Having the numbers isn’t a free pass: shareholder oppression explained

Why having the numbers doesn’t settle it

When a business relationship sours, the people with the most shares sometimes start making decisions that quietly squeeze everyone else out.

This comes up in a few recurring patterns:

• Sarah, one of three friends who co-own a café, who since a falling out has been left out of meetings and whose requests for the accounts go unanswered;
• the siblings in a family manufacturing company that never makes enough profit to pay a dividend, while Dad and the one sibling who works there draw generous salaries; and
• a minority shareholder who logs in to the company portal and finds thousands of new shares were issued to the majority owner last month, shrinking his stake.

None of them has been robbed in any obvious sense. But each may be being treated in a way the law regards as oppressive.

What actually counts as oppression?

The Act doesn’t define it, and that’s deliberate. Unfairness takes too many forms to list.¹

The test is objective. Would a reasonable, commercially minded observer, looking at the whole situation, regard the conduct as unfair?² It isn’t about whether the majority meant harm. Conduct can be lawful and done in good faith and still be oppressive.³

The High Court has asked whether the decision was one that no board acting reasonably could have made.⁴ Brennan J put it as whether reasonable directors, weighing the company’s interests against the burden on the member, would have decided it was unfair to make the decision.⁵

Courts look at the course of conduct, not one isolated decision. A single tough call is rarely oppression. A steady pattern often is.

The family company shows how this works. Paying salaries isn’t unlawful. But if the salaries are really disguised dividends flowing only to the insiders, and profit is kept low so the outside shareholders get nothing year after year, a court can look past the form to the substance.

“I only own 20%.” Can I still bring a claim?

Yes. You can apply if you’re a current shareholder, a former shareholder whose claim relates to how you stopped being one, or someone who inherited shares. A person ASIC considers appropriate after an investigation can also apply.⁶

The Act protects you in more than your role as a shareholder. It covers conduct that is unfair to you “whether in that capacity or in any other capacity”.⁷ That matters in small companies, where the same people are usually shareholders, directors and employees. Being pushed out of your job or off the board can form part of the claim, because in a small business the expectation of staying involved is often part of the deal.⁸

Sarah doesn’t need a controlling stake. A part-owner shut out of management and information is exactly who the remedy is for.

“The majority has always run things.” Does that defeat my claim?

Not necessarily. In small, closely held companies, the constitution and the board votes often don’t tell the whole story. People go into these ventures on informal understandings: everyone will have a say, the founders will stay involved, and profits will be shared.

Courts treat these as legitimate expectations. Conduct that betrays them can be oppressive even where it technically complies with the constitution.⁹ The more your business looks like a partnership between a few people who trusted each other, the more weight those understandings carry. In serious cases, the same idea can justify winding the company up on just and equitable grounds, though that is a blunt tool.¹⁰

So the fact that the family company was always “run by Dad” doesn’t defeat a claim, if the shared understanding was that it existed for the whole family.

“It was a commercial decision.” Isn’t the company allowed to make tough calls?

Yes. Declining a dividend to reinvest, restructuring or bringing in outside capital isn’t oppression just because a minority dislikes it. Courts give directors real room to make honest business judgments.

A decision made for genuine commercial reasons and applied even-handedly will usually survive, even if it hurts. A decision dressed up as commercial but really designed to pressure, punish or squeeze out a particular owner won’t. The clearest red flag is a decision that benefits the people in control while the cost falls on everyone else.

A share issue is the textbook case. Where shares are issued for the real purpose of diluting a minority or entrenching the majority’s control, courts have long been prepared to step in.¹¹ For the shareholder who logged in to find new shares on the register, the question isn’t whether shares were issued, but why.

If a court agrees with me, what can it actually do?

A lot. The court has a wide menu of orders.¹² The most common is a buy-out at a value the court sets, so the parties can go their separate ways cleanly. The court can also wind the company up, change or repeal its constitution, regulate how it’s run in future, appoint a receiver, stop particular conduct, or require something specific to be done.

Valuation matters too. Where the oppression is what forced the exit, the court can value the shares without a minority discount, so the people in control don’t benefit from their own conduct.¹³

What should I actually do right now?

1. Put your requests for accounts and information in writing, and keep copies of every reply, or the lack of one.
2. If you’re refused, a court can order that you be allowed to inspect the company’s books.¹⁴
3. Keep a dated record of meetings you were left out of, decisions made without you, and payments you question.
4. Don’t sell your shares or sign anything settling the dispute until you know what your shares are really worth.
5. Don’t take matters into your own hands, such as withdrawing funds or removing records. It can damage an otherwise strong claim.
6. Get advice early. Delay can be held against you.

Will it affect other proceedings?

When a marriage ends and a family company is part of the asset pool, the corporate and family law disputes collide. Control, dividends, share value and employment can all become pressure points. If you’re going through a property settlement and a business is in the mix, both sides need to be looked at together.

In short

“They have the numbers” feels like the end of it. In law, it’s often where the question starts.

Whether you have a claim comes down to:

• whether the conduct is unfair to you, judged objectively, not just unwelcome;
• whether there’s a pattern, not just one tough decision;
• what everyone understood when the business was set up; and
• what remedy fits, and what your shares are really worth.

This is worth a conversation if you are:

• A minority shareholder shut out of meetings, decisions or the company’s accounts.
• A shareholder in a family company that never seems to pay a dividend.
• A shareholder whose stake has been diluted by a share issue you didn’t agree to.
• A founder or co-founder pushed out of the business you helped build.
• A majority shareholder or director facing an oppression claim.

If any of this sounds like your situation, contact us or call 07 5522 5777. We can act on a live shareholder dispute, or review your shareholders agreement and constitution so a dispute is less likely to arise.

Legislation and cases

1. Corporations Act 2001 (Cth) s 232. ↩
2. Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692, 704 (Young J). ↩
3. Ibid; Wayde v New South Wales Rugby League Ltd [1985] HCA 68, [3] (Brennan J). ↩
4. Wayde v New South Wales Rugby League Ltd [1985] HCA 68, [17] (Mason ACJ, Wilson, Deane and Dawson JJ). ↩
5. Ibid [6] (Brennan J). ↩
6. Corporations Act 2001 (Cth) s 234. ↩
7. Ibid s 232(e). ↩
8. Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, 379 (Lord Wilberforce). ↩
9. Ibid. ↩
10. Ibid; Corporations Act 2001 (Cth) s 461(1)(k). ↩
11. Ngurli Ltd v McCann (1953) 90 CLR 425, 438–40 (Williams ACJ, Fullagar and Kitto JJ). ↩
12. Corporations Act 2001 (Cth) s 233(1). ↩
13. Re Bird Precision Bellows Ltd [1984] 3 All ER 444, 449–50 (Nourse J). ↩
14. Corporations Act 2001 (Cth) s 247A(1). ↩