Shareholder disputes often arise in private companies where there is a breakdown in relationships between shareholders. Often these disputes arise from assertions of oppression of a minority shareholder and the court is asked to exercise its broad discretion to make orders under S233 of the Corporations Act 2001 either wind up the company or to order a buy- out.
The question as to whether or not a buy-out order is practicable or would only give rise to further complications and potential forensic challenges to and for the party in obtaining meaningful relief needs to be considered.
The general principles were summarised in Re Hollen Australia Pty Ltd, Robson J:
(1) Generally, the purpose of granting a remedy under s 232 is to bring an end to the oppression and to fairly compensate the person oppressed.
(2) Typically, the oppression can be ended and the oppressee properly compensated by the oppressor being ordered to acquire the oppressee’s shares at a fair value.
(3) Generally, the order should seek to put the company back on the rails and avoid the causes of conflict and oppression.
(4) Winding up is a remedy of last resort.
(5) Winding up a profitable and operating company is an extreme step and requires a strong case to be make.
(6) In choosing a remedy under s 233 the Court is exercising a discretion.
(7) In exercising that discretion, the Court should keep in mind the above principles.
(8) Bearing in mind those principles, circumstances may dictate that the most appropriate remedy to bring an end to oppression and to fairly compensate the person oppressed is a winding up.” (emphasis added).
In the recent decision of Snell v Glatis (No 2) [2020] NSWCA 166, the primary judge found oppression of the applicant shareholder and ordered that $66 million be paid within 30 days without any evidence as to Mr Snell’s capacity to raise those funds.
The primary judge relied on the absence of any evidence of hardship and the fact that compulsory buy-out was the plaintiffs’ preferred remedy. Her Honour expressly appreciated that “finding the sums sought by the plaintiffs to buyout their shares may well not be easy”, but nonetheless ordered a compulsory buy-out on the basis that it was the appropriate relief in order to prevent oppression in the future.
The Court granted the appeal and ordered the winding up of the Company.
Relevantly, the companies’ main assets in this matter were tenanted property and loans which may be more or less readily realised by a liquidator. The relevant companies were for the large part not actively conducting a business, but rather collecting rents on leased property and repayments of secured and unsecured loans, and the Court considered that winding up was a realistic means of securing to the plaintiffs their share of the value of the companies which would also prevent ongoing oppression.
The case highlights the fact that the context in which the particular company or companies operate together with their structure and history will always be relevant to the fashioning of appropriate discretionary relief and the usual view that winding up is a last resort (particularly for trading and solvent companies do not mean that that remedy should not be considered, in an appropriate case, even if neither party in fact seeks it.
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