Describe about the Commercial and Corporate Law for Oppression and Discrimination.
Members of a Company have often been a victim of oppression and discrimination sometimes by the decisions taken by the Directors of a Company and sometimes by the decisions taken by the majority shareholders. They have often been ignored and have not been allowed to participate in the management of the Company. Thus, the minority shareholders have been treated unfairly. The law against oppression done to the members by the Company has developed and has become strong in Australia. The Corporation Act of 2001 has laid down provisions under which the members have right and remedies against such discriminative behaviour. The present case study relates to the oppression and discrimination done by the Board of Directors of Happy Days Ltd. Company against some members i.e. Walter and Shirley. The present assignment deals with the legal remedies which Walter and Shirley have against the arbitrary and unreasonable decisions taken by the Board of Members of the Company.
In the instant case, Walter and Shirley are the members of Happy Days Ltd. Company. Investment has been done by Walter and Shirley out of their retirement savings in the Company. The company is engaged in developing the retirement communities for people of 55 years of age and above. The facilities offered by the communities among other things include apartments, houses, membership of a golf club, massage therapy, yoga classes, gym, dance classes, etc. Walter and Shirley have been living for the past three years in one of the communities of Happy Days Ltd. They have lived happily in the community and have become friends with the other residents.
But, things have changed since the Board of Directors of Happy Days Ltd. has made some changes in the affairs of the Company. Firstly, the payment of dividends to the members was stopped by the Company as the Company was looking for to use the money for the growth of the Company. Walter and Shirley relied on these dividends for funding their trip to New Zealand where they wish to meet their son and his family. Secondly, the Board of Directors is looking forward to diversify the business of the company. The Directors are intending to purchase an apartment building in Melbourne to accommodate the retirees. According to Walter and Shirley, the apartment in which they are intended to be accommodated are small and unsuitable for them. Thirdly, an increment of the fees at existing communities by 30% has been proposed to be introduced by the Board of Directors. The reason for which they are proposing to increase the fees by 30% is because the communities are making demands for more facilities which cannot be provided under the current revenue generated by the Company. But according to Walter and Shirley, the real reason for increasing the price is to incur expenses in the new development in Melbourne.
A recent protest has been held by Walter and Shirley against the decisions of the Board. Walter had also a scuffle with the Chairman and Walter fell down from the stairs and injured himself. He is now in a wheelchair.
The details of the protest has been reported by Channel 7 news. In an interview conducted by the news channel, the chairman has made rude remarks regarding Walter. According to the Chairman, Walter is not fit to stay in the community and should move out as soon as possible.
“Chapter 2F of the Corporation Act 2001 deals with the rights and remedies of the members of a Company.” (Holcombe & Sullivan, 2013).
Section 232 of the Act lays down that an order specified under Section 233 may be passed by the Court if the conduct of the affairs of a Company or a Company’s actual or proposed act or omission is either contrary to the members’ interest or is unfairly discriminated against or unfairly prejudicial or oppressive to the members of the Company (Black, 2013).
The section provides that a person who holds shares in a Company shall be considered as a member of a Company (Koh, 2015).
Section 233 specifies the orders which can be made by the Court. The orders which the Court can make under thus Section are as follows:
iii. that the affairs of the Company be regulated by the Court in the future;
vii. that a member of the Company or a person to whom the shares of the Company are transmitted be authorised to institute, defend, prosecute or discontinue specific proceeding in the name of the Company or on behalf of the Company;
viii. that a manager and receiver be appointed with respect to the property of the Company;
viii. that a person be restrained from doing a specified act or from engaging in a specified conduct;
that specified act be done by a person (Tomasic, 2015)
Now, the decisions of the Board of Directors have been clearly unfairly prejudicial, unfairly discriminated against and have been contrary to the members of the Company. Thus, according to Section 232, the members have a remedy against such action of the Directors and they may sought an order of Court (Odorisio et al., 2015). Under this section, Walter and Shirley may be considered to be members as they have invested in the Company and they hold shares of the Company.
Now let us examine whether Walter and Shirley has the right to apply for seeking a Court order under Section 233 nor not.
Section 234 lays down the list of persons who may apply for seeking a Court order. As per the provisions of this section a member of a company may make an application for seeking a Court order (Hurley, 2014). Walter and Shirley are members of the Company and they have statutory right under this section to apply for seeking a Court order against the decisions of the Directors which have been unfairly prejudicial, unfairly discriminated against and have been contrary to them.
Thus, under the provisions laid down under Section 234, Walter and Shirley have the right to apply for the remedy.
For the purpose of obtaining the remedy, Walter and Shirley have to show that oppression has been caused to them by the steps taken by the Board of Directors.
Case law: “Scottish Cooperative Wholesale Society Limited vs Meyer (1959)”
In this case, The Court held that the Scottish Society has caused oppression to the members of the Company by diversifying the business. As per the facts of the case, Scottish Society sought to purchase shares form its members at a value which was less than the true value of the shares. Such proposal of Scottish was rejected by the members. The Society then sought to transfer the business of the Company to a new department, thus bringing down the value of the shares. According to the Court, the conduct of the Scottish has been oppressive to the members (Brockett, 2012).
In the instant case as well, the Company, Happy Days Ltd. Company is seeking to diversify its business. The Board of Directors are looking to buy a new apartment building in Melbourne in which it wants to accommodate the retirees. But, the new apartments in Melbourne are too small and it will be highly unsuitable for the members to stay. This conduct of the Company has been oppressive to the members they have a right tom seek remedy for the same.
Case Law: “Shamsallah holdings Pty limited vs CBD refrigeration and Air conditioning Services Pty Ltd.”
In this case, it was held that non-payment of dividend to the members of a Company without a justified cause would result in oppression and unfair treatment to the members (Wuth, 2014).
In the instant case, payment of dividend to the members has been stopped which constitute an oppression under Section 232. The plan of Walter and Shirley to meet their son and his family in New Zealand is dependent on the payment of then dividend. The interests of them are being clearly affected by the decision of non-payment of dividends taken by the Board of Directors.
The rule that an individual member cannot sue a Company or that the Court should not interfere in the internal management of the Company was laid down in the case of Foss vs. Harbottle (Kershaw, 2013). The rule had restrained the individual members to take action against directors or majority shareholders of the Company. However, the rule as laid down in the case of Foss vs. Harbottle has not been adhered to in Australia. The Courts of Australia have adopted a wide approach with respect to the oppression caused to the members by the conduct of a Company (Malla, 2014).
In the case of “Campbell v Backoffice Investments Pty Ltd,” it was held by the Court the provisions laid down under Sections 232 and 233 must be read broadly. Thus, the remedies available to the members have been broadened their scope have been enlarged under the Corporation Act 2001. According to Ramsay and Ford: “It did not require the conduct complained of to be unlawful, and allowed proceedings to be instituted by an individual member, notwithstanding the rule in Foss v Harbottle” (Emmerig & Legg, 2016).
Therefore, the members, against whom the oppression are caused, have a statutory remedy and what actually they need to do is to establish that oppression has been caused against them. Once such oppression has been established, then the Court may proceed to pass any order as specified under Section 233 (Thai, 2016).
Thus, in the present case, Walter and Shirley may proceed to file a suit against the directors of the Company due to their oppressive conduct. The Directors have not dealt with the members fairly and they have discriminated against the members and have acted against their interests.
It is advisable to Walter and Shirley to continue living in the community in which they have stayed for the last three years. Walter has been injured I a scuffle with the Chairman of the Company and it is recommended that he does not get into any further scuffle with the managers of the Company. Walter and Shirley should straightaway sough a relief from the Court. Given the kind of attention the Australian Courts and the Australian Parliament have given to the issue of minority oppression, they are likely to get a remedy from the court. Thus, at present, Walter is advised to concentrate towards his knee replacement and take care of his health. The involvement of the Court would hopefully bring some relief in favour of the interest of the members.
Conclusion:
Thus, the members of the Happy Days Ltd. Company i.e. Walter and Shirley have been oppressed and have been discriminated against by the decisions of the Board of Directors of the Company. The members have the right under the provisions of the Corporation Act, 2001 and they should immediately move the Court for seeking remedies. The Australian Courts have dealt with similar matters like this in favour of the members against whom oppression had been caused. Therefore, it is likely that they would get a positive response from the Court and the Directors would be restrained from indulging in similar activities in future.
References:
Black, A. (2013). Practice in the corporations list of the supreme court of NSW. Commercial Law Quarterly: The Journal of the Commercial Law Association of Australia, 27(1), 15.
Brockett, R. (2012). Valuation of Minority Shareholdings in an Oppression Context-A Contemporary Review, The. Bond L. Rev., 24, 101.
Emmerig, J., & Legg, M. (2016). Corporate law: Indirect causation accepted in shareholder claim of misleading conduct: Ramifications for shareholder class actions. Governance Directions, 68(8), 490.
Holcombe, S., & Sullivan, P. (2013). Australian Indigenous Organisations. Holcombe, S and Sullivan.
Hurley, T. (2014). Case notes: The latest from the high and federal courts. LSJ: Law Society of NSW Journal, 1(3), 84.
Kershaw, D. (2013). The rule in Foss v Harbottle is dead; long live the rule in Foss v Harbottle.
Koh, P. (2015). THE OPPRESSION REMEDY—CLARIFICATIONS ON BOUNDARIES. Journal of Corporate Law Studies, 15(2), 407-415.
Malla, S. (2014). Minority Shareholders Protection, Short Analysis and Critic. ENTHA, 1, 21.
Odorisio, N., Clements, A., & Davies, A. (2015). Dividend payments-not just at the director’s discretion. Governance Directions, 67(4), 243.
Thai, L. (2016). Class Action Procedure in Australia–Issues and Challenges. In The Dynamism of Civil Procedure-Global Trends and Developments (pp. 215-236). Springer International Publishing.
Tomasic, R. (2015). The Rise and Fall of the Capital Maintenance Doctrine in Australian Corporate Law.
Wuth, N. (2014). More Say on Pay-Shareholder Rights and Remedies in Respect of Excessive Director Remuneration. Canberra L. Rev., 12, 30.
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