We are seeing a rise in shareholder disputes – unsurprising given the pressures many businesses are facing.
If you are in conflict with another shareholder, the best outcome for both the business and parties involved is to resolve the matter without going to Court. This can happen in one of two ways:
- the parties agree on a strategy to move forward and work together or
- one shareholder buys the other shareholder out (often an expert valuation of the business is required).
Getting legal advice early can make all the difference. It helps facilitate discussions and ensures any agreement is properly documented, avoiding costly litigation later if disputes arise about what was agreed.
What if the shareholders cannot agree?
Sometimes when shareholders cannot agree on a way to move forward, one or both shareholders seek legal redress through the Courts. The two most common Court options are:
- an application to wind up the company on just and equitable grounds
- an oppression proceeding
Winding up the company on just and equitable grounds
Even if the company is solvent, the Court many wind it up if it is no longer viable due to:
- a failure of the main object of the company’s formation
- a deadlock in the management of the company
- a breakdown in the relationship between the shareholders
- a lack of confidence in the conduct and management of the affairs of the company
- where there has been fraud, misconduct or oppression in relation to the affairs of the company
- serious concerns about the company’s compliance with its statutory obligations, including the filing of tax returns
- where there have been breaches of the Corporations Act 2001, including breaches of directors’ duties or an inadequacy of accounts or recordkeeping
- questions of commercial morality in the conduct of the company’s affairs
- a risk to the public interest that warrants protection
Oppression claims
If the directors and majority shareholders are conducting themselves in a manner that oppresses the minority shareholder(s), then these minority shareholder(s) may have a claim in oppression.
In order for a claim for oppression to be successful, the conduct of the company must be more than simply an action which the shareholder disagrees with. Whilst there needs to be a lack of fair dealing, the conduct does not have to be illegal.
Some examples of oppression include:
• excluding the minority shareholder from the affairs of the company
• a denial of information or
• ensuring a legitimate corporate opportunity is given to themselves or an associate.
Court Remedies may include:
• that the company be wound up
• that the constitution of the company be modified or
• the purchase of the oppressed minority shareholding by the other shareholder(s) – often this will involve a valuation of the shares at a price in the event that the oppressive conduct had not occurred.
Key takeaway
If you find yourself in a shareholder dispute there are legal options available to you and obtaining good legal advice early is essential.
At Madgwick Lawyers, Catherine Ballantyne is well placed to advice in relation to these types of disputes.
The information provided in this article is general in nature and cannot be relied on as legal advice, nor does it create an engagement. Please contact one our lawyers listed above for advice about your specific situation.
