questions about your rights and obligations as a director or shareholder? Please don’t hesitate to contact our experienced commercial lawyers at Butlers Business Lawyers on (02) 4929 7002 or fill out an enquiry form on our website.