Day 158 Oppressive and unfair conduct

Oppressive and unfair conduct

As we know, the company operates under the majority vote rule. Where the majority group of members passes resolutions on decisions. So it is common for minority share being outvoted. In addition, the minorities cannot even change their situation by appoint the director who represents their rights, or alters the constitution. Since these modifications requires ordinary/special resolution in the general meeting. 

In order to protect the company and minorities, S.232 Corporations Act(2001) has stated that the court may make an order for remedies if the conduct of company affairs, actual or proposed act/omission, or actual/proposed resolution is either: contrary to the interest of the members as a whole, or unfairly prejudicial, unfairly discriminatory or oppressive to members. For the conduct to be oppressive or unfair, the court will consider the objective test. Which is it a decision that no reasonable board of directors would have made? See, Wayde v NSW Rugby League Ltd . In fact, it is not necessary for the member to prove that the director is deliberately oppression to the member, or act dishonestly. Generally, this unfairness is related to the commercial inequity, which determined in Morgan’s case. On the other hand, the company must act at the best interest of the members as a whole. That means the board need to make the decision in regard to balance both majority and minority shareholders’ interest. For example, diversion of business opportunities, improper exclusion from management, failure of directors to act in the best interest of company, oppressive conduct on board meetings, unfairly restrictions on dividends are the typical oppressive and unfair conduct. 

Once the ground of the oppressive and unfair conduct is satisfied, the court can make several orders to protect the oppressed members’ right including: compulsory wind up the business, order a share buy-out, or replacement of directors. It is important for us to understand the main purpose of these remedies is to protect company and minority shareholders’ best interest form possible abuse of voting power by the controlling member.