Oppressive Conduct under the Corporations Act 2001 (Cth)

Part 2F.1 of the Corporations Act 2001 (Cth) provides relief for members of a company in circumstances where the conduct of a company is oppressive. A wide definition is applied to conduct generally and conduct that falls within the provision. In Munstermann v Rayward; Rayward v Munstermann [2017] NSWSC 133 His honour Justice Stevenson provides a succinct list of principles applicable to determing whether conduct offends the Part of the Act. They are:

  1. The test of oppression is an objective one of unfairness (Wayde v NSW Rugby League Ltd (1985) 180 CLR 459 at 472 – 473 (Brennan J) (as his Honour then was); Re Quest (1992) 6 ACSR 659 at 669(Mackenzie J)).
  2. The court must look to determine whether on the balance of probabilities the objective commercial bystander would be satisfied that the affairs of the company were being conducted unfairly (Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359; NSWCA 95 at [362] (Young CJ in Eq) (as his Honour then was); Cassegrain v CTK Engineering Pty Ltd [2005] NSWSC 495 at [84] (White J)).
  3. A director may act oppressively in the sense relevant to the operation of s 232 and yet not breach any fiduciary or other duty owed as a director (Gerard Cassegrain & Co Pty Ltd v Cassegrain[2011] NSWSC 1156 at [49] (Barrett J) (as his Honour then was)).
  4. Conduct of a company’s affairs may be oppressive even though the conduct is otherwise lawful (Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304; HCA 25 at [176] (Gummow, Hayne, Heydon and Kiefel JJ)).
  5. Conduct that has the effect of paralysing a company in the operation of its business is properly characterised as conduct contrary to the interests of the members as a whole (Campbell v Backoffice Investments Pty Ltd (2008) 66 ACSR 359; NSWCA 95 at [185] (Basten JA)).
  6. A shareholder of 50 per cent of the shares in a company can seek relief for oppressive conduct because they do not have control in the form of power to prevent the oppression, particularly where individual strong arm tactics are used (Patterson v Humfrey [2014] WASC 446 at [52]-[53] (Le Miere J).
  7. The court must formulate an opinion about oppression or unfair prejudice as at the date of the institution of proceedings and the issue of relief under s 233 must be determined as at the date of the hearing (Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (2001) 37 ACSR 672; NSWCA 97 at [159] (Spigelman CJ)).
  8. The discretion under s 233 is wide as to the appropriate remedy (Smith Martis Cork & Rajan Pty Ltd v Benjamin Corporation Pty Ltd (2004) ALR 136 at [70] (Wilcox, Marshall and Jacobson JJ) citing United Rural Enterprises Pty Ltd v Lopmand Pty Ltd (2003) 47 ACSR 514; [2003] NSWCA 910 at [34]-[38] (Campbell J)).
  9. The nature of the remedy chosen by the court under s 233 will be dependent upon the conclusions drawn by the court as to the type of oppression with which the court is dealing and the court will choose the remedy which is least intrusive (Re Enterprise Gold Mines NL (1991) 9 ACLC 168 at 174 (Murray J), United Rural Enterprises Pty Ltd v Lopmand Pty Ltd at [26] citing Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; NSWSC 413 at 742 (Young J)).
  10. The aim of any order under s 233 must be to put an end to the oppression (Nassar v Innovative Precasters Group Pty Ltd (2009) 71 ACSR 343 at [125] (Barrett J) (as his Honour then was)).
  11. The court should only look to wind up an otherwise solvent company as a “last resort” (Fexuto Pty Ltd v Bosnjak Holdings Pty Ltd (1998) 28 ACSR 688; NSWSC 413 at 742 (Young J) (as his Honour then was)).
  12. As a remedy for oppression, an oppressor can be ordered to sell their shares to the oppressed party (Re a company; ex parte Shooter (No 2) [1991] BCLC 267 (Harman J); Re Brenfield Squash Racquets Club Ltd [1996] 2 BCLC 184 (Rattee J)).
  13. If an order is to be made for the purchase of shares under s 233 the task of the court is to fix a price that represents a fair value in all the circumstances (Smith Martis Cork at [71] (Wilcox, Marshall and Jacobson JJ)).

 

Ari Katsoulas is a Sydney Barrister with expertise in Corporations and commercial litigation.

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