Minority Shareholders For Corporations Legislation

Section 233 and 232 of the Act

Discuss about the Minority Shareholders for Corporations Legislation.

Shareholders oppressive acts could take place when the majority shareholders of an organization mis-utilize their authority and power to oppress the minority shareholders. One of the main purposes which state that oppression could take place when there was no ready market for the securities in an organization was done in the perspective of an unlisted proprietary limited corporation (Dundas Lawyers, 2014).

It was clearly observed that the beginning of the concept of oppression be positioned within an anxiety to conquer the apparent lacunas of the common law in connection to the minority members. Yet, the concept of oppression was initiated and modified in order to prevail over the issues which were related with the common law rule of Foss v. Harbottle, and in specific, an opportunity to recover on behalf of the corporation could be granted to the minority stakeholders. It was also noted in above mentioned matter in which primarily the tribunals were vigilant in understanding the definition of the word oppression (Dundas Lawyers, 2014).

In this case the inheritance was approached in general with the underpinnings of the official non- interference and the ruling of majority which was physically powerful. The above mentioned restrictions and suggestions were granted which stated that the section should be amended so that, beyond the simple concept of oppression, an employee of the corporation could protest. Under the verdict of a committee, such protest should state that the dealings of a organization were being carried out in a way that was wrongly detrimental to that interest of the employees of a corporation (Legal Vision, 2015).

As per the provisions of section 233 of the Corporations Act 2001, relief could be sought in most of the disputes of the shareholders for the allegations of the oppression done by them on the minority shareholders. This section grants that the tribunal may ask a corporation to be wound up by its order (Shand Taylor, 2014).

Section 233 of the Act also authorizes the tribunal with certain powers in order to make any command that it deliberates proper in connection to a corporation in situations where the necessities of section 232 were encountered. That authority comprises of giving a verdict that a person buys shares of another party with a proper discount of the share capital of an organization or an instruction that the corporation be convoluted up (Zammit, 2016).

Section 232 (d) of the Corporations Act

Under section 232 of the Act the tribunal has the prudence to make such a verdict of:

The conduct of an affair of the corporation;

A definite or projected performance or lapse by a corporation;

A declaration, or a projected determination, of the employees or a class of employees of a corporation;

Contrary to the interests of the members as a whole; or

Oppressive to, unfairly prejudicial to, or unfairly discriminatory against the employees whether they were in that capacity or in any other capacity.

The inquiry measured here was whether “unit holders” of a unit trust could seek the similar relief as “shareholders” under those sections. The law in this respect was vague; therefore the significance of having a Unit holders Agreement or correspondent privilege in the unit trust deed (Bal Lawyers, 2016). The vagueness occurs as the jurisdictions of New South Wales and Victoria have taken dissimilar positions on whether unit holders could seek assistance under the domineering act sections of the Corporations Act, even where there was a corporate trustee (Australian Institute of Company Directors, 2013).

This principle of “oppression against the minority” has been applied by the Supreme Court of Victoria to the performance of the trustee corporations in connection to the privileges and entitlements of recipients. In spite of this in other jurisdictions an opposite view was being adopted; in relation to this act one the conduct of trustee organizations were measured for the reasons of the statutory oppression remedy well within the legislative definition of the phrase “affairs of a organization i.e. a body corporate” (Craddock Murray Neumann, 2014). 

In the case of Vigliaroni v. CPS Investment Holdings Pty Ltd, it was clearly stated that where the act of domination transmits to the process of a trust which has a corporate executor in that case the tribunal was given power under section 233 of the Act. Under it the tribunal has a power to work out its wide-ranging authority such as to wind up a corporation in certain proper situations. It was done so that the remedy would definitely get rid of the issue of oppression and facilitate the causes of any prospect oppression to be evades (Farrar and Boulle, 2016).

Furthermore, the provisions of sections 232 and 233 of the Act for the act of “oppression” were to be “read generally”. It was open to beneficiaries of discretionary trusts managed by a company trustee to seek this remedy. 

Similarly, in the ensuing Supreme Court of Victoria case of Wain v. Drapac and Ors [2012] VSC 156 (26/04/2012), the applicants were the managers of the respondents group as a result they were provided with certain units in the connected corporations. It was done as part of a decision-making enticement scheme. They suspected that they were enforced out of the corporation by means of oppressive behavior on the part of the principal of the respondent (Addison, 2013).

The Tribunal also concluded that the defendants had acted in an oppressive manner towards the workers and have ordered the organization and the principal of the organization to buy the shares in units of the workers who were leaving on a fair price (Thomson Reuters, 2013).

But once a person has recognized that the behavior in question relates to either section 232 sub clause a,b,c then such a person must also institute that it was either:

Under sub clause (d) Contrary to the interests of the members as a whole as it was characteristically met in the cases where there was a contravention of the duties of the directors of an organization.

The above mentioned ground for relief contained in s.232 would in general include those contraventions of fiduciary duty which directors was obligated to perform in relation to the organization:

“Carelessness and contraventions of fiduciary duty of directors, even though those duties were obliged towards the organization and not the shareholders, but they were circuitously contrary to the interests of the employees as a whole. If the corporation has negative impacts then the investment of the employees could be hurt” (Corporate First Lawyers, 2016).

One anxiety in relation of this term was what could be the understanding which the judiciary would provide to the employees as a whole. Utilization of the conduct, ground for relief or act in question would be less and would be contrary to each and every person or member because:

“The interests of the controllers as employees may be well served by their selfish way of performing. Consequently not all of the employees would be underprivileged. More likely those words mean that, where managers act for their own benefit only, then they would be seen to be acting contrary to the interests of members as a whole. Even if the act of the managers in the interests of the majority they would not, under this elucidation, be acting in the interests of employees as a whole” (Harwood Andrews, 2016).

It was presented by providing a corrective environment of legislation that the tribunal should accept this view. As this part of section 232 came into effect in its current form on 13 March 2000. It was documented as a different foundation for the tribunals to intercede from the “oppressive” ground in section 232(e) (Turner, 2014).

In the matter of Turnbull and Ors v Nrma [2004] NSWSC 577 it was stated that a extraordinary general meeting of the employees of the corporation was requested under section 249D of the Act.  Certain employees gave the notice of a resolution of the company they projected to move at the subsequent general meeting.  Both cases took place out of a manufacturing dispute among the organization and its employees (Shaw, 2016).  The dispute was resolved proceeding to the call which was made by the corporation for the particular meeting in reply to the request of section 249D.  On the foundation that it would be contrary to the interests of the members as a whole, the tribunal implements its authority that states that: even though genuinely it was requested, but the corporation may not hold the meeting; and the authentically planned determination need not be put at the subsequent meeting of the organization (Lin, 2017).

It was specifically confirmed that oppression does not unavoidably engage commercial injustice. In the matter of Australian Institute of Fitness Pty Limited v Australian Institute of Fitness (Vic/Tas) Pty Limited (No 3) [2015] NSWSC 1639 it was concluded that an action was competent of being “contrary to the interests of the members as a whole” in customs other than by being profitably partial. One of the examples of this could be being pointlessly extravagant. An act or error, or a projected performance or error, by or on behalf of the organization, or a declaration, or a projected declaration, of a class of employees of the organization, was or would be domineering or unethically detrimental to, or unethically prejudiced against, an employee or numerous number of employees or was or would be contrary to the interests of the members as a whole. The ASIC has stated in a report which was made under Part 3 of the ASIC Act that the tribunal was of opinion that it was reasonable and fair that the organization be wound up (Victorian Law Reform Commission, 2016).

In the matter of ASIC v Storm Financial Ltd it was stated that a variety of individuals may apply for a command to wind up a corporation, such as the corporation, a creditor, a contributing person, the liquidator, ASIC. A winding up on the reasonable and fair ground was of a prehistoric origin under the provisions of corporate law, and the fresh request was founded on protection of the public interest (Australasian Legal Information Institute, 2016).

In order to establish shareholders minority of usage of an act of oppression and mismanagement, under section 232(e), an individual must also institute that it was Oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a employee or employees whether in that capability or in another capacity capability (Holding Redlich, 2012).

The  idiom “Oppressive to, unfairly prejudicial to, or unfairly discriminatory against” was alarmed with the behavior of an individual that includes profitable injustice or, as mentioned in the matter of  Re Ledir Enterprises Pty Ltd [2013] NSWSC 1332; (2013) 96 ACSR 1 that, “a exit from the principles of fair dealing, or where a verdict has been made so as to oblige a drawback, disability or trouble on the applicant that, as per the normal principles of sensibleness and fair dealing, was inequitable”.

In the above mentioned statement the word “Oppressive conduct” has to be construed barely and centers on the character of the behavior rather than its impact. In the case of Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042 it was held that the word comprises of the conduct which “require the quantity of decency which the employees were unrestricted to anticipate in the conduct of the affairs of a corporation” (Gilbert and Tobin, 2016).

In the matter of Wayde v NSW Rugby League  it was stated that as reputes “unfairly prejudicial” or “discriminatory conduct”, merely prejudice or discrimination was not sufficient. So, the tribunal must decide whether a sensible board would have determined that it was inequitable to make that verdict. The tribunal would provide respect to the verdict of the board where there was nothing to propose injustice. It was also confirmed in this case that where there was a noticeable exit from the principles of justice the tribunal may itself be obligatory to make a decision where the equilibrium of opposing welfare lies (Trumble Szanto Lawyers, 2016).

So, there have been a number of remedies for the burdened stakeholders as per which the tribunal has wide authorities to make any verdict which it believes to be proper if shareholders could prove that the performance of the affairs of an corporation was contrary to the interests of the shareholders as a whole, oppressive, unfairly prejudicial or unfairly discriminatory.  Some of the instances of verdicts that may be proper were set out in s233 of the Act which comprises of the fact that:

The organization could be wound up;

Engaging a new receiver or a receiver and director;

Preventing an individual from employing in particular conduct or from doing a specified act; and

Necessitate an individual to do a particular act.

Conclusion

So, it was observed that the strategy behind sub-section 232 and 233 of the Act was to permit an subjugated stakeholder to be free from the corporation in the situations which were set out in s 232.  Where a verdict was made under s 233 of the Act, the claimant must file a copy of the verdict with ASIC within 14 days after it was made.

Therefore, it could be concluded that whether the laws in relation to the concept of oppression were dependent on the Corporations Act 2001 apply or don’t apply have been regarded as an academic question. The benefit in having a Unit holders Agreement was that if the document was well organized, then there would be obvious privileges and duties on each of the individuals to recognize what conduct was or was not satisfactory, dropping or even getting rid of the opportunity of assertions of oppression and providing unit holders with a clear path out of the unit trust. If a trade was premeditated to be an speculation it should also be considered to be apprehended.

References

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Trumble Szanto Lawyers. (2016) “The office of trustee is a relatively unforgiving one. Equity is very protective of beneficiaries.” [Online] Trumble Szanto Lawyers. Available from: https://www.tsz.com.au/content/remedies-dissatisfied-beneficiaries [Accessed on 2/1/17]