James d’Apice, Special Counsel at Chamberlains Law Firm, provides a brief comment on corporate oppression. He will be delving further into this topic at the upcoming Shareholder Disputes & Valuations seminar on Tuesday 30 March.
The concept of “commercial unfairness” that lies at the heart of corporate oppression is an idea that can elude even those of who dabble in the area.
The broad range of remedies and the apparently unpredictable outcomes of oppression suits sometimes lead ss232 and 233 to be thought of as the Corporations Act 2001 (Cth) ugly siblings when compared to, for example, the more conventional beauty of s461.
This does not have to be the case.
Corporate oppression can be easily understood if broken down into its component parts, by reference to the two key sections:
- Section 232, which essentially says if there has been, is, or will be unfairness or prejudice to one, some or all members of the company, then the Court has a discretion to order a range of relief; and
- Section 233, which is essentially a list describing that range of relief.
s232 – How do we deal with “commercial unfairness”?
So, we might ask with s232 in mind: when will a company find itself considering whether the Court will exercise its discretion?
Examples can assist us in understanding the sometimes fuzzy boundaries around oppressive, unfairly prejudicial, and unfairly discriminatory conduct. The term the Court has often used is “commercial unfairness”.
The famous test for commercial unfairness (offered up in the context of a decision having been made) is: whether objectively in the eyes of a commercial bystander, there has been unfairness; conduct so unfair that reasonable directors considering the matter would not have thought the decision fair.
When advising clients, however, this apparently clear test can feel a little murky.
Examples abound where conduct that might be thought of as sharp, challenging, uncommercial, or even cruel have been found not to be unfair. Similarly, conduct that might be thought of by some as well within appropriate commercial bounds has been found to conflict with s232.
In relation to the s232 test, then, perhaps the only certainty is uncertainty. Or, to rephrase in a more client friendly way: each case will turn on its own facts.
s233 – What orders should be made?
Next: if the Court is minded to consider making an order, what might that order be?
Section 233 has a surprisingly long, and non-exhaustive, list of possible relief. The company’s constitution might be changed, proceedings might be commenced or defended, a certain person might be ordered to do a “specified act”. The purpose of the relief crafted by the Court will be to cure the oppression complained of by the plaintiff.
However, in practice, a possible s233 order often boils down to a straightforward dichotomy: will the company be wound up, or will there be a share sale?
As a general proposition the Court will lean away from winding up a solvent company and will generally look to causing a sale of one member’s shares to the other.
Oppression in practice
Hopefully this quick review has boosted your confidence in dealing with what is sometimes thought of as a tricky area of the law, and the next time your shareholder client has an issue concerning what a company has done, is doing, or will do, you will know which sections of the Act to turn to.
Admitted as a solicitor in 2008, James d’Apice joined Chamberlains Law Firm in 2020. Litigation forms the backbone of James’ practice. However, these days, James finds himself increasingly providing advice on his clients’ conduct outside of court. James has acted for private clients, trustees, statutory corporations, unincorporated associations, proprietary companies, directors, shareholders, insurers and businesses in relation to the risks they confront, their rights, and their obligations. James’ practice principally relates to corporate and commercial work. James also provides some advice in the intellectual property space. Connect with James via email or LinkedIn
