Introduction
Dividends are payments to shareholders and represents a return on the shareholder’s investment in the company. As a general rule, shareholders cannot force a company to pay dividends even if it has sufficient surplus assets to do that. Burland vs Earle (1902) AC 83 is a typical example of this rule. However, in some exceptional cases, under the section 232 of the Corporations Act 2001 (Cth), a refusal by a profitable company to pay dividends may amount to oppressive or unfair conduct for purposes of a remedy. Therefore, shareholders may be able to force the company to declare a dividend in some circumstances where the company is lawfully able to do so and the terms of the company’s constitution indicate that it was the intention of the parties that the shareholders would be entitled to a fixed, mandatory dividend. Inspired by the article “Wambo, Peabody forced to pay dividends” published on the Newcastle Herald on 19 September 2014 and intensively conducting research about the relevant case Wambo Coal Pty Ltd vs Sumiseki Materials Co Ltd (2014) NSWCA 326, my assignment of media reflection will set light on some certain circumstances for payment of dividends and member’s rights as well as determine relations between the article and the Corporation Law.
Article Summary
On 17 September 2014, the New South Wales Supreme Court dismissed an appeal brought by Wambo Coal Pty Ltd (“Wambo”) against a decision of the Equity Division in which it was held that Wambo had failed to pay Sumiseki Materials Co Ltd dividends to which it was entitled under Wambo’s constitution. Wambo Coal Pty Ltd had two shareholders. While Peabody Australia Mining Ltd (“PAML”) held all ordinary shares on issues, Sumiseki Materials Co Ltd (“Sumiseki”) held 25 millions of B-class shares. PAML had completely controlled the company since 2006. Although the article 2.1-B of Wambo’s constitution stated that a holder of a B-class share had the right: “to receive a dividend in respect of the 6 month period commencing and ending equal to a particular fraction of an amount equal to the profit of the company available for dividend purposes”, Wambo’s directors did not pay dividends on B class shares in respect of five half-year periods between 2009 and 2011. That was due to a number of reasons. Initially, in 2008, PAML and Wambo took the position that payment of dividends on the B-class shares was a matter entirely with the discretion of Wambo’s directors. Moreover, in 2010, PAML and Wambo revised the terms of a loan from PAML to Wambo. The revised terms prohibited Wambo from making any distribution unless certain ratios were satisfied including a “debt service ratio”. Consequently, Sumiseki brought proceedings in the Equity Division against Wambo alleging an entitlement to dividends in respect of those periods, which was expressed in Sumiseki Materials Co Ltd vs Wambo Coal Pty Ltd (2013) NSWSC 488.
Analysis
The case Sumiseki Materials Co Ltd vs Wambo Coal Pty Ltd (2013) NSWSC 488 will be analyzed to clearly determine relevant cases and sections of the Corporations Act 2001(Cth) in relation with the article. Firstly, according to the plaintiff’s view, Sumiseki’s contentions could be that: Due to the article 2.1B of Wambo’s constitution “the profit of the company available for dividend purposes”, “the profit” should mean the consolidated profit of Wambo and any controlled entities on its proper construction. Furthermore, the decision of Wambo’s directors not to pay the dividends to Sumiseki and to rely on contractual restraints in a new loan agreement with PAML as a means of avoiding payment constituted oppressive conduct within section 232(a) and (e) of the Corporations Act 2001 (Cth). Sumiseki could seek an order under section 233(1)(b), effective from 2001, that the constitution was modified to conform with its intended operation. Additionally, the conclusion of Lord Wiberforce in Prenn vs Simmonds (1971) 1 WLR 1381 stating that “the aggregate profits of RTT (round-trip trading) earned during the period and available for dividend” meant “the consolidated profits of the group consisting of RTT and its subsidiaries. Therefore, Sumiseki’s application for rectification of Wambo’s constitution to make clearer its B-class shareholder dividend entitlements could become reasonable.
In contrast, from the defendants’ view, PAML and Wambo could argue that profit “available for dividend purposes” had a generally accepted meaning, being that profit which left over, and out of which a dividend could be paid, after the directors had first determined whether any part of the full profit disclosed in the accounts should be devoted to other purposes. The arguments of PAML and Wambo were relied on the case Heesh vs Baker (2008) 26 ACLC 785.
Conclusion
Eventually, the Supreme Court concluded that on a proper construction of Wambo’s constitution, the dividend provision in article 2.1B was mandatory in the sense that the company had no choice whether or not to pay and that the “profits available for dividend purposes” were the period’s net profit attributable to members determined in accordance with accounting standards, regardless of any decision of the directors as to how much should be distributed. Furthermore, it was held that the conduct of Wambo’s affairs in denying Sumiseki’s rights and expectation to payment of the B-class dividend was oppressive and unfairly prejudicial to Sumiseki. Accordingly, Sumiseki was entitled to declaratory relief and to payment of the dividends which should have been, but were not paid.
In a nutshell, this article and related cases resonate an example of “what does profit available for dividend purposes mean?” in companies’ constitutions. It is also a typical case relevant with payment of dividends, rectification, and member’s rights of companies. The win of Sumiseki in two cases Sumiseki Materials Co Ltd vs Wambo Coal Pty Ltd (2013) NSWSC 488 and Wambo Coal Pty Ltd vs Sumiseki Materials Co Ltd (2014) NSWCA 326 again asserts that the proper rights of members (especially minority members) in companies are always protected by business and corporation laws.

References
 Michael Quilter, Company Law Perspectives: Second Edition, published 2014, Thomson Reuters.
 Philip Lipton, Abe Herzberg, and Michelle Welsh, Understanding Company Law: 17th Edition, published by 2014, Thomson Reuters
 The Corporations Act 2001 (Cth) (Internet) Available from: www.comlaw.gov.au Accessed 30.10.2014
 Wambo, Peabody forced to pay dividends (Internet) Available from www.theherald.com.au/story Accessed 28.10.2014
 Mine could be ordered to pay millions to former owner (Internet) Available from www.theherald.com.au/story Accessed 28.10.2014
 Dividend payments (Internet) Available from www.en.wikipedia.com Accessed 28.10.2014
 Wambo Coal Pty Ltd vs Sumiseki Materials Co Ltd (2014) NSWCA 326
 Sumiseki Materials Co Ltd vs Wambo Coal Pty Ltd (2013) NSWSC 488
 Burland vs Earle (1902) AC 83
 Prenn vs Simmonds (1971) 1 WLR 1381
 Heesh vs Baker (2008) 26 ACLC 785

Wambo, Peabody forced to pay dividends
By STEPHEN RYAN
September 19, 2014, 10 p.m. Wambo coal mine
WAMBO coalmine and its primary owner, American giant Peabody, have been forced to hand over millions of dollars in unpaid dividends to minority shareholder Sumiseki Materials after losing an appeal in the Supreme Court this week.
Sumiseki has been the holder of all 25million ‘‘B class shares’’ since 2001 while Peabody Australia Mining Limited, a subsidiary of its American parent, bought all of the mine’s ‘‘ordinary shares’’ giving it complete control of Wambo Coal Pty Ltd in 2006, the NSW Court of Appeal heard.
The rights that attached to the B class shares were set out in Wambo’s constitution, which provided, in clause 2.1B, that “[d]espite any provision in this constitution to the contrary, the holder of a B class share had the right to receive dividends determined by reference to 25% of a profit interest”. A “profit interest” was defined on the basis of “an amount equal to the profit of the Company available for dividend purposes” for the applicable period. Wambo’s constitution also provided that the directors could:
• declare and pay such interim and final dividends as, in their judgment, the financial position of the company justified (clause 9.1(a))
• set aside out of the profits of the company such reserves or provisions for such reserves as they thought fit (clause 9.4(a))
• carry forward so much of the profits remaining as they considered ought not to be distributed as dividends (clause 9.5)
The directors of Wambo Coal decided in early 2010 to stop paying biannual dividends or significantly reduced dividends to its two shareholders, prompting Sumiseki to take legal action.
Sumiseki argued that it was entitled to 25 percent of profits earned after each six-month period.
It argued that it was entitled to the dividends because of a clause in Wambo Coal’s constitution and was not at the discretion of the company’s directors. A Supreme Court judge found in favour of Sumiseki last year before Wambo Coal and Peabody appealed.
The NSW Court of Appeal dismissed the appeal this week.
Justice Reginald Barrett noted that the last dividend paid to Sumiseki was in September 2009, totalling $7,308,500.
Wambo then declined to pay full dividends for the next five six-month periods citing outstanding debts and a desire to increase its cash holdings.
Sumiseki had previously earned about $50million in dividends in the five years before Peabody took over.
The mine made a loss in 2007 and in the first six months of 2008, but returned a $47million profit in 2009.
The mine then paid well below the 25percent in 2010 when Sumiseki received only $6million despite the mine making a profit of $84million.
The mine made $35million in 2011, but paid no dividend.
The Supreme Court previously heard that Peabody had advanced credit to Wambo to pay for capital works and by the end of 2008 the mine owed Peabody $210million.
Sumiseki could be entitled to more than $20 million in unpaid dividends.

Mine could be ordered to pay millions to former owner
By STEPHEN RYAN
March 27, 2013, 11 p.m. AMERICAN mining giant Peabody Energy and its Wambo coalmine could be ordered to pay millions of dollars in unpaid dividends to the mine’s former owner after a Supreme Court judge said their conduct ‘‘smacks of commercial unfairness’’.
Sumiseki Materials, formerly Sumitomo Coal Mining, owned Wambo coalmine near Singleton from 1992 until 2001.
It invested about $250million in the mine, which ran at a loss before Sumiseki sold its shares in Wambo to two companies and coal industry expert Malcolm MacLennan, the NSW Supreme Court heard this week.
The sale included conditions that continued Sumiseki’s financial interest in the mine and right to invest and be paid for mining, Justice David Hammerschlag said.
American mining giant Peabody bought all ordinary shares in Wambo in 2006 while Sumiseki was issued 25million class B shares entitling them to 25per cent of the mine’s net profits.
Sumiseki got about $50million in dividends in the five years before the takeover.
The mine made a loss in 2007 and the first six months of 2008, but in September that year, Wambo and Peabody decided it was at the discretion of Wambo’s directors whether the company paid Sumiseki dividends.
It made a profit in 2009 of $47million, but only paid Sumiseki $7.3million, $84million in 2010 and paid $6millionand $35million in 2011, but paid no dividend.
Peabody had advanced credit to Wambo to pay for capital works and by the end of 2008 it owed Peabody $210million.
Peabody made a loan to Wambo for the debt plus $60million, and included covenants restricting dividend payments.
Justice Hammerschlag ruled Peabody and Wambo had decided to ‘‘thwart’’ the dividend and ordered them to pay the outstanding sum.