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LAW00004 Company Law

SCHOOL OF LAW & JUSTICE

Session 2, 2018

TOPIC 4.2

Members’ remedies

Activity 4.3.2

• Tina is a minority shareholder •  Issue deals with minority shareholder protection

• Rights and remedies of shareholders

Problem Style Questions — Answer Structures:

ILAC: Single Issue I – Issue L – Law A – Application of law C – Conclude

HIRAC: Multiple issues Heading Issue Rules (Law) Application Conclusion

Activity 4.3.2

This activity provides an opportunity for you to do exam summaries for members’ remedies Follow the process outlined in lectures and assess the shareholder remedies by identifying: •  standing (who can bring an action) • grounds (what grounds need to be satisfied) and • orders sought

Source of legal remedies available to members

Figure 14.1 – Balancing Interests, Text 10th ed page 426

Key Terms

Source: Text [14.40] 10th ed page 427

Key Terms

Table 14.1: Text [14.40] 10th ed p 427

Members’ remedies re breach of directors’ duties Figure 14.2 Text 10th ed p 461; 9th ed p 381

Activity 4.3.2

Examine remedies mentioned in the study guide (4.7 Remedies available to minority shareholders) See also text and lecture material to decide which ones would apply

Activity 4.3.2 • General law - apply the fraud on the minority doctrine – if behaviour of majority is also damaging minority shareholders

• Statutory oppression remedies sections 232-235 (oppression remedy = very important)

• Statutory derivative action in sections 236 & 237 to control the behaviour of the directors which is damaging Ripitout Mining NL

• ? section 461 (winding up) is applicable. • Consider an injunction under section 1324

Guide to problem solving

•  See text 10th ed pages 460-464

Fraud on the minority

Source: Glossary Text 10th ed page 768

General law: fraud on minority Examples of ‘fraud on minority’ include: • Expropriation of company property Menier v Hooper’s Telegraph Works (1874) 9 Ch App 350

•  Improper ratification of directors’ breach of duty Ngurli Ltd v McCann (1953) 90 CLR 425

• Expropriation of members’ property : Gambotto v WCP Ltd (1995) 13 ACLC 342 (revise topic 3)

The test in Gambotto > expropriation of minority shares – a valuable proprietary right – only lawfully when it is:

(i) for a proper purpose and (ii) fair in all the circumstances See examples in textbook [14.80] page 428

Members’ statutory remedies

• Part 2F.1 sections 232-234 Oppression • Part 2F.1A sections 236-242 Statutory derivative action

• Section 461 Winding up • Section 1324 Injunction • Section 1322 Procedural irregularities

HIRAC (approach 1) Heading: ‘Members’ Remedies’ Issue 1: Statutory Oppression Remedy (Corporations Act) Rule 1: Standing; s 234 Grounds, s 232; Orders, s 233 Issue 2: Winding Up; Rule 2(S/G/O) Issue 3: Injunction; Rule 3(S/G/O); Issue 4: Stat Derivative Action; Rule 4 (S/G/O);

Application (Issues 1,2,3 & 4) Conclusions (Issues 1,2,3 & 4)

HIRAC (approach 2) Heading: ‘Members’ Remedies’ Issue 1: Statutory Oppression Remedy (Corp Act) Rule 1: Standing; s 234 Grounds, s 232; Orders, s 233

Application (Issues 1) Conclusions (Issues 1)

Issue 2: Winding Up; Rule 2(S/G/O); Application; Conc. Issue 3: Injunction; Rule 3(S/G/O); Application; Conc. Issue 4: Stat Deriv Action; Rule 4 (S/G/O); Application; Conc

Application (Issues 1,2,3 & 4) Conclusions (Issues 1,2,3 & 4)

HIRAC (approach 3) Heading: ‘Members’ Remedies’ Issue 1: Statutory Oppression Remedy (Corp Act) Rule 1: Standing; s 234 Grounds, s 232; Orders, s 233

Application (Issues 1) Issue 2: Winding Up; Rule 2(S/G/O); Application 2; Issue 3: Injunction; Rule 3(S/G/O); Application 3; Issue 4: Stat Derivative Action; Rule 4 (S/G/O); Application 4

Conclusions (Issues 1,2,3 & 4)

Oppression Source: Popovic v Tanasijevic (No 5) [2000] SASC 87 [503] (Olsson J) (cited Study Guide p 89) ‘the word ‘oppression’ connotes the exercise of authority or power in a burdensome or unjust manner. … from authorities … … What is in contemplation is a notion of unfairness, according to ordinary standards of reasonableness and fair dealing. Conduct complained of must be unjustly detrimental to either individual members specifically or, alternatively, members as a whole’

Statutory Oppression Remedy: sections 232-234

Standing section 234 Standing to bring an action is found in section 234. Definition of a member in section 231 is important here although past members can apply under limited circumstances and the ASIC has some discretion. Grounds Where the company’s conduct or an actual or proposed act or omission or resolution is contrary to the interest of members as a whole OR oppressive to, unfairly prejudicial to or unfairly discriminatory against a member OR members, whether in their capacity as members or any other capacity a court may make an order under section 233 see section 232

Oppression: sections 232-234

Orders • The court has wide powers to make whatever orders are appropriate under section 233

• See section 233 especially subsections 1(a), 1(b) 1(i) 1(j).

• The oppression remedy is an important remedy for members especially in small close companies

Statutory Derivative Action sections 236-242

Note that section 236(3) abolished the general law ‘derivative action’ (Rule in Foss v Harbottle abolished) Standing A statutory derivative action enables a member or a former member or a person entitled to be registered as a member to initiate proceedings on behalf of the company section 236(1) Note that the proceedings are brought in the company’s name section 236(2)

Statutory Derivative Action Leave of the court Person initiating the action must first be granted leave of the court to bring proceedings section 237 A court must grant leave if it is satisfied as to the matters in section 237 Rebuttable presumption Section 237(3) that granting leave is not in the best interests of the company if (i) the company has decided not to bring or not to continue with the proceedings and (ii) the decision of the directors conforms to the business judgment rule (section 180(2))

Statutory Derivative Action

Orders • The court has wide powers under section 241 Note section 242 orders as to costs.

• Would the court consider making orders about costs re the company?

• Note also section 247A (right to access books)

Statutory remedies Winding up by the court section 461 Standing • Section 462(2) provides that one of six persons (ASIC is listed twice) who may apply for the winding up of a company under an order of the court.

• Who is a contributory? See section 9 •  Is Tina a contributory? • Note that in appropriate circumstances, even a single member can apply for winding up.

Statutory remedies Winding up by the court section 461 Grounds Are there any grounds relevant to this activity? Court may order the winding up of a company if: (e) directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members;

Winding up by the court section 461 Grounds (cont) (f) affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; (g) an act or omission, or a proposed act or omission, by or on behalf of the company, or a resolution, or a proposed resolution, of a class of members of the company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interests of the members as a whole.

Ground section 461(1)(k) just & equitable

•  Is section 461(1)(k) relevant to the fact of this activity? •  Text [14.640] Fraud, misconduct or oppression 10th ed page 454

•  ‘Lack of probity’? Can the directors/majority be trusted?

•  This ground imports a wide discretion on the courts. Examples of companies that where the ‘just and equitable’ ground has been raised serve to illustrate its application;

• Note that the court can not make an order to wind up the company on just and equitable grounds if some other remedy is available section 467(4)

‘just & equitable’ • In Loch v John Blackwood Ltd [1924] AC 783 ‘it was said that there must be a justifiable lack of confidence in the conduct and management of the company’s affairs for the ground to be made out’*

*Re Bluechip Development Pty Ltd [2011] QSC 368 [215]

(Lyons J).

Winding up by the court section 461

Orders •  ‘the court may order the winding up of a company’;

section 461 •  Re: just and equitable see also section 467(4) - the

Court’s power on hearing application.

Injunctions section 1324 Standing: On application by a person whose interests have been affected; Grounds: By the conduct of a company that contravenes etc. the act Orders: A court may grant an injunction. Section 1324 generally provides for an injunction restraining the contravention of the Act or compel compliance with the Act; section 1324(1)&(2) However Court has power to order variety of remedies including damages section 1324(10)

Activity 4.3.2 • Also note that there is a clear breach of directors' duties - they are on two boards and the companies are competing. We return to this issue in topic 5.

• The breach of directors’ duties (sections 180 – 183), if satisfied, would be sufficient to constitute the requisite ‘contravention of the Act’ for the grounds to enable the statutory injunction under section 1324

Activity 4.3.2

• Additionally, this is an uncommercial transaction and a liquidator could undo it. (We return to this area in Topic 8)

•  In practice a complaint to the ASIC could trigger an investigation by it.