Members Rights and Remedies. 4 types of remedy: Statutory Remedies. Oppression Remedy s Member statutory remedies

Transcription

1 Members Rights and Remedies 4 types of remedy: 1. Member statutory remedies 2. General Law Fraud on the Minority 3. Member personal action 4. Member derivative action Statutory Remedies A statutory derivative action is a right to pursue someone else s right- so it s double. The derivative action is an individual shareholder or a directors right to force the company to sue, so it derives- the right to sue derives from the right of the company All the other are rights which belong to the member Oppression Remedy s232 Remedy available where Conduct of co; Actual or proposed act or omission of co; OR Resolution of members of co is EITHER Contrary to interests of members as a whole; OR Oppressive to or unfairly prejudicial to or unfairly discriminatory against a member or members

2 This is much wider these days, it is oppression and unfairness The oppression remedy came in at about 1948 Then they threw in unfairness as a criteria to broaden it out Remedy is available to certain people, mainly the members, its not only that the directors do, it s also what he members do You can see that this criteria gives a pretty wide discretion Oppression Section 234: Action can be brought by Member of co (whether or not an oppressed member) Person who has been removed as a member because of selective capital reduction Person who won t be a member any more if oppressive conduct allowed Person who owns shares by inheritance or operation of law Person who ASIC thinks appropriate 2. Affairs is defined very broadly in CA s 53. The definition effectively includes almost all activities of a company: ASC v Lucas (1992) 7 ACSR Oppression can be found in a single act or event or a series of acts or events; Oppression: oppressive, unfairly prejudicial or unfairly discriminatory These three terms are regarded as one concept. They convey the idea of a significant lack of fairness to a member or members; Oppressive conduct has been described as conduct that is burdensome, harsh and wrongful : Scottish Co- operative Wholesale Society Ltd v Meyer [1959] AC 324; In determining unfairness, an objective test is used: Wayde v NSW Rugby League Ltd (1985) 180 CLR 459; a. We don t look at whether they feel oppressed, we look at whether it is oppressive objectively b. You can further articulate to say that a member just not liking the decision is not sufficient, and being dissatisfied is not sufficient c. There must be some objective sense that this is causing them harm If a member is simply dissatisfied with company management, that will not constitute oppression: Wayde v NSW Rugby League Ltd THE LEGAL TEST The legal test Wayde v NSW Rugby League Ltd was the decision one that no board of directors acting reasonably would have made? If yes oppressive (s232 breached) HELD: not oppressive in this case Another way of stating test is have the reasonable expectations of members been met? Reasonable expectations include Inclusion in co management Provision of info Right not to be forced to sell shares

3 But see Tomanovic v Global Mortgage Equity Corporation Pty Ltd [2011] NSWCA 104: HELD: J said reasonable expectation is a dumb way of looking at it. Who cares what the expectation of members are, its objective. o No need for dishonesty or intent to oppress o They can be entirely innocent and still be oppressive Thomas v Thomas NZ HELD: Unfairness is a matter of looking at the ideas behind corporations law The ideas of abuse of power, strong central management etc. They are what you need to look at and balance them and work out what the conduct that has happened is in relation to those principles, then ask if it infringes those principles? Those principles are what a member would reasonably expect when they buy a share or when they own a share In the case of Tomanovic there is no sense of linking what is reasonable into the ideas behind corporations law, this is where it goes wrong You would probably have to use reasonable expectation with a whole deal of caution Examples of Oppression: o Diversion of business opportunities- Running down the company o Improper exclusion from management: Generally little companies which would have been partnerships, so this idea of doing everything together is present. So you set this business up and have the company as a legal vehicle but every person who is in that business sort of expects to be part of running the business But what you can do is, if there are 3 of you, 2 of you gang up on the 3 rd and then exclude them from the benefits of being part of the company So then the 2 use the capital but don t give any return to the 3 rd one o Unfairly restricting dividends o Oppressive conduct of board meetings When you silence someone and just ignore them o Issuing shares for main purpose of reducing member s interest Issuing shares to dilute shareholding So you are trying to reduce someone s control over the company o Directors not acting in interests of co Remedies for oppression (s233) Co winding up Modification or repeal of constitution Regulation of conduct of co future affairs Purchase of shares by other members or the co (at court determined price) Co commence or defend proceedings Appointing receiver Restraining order or directive to do something

4 Re v edgy Winding Up: s 461 FACTS: A managing director who became absolutely overbearing Your classic family company, patriarchal (male controlled) in the extreme The grandfather had set the company up himself, looked after it and ran it as his own private business Eventually he decided he didn t need all the money and so he issued shares to his kids He issued more shares than he owned himself They appointed themselves as directors, he didn t mind because he had a board of directors to boss around and that s what he did If the board of directors made a resolution which was contrary to what he wants, he would simply ignore it and tell the employees what to do and the employees would do what he said HELD: The court on application ordered that a position of president of the company be established That the grandfather be ordered that position, that a certain salary be paid but that that president should have no decision making powers at all He kept the position and title but the employees didn t have to listen to him o Available where Just and equitable; or Directors acting in own interests in manner unfair or unjust to members; or There is oppressive, unfairly prejudicial or unfairly discriminatory conduct o Who can apply? Co Creditor of co Member of co Liquidator of co ASIC Just and equitable ground Deadlock: re Yenidge Tobacco Co Ltd [1916] 2 Ch 426 A tobacco company owned and operated by two old men They set the business up together but then had a falling out They stopped communicating in the directors meetings An application was taken out by one of them but had a problem with clean hands rule But went to the court and the company was wound up and the application was granted Fraud or misconduct: Loch v John Blackwood Ltd [1924] AC 783 They concealed accounts and they made offers to the shareholders for their shares whilst not stating their true values Technically they said it was a loss of confidence in the property which the company is being governed

5 Failure of substratum: Re Tivoli Freeholds Ltd {1972] VR 445 The reason for the company s existence is no longer being pursued The company owned the theatre The theatre burnt down and so the company claimed the insurance and then turned out to just be sitting there with a pack of money A person purchased the shares and there were a number of people who refused to sell or he couldn t find, but he used that company as a vehicle for takeovers, this is where you buy the shares in the company and then you asset strip it, so you get all the assets and then you work out what they are worth and you sell them off as much as you can Then you have made a whole lot of money and then you get rid of all the money by declaring dividends and capital reductions It s called equity finance The little rump of actors said we don t like being part of an asset stripping company, this company has lost its way, we want it wound up and we want it wound up because it no longer is what its document say it is, the whole purpose and reason for existence of this company was to run a theatre and its not running a theatre so its not doing what its suppose to be doing This is called failure of substratum and they won in that case Except the J said ok I m going to order that the company be wound up but I am going to delay the order for one week, if the party come up with an acceptable compromise, then ill strike out the order An offer was made to the rump of actors which was accepted by them and the order was struck out That is how the winding up remedy is usually used These days the courts want you to use oppression so there is a problem of the clean hands rule Breakdown in mutual trust: Ebrahimi v Westbourne Galleries Ltd [1973] AC 360, per Wilberforce LJ Winding Up remedy s461 Court reluctant to wind up solvent co where there is another remedy that will do the job Can be limited in effectiveness; see especially s 467(4) EXAMPLE: So if you could use the oppression remedy and you use the s 461 instead, the court will refuse to use the s 461 Members Directors Members no longer make decisions unless asked by the court Dividends are no longer payable Members are liable for unpaid amount of their shares Directors do not lose office however no longer take part in decision making Type can t act without approval have of liq or of the court

6 Creditors Employees Company May be liable for insolvent trading s588g and to any other breaches of duty Creditors- floating charges that may crystallised Cannot enforce judgements or orders Legal processes can be brought by the court s471b Some transactions are voidable s5.7b Employees- winding up of order Order itself serves as notice of dismissal If voluntary winding up, possible they are not dismissed Company- ceases to carry on business although it remains in existence until it is deregistered Any docs must bear the words in liquidation after company name The co is not managed by liquidators rather then di and s/h Who may be appointed as liquidator? Appointed by the court Must be registered by court s1283 ASIC keeps register S 473 provides for resignation removal and remuneration Duties of liquidators 1. Collect all co assets 2. Disown onerous property and sell the rest 3. Pursue claims they may have against directors for insolvent trading and other breaches of duty 4. Review all pre-liquidation transactions to determine whether any are voidable 5. If liq is court appointed, they need to report to creditors and ASIC 6. Need to work out or ascertain what is owed to claimants 7. The pool of funds they have to pay creditors in the order of priority s556 a. Secured creditors b. Preferred creditors- incl. employees and liquidator remuneration s556 c. To unsecured creditors equally s 555 d. Any left over funds (doubtful) will be distributed to shareholders equally 8. Liquidator now will apply for de-registration