What are Oppression Proceedings?

Author: Ian Aldridge, Progressive Legal

For every small business to succeed, there must be an effective system of governance that all shareholders agree to. As small businesses and start-ups grow, however, shareholder disputes can arise that may require legal action in order to be resolved. One of the common remedies to resolve such disputes is oppression proceedings. 

This guide is designed to help small business and start-up owners understand what shareholder disputes and oppression proceedings are, and how they can be used properly to resolve such issues. 

What are Oppression Proceedings?

Oppression proceedings provide a mechanism for shareholders to seek remedies against the oppressive conduct of another shareholder or the company. It is available under the Corporations Act 2001 (Cth) and allows for a court to intervene in a company’s affairs and resolve matters between shareholders and the business. 

Below, we take a closer look at Section 232 of the Corporations Act 2001 and how it applies to oppression proceedings. 

Sections 232-233 of the Corporations Act 2001: In Plain English

Section 232 of the Corporations Act 2001 sets out the rules for oppression proceedings. It provides that a person may apply to a court for an order if they are aggrieved by: 

• the conduct of a company, 
• the directors’ use and/or abuse of powers; or 
• the terms of a shareholders agreement. 

However, not all conduct of a company or its directors will be considered shareholder oppression. The court will consider the conduct and determine whether it: 

• is oppressive, unfairly prejudicial, or discriminatory against a member, or  
• constitutes a breach of fiduciary duty (or in other words, it fails to take into account the interests of all shareholders). 

Section 233 outlines the types of court orders that may be available. The court may order: 

• the company be wound up; 
• the sale or transfer of shares of a shareholder; 
• to change or stop any action taken by the company or directors, such as the payment of fees or taking on debt. 

Any person who is a shareholder at the time of the proceedings can be a party to the proceedings. On behalf of the company, the other directors must defend the oppression claim. 

When Shareholders Take Action On Behalf of the Company

In addition to oppression proceedings, members’ derivative proceedings are another tool available to shareholders to address oppressive conduct. 

Unlike oppression proceedings, which are brought by the aggrieved shareholder, derivative proceedings are brought by the company on behalf of the shareholders and against the directors. 

For example, a minority shareholder may allege that the directors of the company have breached their fiduciary duties by engaging in self-dealing or wasting corporate assets. The purpose of derivative proceedings is to evaluate the conduct of the company’s directors and seek remedies from them, rather than from the company itself. 

These proceedings allow the court to order damages or other relief to the company and its shareholders, such as a change in the company’s articles of association or a buy-out of minority shareholders’ shares. 

Examples of Oppressive Conduct

Oppressive conduct of a company’s directors can take many forms, including but not limited to: 

• Refusing requests for access or financial information; 
• Unfairly discriminatory treatment of shareholders, such as unequal voting rights or dividends; 
• Unfairly diluting the voting power of shareholders; 
• Restricting certain business decisions to particular shareholders; and 
• Blanket refusal to approve transactions or dividend payments. 

Each of these examples should be taken in the context of the company’s particular circumstances, as well as any governing shareholder agreement. Every oppression proceeding is unique and must be assessed on a case-by-case basis. 

Case in point: A refusal to approve transactions or dividends may be oppressive if the company is making profits and refusing to provide dividend payments. However, if the company is losing money and cannot pay dividends, then such a refusal may not be considered oppressive. Nonetheless, any such refusal should be evaluated according to the law. 

Important Reminders for Small Businesses

While oppression proceedings can be an effective way of resolving shareholder disputes, there are some things small business and start-up owners need to be aware of: 

• Oppression proceedings can only be commenced by a shareholder or director, not the company itself. 
• In the case of members’ derivative proceedings, the company itself must bring the claim. This means that all shareholders must agree to the proceedings and support them financially. 
• The court will take into account the best interests of all parties, as well as any potential harm that may result from an order. When the conduct is deemed contrary to the interests of the company or its members, then an order may be granted. 
• The costs associated with oppression proceedings can be significant, and the matter may take a considerable amount of time to resolve. 

For these reasons, it is important for small businesses and start-ups to have a robust system of governance in place that all shareholders agree to, and to modify as the company grows. This may help to reduce the risk of a shareholder dispute arising in the first place. 

Furthermore, the affairs of the company should also be managed in good faith. This can help to ensure that oppression proceedings are not necessary. 

In this related article, we try to take a closer look at how you can prevent and manage shareholder disputes for your small business. 

Key Takeaways

Oppression Proceedings provide shareholders in Australia with a powerful legal remedy to address oppressive or unfairly prejudicial actions by a company or its management. They serve as a means for shareholders to protect their rights and seek redress when they believe their interests have been compromised. If you need assistance to resolve a dispute, get in touch with our experienced dispute resolution lawyers by filling out the form on this page or call us on 1800 820 083.

Oppression Proceedings FAQs