I.Oppressive conduct – can a minority shareholder seek relief from ratification?

The extinguishment of the right to commence a derivative action is to be contrasted with the right of a shareholder to seek relief under section 233 of the Corporations Act to, inter alia, authorise a shareholder to institute proceedings of behalf of the company[1] on the ground that a resolution of the shareholders was either contrary to the interests of the shareholders as a whole or oppressive to, unfairly prejudicial to, or unfairly discriminatory against a shareholder.[2] The statutory right to seek relief under section 233 on current authority is not affected by a ratification resolution.[3]

A.History of oppressive conduct

232 - Re Winmardun Pty ltd - oppression remedy

B.What is oppressive conduct?

Fiduciary v Morningstar [2001] NSWSC 1087 at [4] per Barrett J

The “oppression” concept, as explained by Brennan J in Wayde v NSW Rugby League Ltd [1985] HCA 68; (1985) 180 CLR 459, may be measured by reference to the conduct of “reasonable directors, possessing any special skill, knowledge or acumen possessed by the directors and having in mind the importance of furthering the corporate object on the one hand and the disadvantage, disability or burden which their decision will impose on a member on the other”. Oppression is thus, in one broad sense, a departure from norms of behaviour adopted by reasonable directors acting reasonably. There is also the point that, according to its own terms, s.232 may be invoked in relation to matters “contrary to the interests of the members as a whole”. That is a criterion cast in terms strongly reminiscent of those which define aspects of directors’ duties.

Improper share issue

Diversion of corporate opportunity

  • Scottish Co-operative Wholesale Society Ltd v Meyer (1959

Directors’ failing to act in interests of co.

  • Re Spargos Mining NL (1990)
  • John J Starr (Real Estate) Pty Ltd v Robert R Andrew (A’asia)
  • Re East West Promotions Pty Ltd
  • Hogg v Dymock (1993
  • Re G Jeffrey (Mens Store) Pty Ltd (1984

C.Does a ratification resolution given rise to oppressive conduct?

The holding of a general meeting of shareholders for the purpose of remedying oppression is ineffective where the oppressor controls the voting power of the meeting. The passing of a resolution at the shareholders’ meeting would itself work a further oppression.[4] In HNA Irish Nominee Ltd v Kinghorn (No 2)[5] it was held that two shareholders could not rely on their control of the general meeting to ratify conduct in breach of their director’s duties,[6] however, the ordinary shareholders can ratify a decision taken by the directors, provided the decision taken by the ordinary shareholders is not itself oppressive[MR1].[7]

Angas Law Services Pty Ltd (In liquidation) v Carabelas[8] did not overrule Miller v Miller[9] as to the requirements for a ratification resolution to extinguish any future liability of a director. On the authority of HNA Irish Nominee Ltd v Kinghorn (No 2)[10] a case decided after Angas Law Services Pty Ltd (In liquidation) v Carabelas[11] indicates [MR2]that there are different considerations[MR3]to be applied in granting a shareholder a right to institute proceedings for oppressive conduct under section 232 of the Corporations Act to the requirements of section 236 and 237 of the Corporations Act to commence a derivative action.

D.Does a ratification resolution give a right to wind up a company

461(1)

Grounds under 232 will also make out grounds under 461(1)(f)-(g)

Re Cumberland Holdings Ltd, meaning of “the interests of the members as a whole”.

467(4) – remedy of last resort

461(1)(k) - Just and equitable

  • where there is a breakdown in mutual trust and confidence of members : Ebrahimi v Westbourne Galleries Ltd
  • Deadlock - Re Yenidje Tobacco Co Ltd
  • wound up because of irreconcilable differences - Re Superbee Pty Ltd
  • fraud misconduct or oppression in the conduct and mgt of co. affairs - Loch v Blackwood

E.Summary

Proposition
It is a proposition advanced by this thesis that:
(i)the requirements for a shareholder to be granted an order to institute proceedings in Australia may be independent of a ratification resolution being approved.

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[1]Corporations Act 2001 (Cth) s 233((1)(g).

[2]Corporations Act 2001 (Cth) s 232. Generally, the conduct by the majority members, or by directors taking a benefit at the expense of the company may constitute oppression (McLaughlin v Dungowan Manly Pty Limited [2010] NSWSC 187 at [567] per Ward J). See also Martin v Australian Squash Club Pty Limited (1996) 14 ACLC 452; Fexuto Pty Limited v Bosnjak Holdings [2001] NSWCA 97; (2001) 37 ACSR 672..

[3]Corporations Act 2001 (Cth) s 234. Leave is not required to commence proceedings

[4] See HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228 at [601] per Emmett J; Jenkins v Enterprise Goldmines NL (1992) 6 ACSR 539 at 560.

[5][2012] FCA 228

[6]HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228 at [601] per Emmett J

[7]HNA Irish Nominee Ltd v Kinghorn (No 2) [2012] FCA 228 at [659] per Emmett J

[8][2005] HCA 23.

[9](1995) 16 ACSR 73.

[10][2012] FCA 228

[11][2005] HCA 23

[MR1]what does this mean

[MR2]fix footnotes

[MR3]what are these. shouldn’t the court have looked at 236/237 in HNA Irish Noms before making a decision?