Day 137 Oppressive or Unfair conduct

Oppressive or Unfair conduct

As we have discussed in previous topic, the construction of the company’s governance can lead to unfair or oppressive conducts toward minority members. Consequently, the statutory act has provided a range of remedies, where the court could order to compensate the losses suffered by the minority.

Section 232 Corporations Act clarifies the situation when the court can make the order for remedies. It states that if the company’s conduct, actual/ proposed action or resolution of members has created substantial unfairness for other members. In fact, the company must consider the interest of members as a whole, instead of acting on behalf of the majority only. Generally, all companies can apply for oppression remedy, but in most cases, the applicants are from small private companies. This is because the company constitution and replaceable rules in a small company may prohibit the member to sell their shares freely, hence they cannot exit the membership when they are not happy with the company management. According to S.234, all members can apply for the court order even if the issue is related to a conduct against the member in capacity other than a member. For example, the member may make the application of remedy in regard to the unfairly removal of employee or directors. In order to make the application effective, the applicant must prove to the court that the company’s affair is oppressive, unfairly prejudicial, unfairly discriminatory or contradict to the interest of members as a whole. Where section 53 further defines the term company affairs. So normally what the court would apply the objective test, which determines what a reasonable person at the same position and experiencing the similar situation will do. In Morgan’s case, the action of oppressive and unfair is considered as ‘commercial unfairness’ by the court.

After the court has made the determination of oppressive conduct, the following orders can be made: alternation of constitution, change/restrict directors’ management power, appoint a receiver or order a share buy-back. In most cases, the majority will be asked to purchase the minority’s shares, therefore they can exit the business.