Program InstructionsIssues in Disputes between Business Owners•          Common causes of disputes•          Options available to shareholders when dealing with unfair or improper conduct•          Instituting proceedings under the “oppressive conduct” provisions of the Corporations Act•          Trusts and the “oppressive conduct” provisions of the Corporations Act•          How do the Courts deal with these disputes?•          What if there is no oppression? Winding up on the ‘just and equitable’ groundPresented by David Forbes, Barrister, Young’s List

Question

• Why do barristers present at Legalwise Seminars?

A. For the money?

B. For the fame?

C. To get more briefs?

D. None of the above?

Corporations Act 2001Part 2F.1—Oppressive conduct of affairs232 Grounds for Court order

The Court may make an order under section 233 if:

(a) the conduct of a company’s affairs; or

(b) an actual or proposed act or omission by or on behalf of a company; or

(c) a resolution, or a proposed resolution, of members or a class of members of a company;

is either:

(d) contrary to the interests of the members as a whole; or

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

For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.

Options Available - Corporations Act233 Orders the Court can make

(1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order:

(a) that the company be wound up;

(b) that the company’s existing constitution be modified or repealed;

(c) regulating the conduct of the company’s affairs in the future;

(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law;

(e) for the purchase of shares with an appropriate reduction of the company’s share capital;

(f) for the company to institute, prosecute, defend or discontinue specified proceedings;

(g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;

(h) appointing a receiver or a receiver and manager of any or all of the company’s property;

(i) restraining a person from engaging in specified conduct or from doing a specified act;

(j) requiring a person to do a specified act.

Common Causes of Disputes

• Big Companies

A. Issuing shares that favour a particular class

• Small Companies

B. Favourable deals to related entities

C. Paying management too much

D. Disagreement on management

Options Available2 - Non s. 232 options

• Breach of contract, e.g. shareholder agreement;

• Equitable injunction, e.g. if representation that majority would not do a particular thing;

• Call a meeting?

• Name and shame?

• Police Action, ASIC?

• Sue the company, e.g. misleading and deceptive conduct

What if the company is a trustee?

• Beneficiary or shareholder complaint?

• Action still available under s. 232 (e)?

• Hunter v Organic & Natural Enterprise Group Pty Ltd & Ors [2013] QCA 331 (Restructure from shareholders to trusts - “Mrs Hunter is a beneficiary only if she is Mr Hunter’s wife”. Action failed - not oppressive

• Consider actions available under Trustee Act, Family Law Act.

How do Courts deal with disputes? Wayde v NSW Rugby League Ltd

(1985) 180 CLR 459.

• Club excluded from League competition. Not oppressive.

• Court will seek to avoid assuming the role of management

• Oppression requires unfairness, not mere discrimination.

• Unfairness will be assessed objectively.

• The Court will consider whether reasonable directors having any special skills possessed by the actual directors, would have regarded the decision as unfair.

Current test - “Commercial Unfairness”

• Joint v Stephens [2008] VSCA 210 (quasi partnership, excessive management fees and administration charges, director deadlock, dismissal of director as employee)

• - Citing Young J in Morgan v 45 Flers Avenue Pty Ltd (1986) 10 ACLR 692:

“a court now looks at [the expression in s. 233 (e)]as a composite whole and the individual elements mentioned in the section should be considered merely as different aspects of the essential criterion,namely, commercial unfairness.

“unfairness is to be assessed in the context of the particular relationship which is in issue”.

Order for purchase of shares

• Most common remedy

• Date of valuation of shares will be date application is filed unless another date proved to be appropriate - Joint v Stephens [2008] VSCA 210

• Valuation basis is as if the oppression had not occurred

• Expert evidence usually required. Beware!

• “Highest Offer” method of settling.

Winding Up• Hillam v Ample Source International Limited (No. 2)

FCAFC 73

1. Company made uncommercial arrangements with related parties, information not provided, meetings arranged unfavourably to Ample Source.

2. No presumption against winding up a solvent company, winding up is at the discretion of the Court.

3. No buy out offer made by either majority or minority at fair price. Winding up was appropriate means of resolving the deadlock.

Nutectime International Pty Limited v Timentel Pty Limited [2011] NSWCA 257

• Development of watch bracelet, company ran out of funds, minority failed to contribute funds required under contract;

• Majority lent company monies under secured loan and sold company’s assets at valuation to a related company

• Appeal allowed. No oppression. Legitimate steps in view of company’s dim prospects.

“Self winding up”

Assets already sold by provisional liquidator?

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304

• Minority excluded from management

• Provisional liquidator appointed and business and assets sold

• Trial judge order compulsory purchase of worthless shares

• Discretion miscarried