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Winding Up and Shareholder Oppression Actions

If shareholders are in dispute and have reached a deadlock, the following actions may be available to them through Court under the Corporations Act:

 

  • Winding Up

  • Shareholder oppression

 

But there’s a reason for the ancient saying “if anyone wants to sue you and take your shirt, hand over your coat as well”.  Before rushing off to Court, read here and consider ernest mediation.

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Winding Up

 

Circumstances in which the Court may order the winding up of a company under section 246 of the Corporations Act (generally) include the following:

(a) special resolution (75%) by shareholders that the company be wound up; or

 

(b) the company does not commence business within one year from its incorporation or suspends its business for a whole year; or

 

(c) the company has no shareholders; or

 

(d) the Court is of opinion that it is just and equitable that the company be wound up; or

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(e) there has been the following type of shareholder oppression:

 

  • directors have acted in affairs of the company in their own interests rather than in the interests of the shareholders members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other shareholders; or

 

  • the affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a shareholder or shareholders or in a manner that is contrary to the interests of the shareholders as a whole; or

 

  • 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 shareholders of the company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a shareholder or shareholders or was or would be contrary to the interests of the shareholders as a whole; or

 

(f) ASIC has issued a report that in its opinion the company should be wound up, e.g. because the company cannot pay its debts when they fall due, or it is in the interests of the public, of the shareholders, or of the creditors, that the company should be wound up).

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Shareholder Oppression under Section 232

 

A Shareholder Oppression Action under section 232 of the Corporations Act, is generally available where an act or omission is either:

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  • contrary to the interests of the members as a whole; or

 

  • oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

 

If there is Shareholder Oppression Action under section 232, Orders the Court can make include the following:

 

(a) that the company be wound up;

 

(b) that the company buy back shares;

 

(c) that a receiver or a receiver and manager be appointed over of some or all of the company's property;

 

(d) that the company's constitution be modified or repealed.

 

(NOTE:  If a shareholder inherits shares (e.g. from their deceased spouse or partner), the Court can also make an order directing that they sell their shares to the other shareholders.  This outcome can be achieved by agreement between the parties without the need to go to Court, e.g. by having a Buy-Sell Agreement or including appropriate buy/sell provisions in a Shareholders Agreement). 

 

Going to Court can be much like playing Russian Roulette.  Why not play your own Russian Roulette without the cost, stress, time-wasting and uncertainty?  Or earnestly try to reach a settlement through Mediation.

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If you would like to discuss any aspect of this article with us, or share your own experiences, please contact Rod Stumbles at +613 8692 7255 or here.

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DISCLAIMER

 

This article provides general information only and is not intended to constitute legal advice.  No lawyer-client, solicitor-client or attorney-client relationship has been created between us.  You must not rely on the contents of this article, whether as an alternative to legal advice from a lawyer or other professional legal services provider or otherwise.  You should not take, discontinue or refrain from taking any action because your understanding of the contents of this article, including without limitation delay seeking legal advice or disregard legal advice.  If you have any specific questions about any matter, you should engage us or other lawyers or other professional legal services providers to provide you with the necessary advice.  Keep in mind that you may be facing important deadlines so you should not delay in engaging someone to provide you with the advice.

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