Shareholder Disputes

A shareholder is an individual or entity that owns one or more shares of stock in a company. Shareholders are often referred to as equity owners of the company because they hold a portion of the company’s ownership. Shareholders can include individuals, institutional investors, such as mutual funds or pension funds, and other entities like corporations or trusts.

Not all shareholders are created equal, and there are categories of shareholding that may impact who holds the equity and voting rights in the company. It is important to determine if all shareholders are the same (for example, ordinary shareholders) or if some shareholders have special categories of shareholding that limits their rights.

A minority shareholder can be any person or entity that owns and controls less than 50% of all shares issued by a company. Technically, minority shareholders combined can end up holding the largest interest in the company; for example, three shareholders who each have a 20% interest share against one single shareholder who holds the remaining 40% interest. Usually, however, most minority shareholder disputes relate to a minority shareholder that has less than 50% of the shares (whether individually or within a voting block).

As a majority shareholder (or group of shareholders) in effect owns a larger portion of the company, it follows that the majority shareholder will also have more power and control the company.

Although minority shareholders do hold some power, they will never hold final controlling power over a company without owning a majority of that company’s shares.

However, minority shareholders do have legal rights that a company must follow. These rights include:

• access to shareholder meetings;
• access to record books of the company (some restrictions apply);
• the right to address directors at meetings; and
• the right to address shareholders at meetings.

Although there are no defined limits on what constitutes shareholder oppression, it will generally occur where a minority shareholder is subjected to unfairness or prejudice by the abuse of a major power.

The Corporations Act 2001 (Cth) (the Act) section 232 deals with actions of the company that are contrary to the interests of shareholders or oppressive to, unfairly prejudicial to, or unfairly discriminatory against a shareholder or shareholders. 

Minority oppression, therefore, is wide reaching. Speak to Gibbs Wright about your dispute. We act for companies and shareholders in minority shareholder oppression actions.

Oppression or unfair treatment of minority shareholders can encompass actions such as excluding them from decision-making, withholding dividends, diluting their shares, conducting squeeze-outs, misappropriating assets, engaging in unfair related-party transactions, or breaching shareholder agreements. 

Such conduct can be challenged under the Corporations Act 2001 and common law. Minority shareholders have legal remedies that may include seeking court orders for relief, such as a buyout of their shares at a fair value or appointment of a receiver or manager, to protect their interests when facing oppressive behaviour or unfair treatment. 

Consulting with a shareholder dispute lawyer like us is advisable for those in such situations to assess their specific circumstances and explore potential legal actions.

A minority shareholder who has been the victim of minority oppression or prejudicial or unfair treatment can apply to the court for relief. Under section 233 of the Act, the court has discretion to make “any order that it considers appropriate” concerning the company, including:

• that the company be wound up;
• that the company’s existing constitution be modified or repealed;
• regulating the conduct of the company’s affairs in the future;
• for the purchase of any shares by any shareholder or person to whom a share in the company has been transmitted by will or by operation of law;
• for the purchase of shares with an appropriate reduction of the company’s share capital;
• for the company to institute, prosecute, defend or discontinue specified proceedings;
• authorising a shareholder, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
• appointing a receiver or a receiver and manager of any or all of the company’s property;
• restraining a person from engaging in specified conduct or from doing a specified act; and
• requiring a person to do a specified act

Shareholder disputes can be resolved through various methods, depending on the nature and complexity of the dispute. These methods may include negotiation, mediation, arbitration, or, in some cases, litigation. 

Initially, parties often attempt to reach an amicable resolution through negotiation or mediation, with the help of lawyers or professional mediators. If these methods fail, the matter may proceed to arbitration or court, where a judge or arbitrator will make a final decision based on the evidence presented.

An example of a shareholder dispute could involve minority shareholders in a closely held family business who feel they are being unfairly treated by majority shareholders. The minority shareholders might allege that they are not receiving their fair share of profits or have been excluded from important business decisions. This dispute could escalate if the majority shareholders refuse to address these concerns, potentially leading to legal action or a buyout of the minority shareholders’ shares.

Disputes between shareholders and directors often revolve around issues of corporate governance and management decisions. Shareholders may disagree with decisions made by the board of directors, such as executive compensation, mergers and acquisitions, or strategic direction. 

Directors have a fiduciary duty to act in the best interests of the company and its shareholders, which can sometimes lead to conflicts when shareholders believe those duties are not being fulfilled. 

These disputes may involve allegations of mismanagement, breach of fiduciary duty, or oppression of minority shareholders. Legal counsel is often sought to navigate such conflicts and determine the appropriate course of action.