A falling-out between business partners or the members of a company can be as stressful as the break-up of a marriage. Often the parties have been in a long-standing business relationship and the business accounts for their whole livelihood.
The break-up of the relationship in those circumstances can be catastrophic. Fortunately, in many cases, the law provides avenues for relief.
A company’s affairs might be being conducted in a manner that is oppressive, unfairly prejudicial to or unfairly discriminatory against another member or members. Alternatively, the conduct complained of might be contrary to the interests of the members as a whole. In such cases, the Court has the power under section 232 of the Corporations Act 2001 (Act) to grant the aggrieved member(s) a remedy for oppressive conduct.
The key to obtaining relief is that the conduct must be “unfair”. Determining whether conduct is unfairness involves taking into account the objects of the Company, the policy of the Act and the interests of the shareholders generally.
The conduct complained of could be a one-off incident or omission, or might be a continuing course of conduct. It does not matter that the conduct has ceased at the time that an application for relief is made. However, the Court will not provide a remedy merely for members who disagree with management decisions made by the board of directors.
If it is satisfied that conduct by or on behalf of the company has been oppressive, the Court may make such order or orders as it thinks fit. Such order(s) could include:
- winding the company up;
- modifying or repealing the company’s constitution;
- regulating the conduct of the company’s affairs in the future;
- ordering the purchase or sale of shares;
- appointing a receiver or receiver and manager of the company’s property;
- restraining a person from engaging in specified conduct;
- requiring a person to do a specified act.
Winding up on other grounds
A member or members of a company may also apply to the Court under section 461 of the Act to have the company wound up on “just and equitable” grounds. The Court can exercise this power in a number of situations, including where:
- the directors have acted in the affairs of the company in their own interests or in a manner that is unfair or unjust to other members; or
- the affairs of the company are being conducted in an oppressive manner.
Section 232 and 461 of the Act therefore provide potential avenues for determining otherwise unresolvable disputes between company members.