Oppression of a minority shareholder – a common dispute

We frequently receive complaints by minority shareholders in relation to the conduct of the majority shareholders.

Generally, a company is controlled by the majority of shareholders – how they conduct the affairs of the company is critical to its success.

If the directors and majority shareholders are conducting themselves in a manner that oppresses the minority shareholders, then these minority shareholders may have a claim.

What is oppression of a minority shareholder?

In order for a claim for oppression to be successful, the conduct of the company must be more than simply an action which the shareholder disagrees with. Whilst there needs to be a lack of fair dealing, the conduct does not have to be illegal.

Some examples of oppression include:

• excluding the minority shareholder from the affairs of the company;
• a denial of information; or
• ensuring a legitimate corporate opportunity is given to themselves or an associate.

What will a Court order if oppression is found?

The Court may order the following:

• that the company be wound up;
• that the constitution of the company be modified; or
• the purchase of the oppressed minority shareholding by the other shareholder(s) – often this will involve a valuation of the shares at a price in the event that the oppressive conduct had not occurred.

Lesson

A company must conduct its affairs so that it doesn’t oppress its minority shareholders.

If a company does this, the minority shareholder may have a claim which can be pursued through Court proceedings and the consequences can be serious.

Madgwicks’ lawyers are well equipped to deal with oppression matters. Do not hesitate to contact Partner Catherine Ballantyne or one of the Madgwicks team to discuss your own situation.