Commercial Litigation: Share Holders Disputes

Company shareholder disputes are often expensive, time consuming and destroy relationships.  That is why we recommend that dispute resolution clauses be included in an executed Shareholders Agreement.

Notwithstanding legislative remedies are clumsy, inefficient and very expensive they are sometimes the only remedy available. 

The common legal remedies include:

• Obtaining a court order to wind up the company up the grounds set out in Section 461 of the Act*. These grounds include:
  1. The directors, have acted in the affairs of the company in their own interests rather than in the interests of members as a whole; or in any other member what soever that appears t be unfair to other members;
  2. Affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or in a manner that is contrary to the interest of the members as a whole;
  3. The Court is of the opinion that it just and equitable that the company be wound up.
     1. This the most frequently used provision of this section.
     2. It is often used in minority oppression cases and in cases involving public interest issues such as situations involving fundraising as in Managed Investment Schemes.

• Asking the court pursuant to Section 232 of the Act* to make an order under Section 233 of the Act* if the conduct of the company’s affairs or the actual or proposed act or omission by or on behalf of a company or a resolution or proposed resolution of a members or a class thereof is either:
• contrary to the members as a whole; or
• Oppressive to, unfairly prejudicial to, or unfairly discriminatory against a member or members.

We will discuss the types of orders that can be in future editions of The Technical Briefing.

Can the provisions of Part 5.3A of the Act* be relied upon to assist in the resolution of Disputes? 

As you will recall the object of this Part is to provide for the business, property and affairs of an insolvent company to be administered in a particular way.

The court heard in the matter of Re Australian Blue Mountain International Cultural and Tourist Group  Pty Ltd [2015] NSWSC 937 that a dispute between minority and majority shareholders had arisen.  The majority shareholders had approached a liquidator to assist the parties to negotiate a settlement of their dispute. In the absence of the minority shareholders the Liquidator was appointed Administrator and then subsequently attempted to resolve the disputes between the two groups of shareholders. 

Upon the minority shareholders successfully challenging the appointment of the Liquidator the court unequivocally stated that ”…… Part 5.3A of the Corporations Act was not introduced as a mechanism to resolve shareholders disputes and its use for that purpose would tend to expose the company, its creditors and its contributories to a risk….”

So what are some other options which could be considered to resolve disputes between shareholders in the absence of well drafted Shareholders Agreement?

• A party could buy out the shares of the other party;
• Promote a greater understanding of the affairs of the company by:
  • Appointing an auditor
  • Analysing the company accounts;
• Jointly appoint a mediator to enable the parties to engage in a safe full and frank discussion.

If you have further questions, please contact us at frank@franklaw.com.au.

This is not legal advice.