When the trust is gone – Shareholder relief under the Corporations Act 2001 (Cth)
It is often the case that friends and/or family members will register a company in order to carry on a business together, whether that business is property development, or providing cleaning services.
Sometimes it happens that business relationships breakdown. When the trust between the owners of a company is gone, some shareholders may be left wondering what they can do to hold the company to account.
In a perfect world, a ‘shareholder agreement’ will govern how shareholders deal with disputes or deadlocks within a company. However some disputes cannot be resolved this way and, ultimately the Courts have the overriding jurisdiction to resolve shareholder disputes.
Shareholders can find remedies under the Corporations Act 2001 (Cth) (‘Act’).
The shareholder of a company can, for example, bring an oppression proceeding against the company and its directors under section 232 of the Act. If oppressive, unfairly prejudicial, or unfairly discriminatory conduct is found, the Court can then under section 233, make an order that, among other things:
- the future conduct of the company’s affairs be regulated;
- the company’s shares be purchase by a company member;
- that the company can institute, prosecute, defend or discontinue proceedings;
- that a receiver, or receiver and manager, is appointed over the company’s property;
- that a person is required to do a specific act, or be restrained from specific conduct; or
- that the company is wound up.
Certain shareholders may be able to seek to wind up a company on the ‘just and equitable’ ground under section 461(1)(k).
Whilst most people are familiar with ‘no-fault divorce’, the ending of the relationship between company members has been likened to a ‘corporate divorce’. The corporate relationship between parties may be ended by the Court under the just and equitable ground in circumstances where, for example, shareholder relationships have irretrievably broken down, and the company is at a standstill.
Whilst Courts are reluctant to wind up companies that are solvent (Exton v Extons Pty Ltd (2017) 53 VR 520). Where no other remedy exists, the Court may decide that it is just and equitable that the company is wound up. Winding up the company, may be the only relief available to shareholders in the face of errant corporate behaviour which has resulted in the breakdown in relationships between company members.
If you are involved in a dispute between company shareholders, please contact our litigation team and we will guide you through the process.
