Essay Introduction: With the emergency of more and more stock corporate, an increasing number of people become shareholders. However, in some companies, directors or majority shareholders misuse their power to maximize their own interests while exploiting minority shareholders. This phenomenon is more serious in proprietary companies since directors and majority shareholders don’t need to comply with ASX listing rules[1] and minority shareholders are unlikely to be provided a market to sell their shares. Ultimately, they have to sell their shares to majority shareholders in an unfair price or sue the majority shareholders paying expensive litigation fees. By contrast, in public listed companies, this phenomenon is relatively rare since there is a market for minority shareholders to sell their shares and the company’s affaires are supervised by the public. To avoid being treated oppressively or unfairly, the Corporation Act provides a wide range of statutory remedies for minority shareholders. This essay will introduce some of the unfair or oppressive conducts and remedies available for minority shareholders to deal with these conducts.

Oppressive and unfair conducts and available statuary remedies:
Majority shareholders misuse their power for their own interests through many ways which are oppressive and unfair towards minority shareholders, an example of these conducts is diverting business opportunities from company. Some majority shareholders take advantage of their power to snatch business opportunities for the companies of which they are the only shareholders, this conduct is unfair and oppressive towards minority shareholders. In Re Bright Pine Mills Pty Ltd[2], the plaintiff is Denton who was a minority shareholder in Bright Pine Mills Pty Ltd, the judge are O’Bryan J, Smith J and Pape J. The defendant is Swallow. There were three shareholders, also directors in the company including Swallow and Denton who held 5500shares and 1250 shares respectively. During the process of manufacturing, a great deal of waste such as sawdust was produced. Swallow then decided to build a partnership which consisted of his relatives and associates to take use of the waste to produce a new product: wood flour. In fact, the company was able to conduct such an operation, however, Swallow chose to build a partnership for his own profit. This profitable operation was conducted on the company’s premises and used the company’s labor. But the profit belonged to the partnership rather than the company. This conduct not only diverted the corporate opportunity from the company, but also resulted in the reduction of the value of company’s asset. So the conduct is oppressive and unfair. Denton applied for a remedy under s232, Denton prayed that the company be wound up under the provision of Companies Act 1961,s186. However the court usually doesn’t want to make an order to wind up a company. Finally, the court ordered that the other shareholders purchase Denton’s shares[3].

Another example of unfair or oppressive conduct is division of company’s profits. Majority shareholders act oppressively and unfairly where they excessively occupy profits of their company. In some companies, the majority profits are used to pay directors’ high salaries and low dividends are paid to other shareholders[4]. In Sanford v Sanford Courier Service Pty Ltd[5], the plaintiff is a shareholder who held the same number of shares with the first defendant, the second defendants were the other shareholders, the plaintiff brought a proceeding under the equivalent of s232, alleging that the majority shareholders divided corporate opportunities from the company and paid themselves large bonuses and fees while refusing to pay dividends to shareholders. Moreover, the majority shareholders also provided themselves with cars and retirement benefits. The conduct not only did harm to the company’s business but also damaged minority shareholders’ interests. So, the conduct is oppressive and unfairly prejudicial, and it has damaged the minority shareholders’ interests, the court decided to make an order that the other shareholders buy the plaintiff’s shares at a reasonable price. Both of this case and the case which was mentioned above applied the remedy of share buy-out which is the most common remedy that minority shareholders sought for. [6]

Issuing shares by directors who are also majority shareholders for improper purpose is also a typical unfair and oppressive conduct. In enterprises, directors have a fiduciary duty towards their shareholders. If they issue shares for their own interests, they breach the duty. In case they are also majority shareholders, they have the majority voting powers to ratify their breach[7] .This is unfair and oppressive for minority shareholders. In the case Hannes v MJH Pty Ltd[8], the plaintiff is MJH Pty Ltd and Hannes is the defendant. Hannes was the director and also majority shareholder of the company, the constitution of the company granted him power to manage the company and control the majority of votes at the general meeting. Hannes and another director issued additional shares to Hannes, and allowed Hannes to enter into a service contract with whom provided Hannes a large payment. This series of actions were not known by other shareholders. Hannes only thought about his own interests instead of the interests of shareholders as a whole. So the conduct is unfair and oppressive. The minority shareholders sought a remedy under s232. Considering that Hannes was given so strong power by the former constitution ,the court ordered to modify or abolish the company’ s constitution and the company was not allowed to alter it without the court’s permission: s233(3)[9]. Changing the company’s constitution allows minority shareholders to appoint their representative who can affect the company’s management and protect their interests[10], so the remedy can be applied when unfair or oppressive conducts happen because of irrational constitution.

Excluding minority shareholders from management is a common problem existed in some quasi-partnership, joint venture and family companies[11]. This behavior is another instance of oppressive and unfair conduct. Majority shareholders misuse their power to control the company doing business without informing other shareholders, and usually, minority shareholders are forced to drive out from company’s management. The conduct is unfair for minority shareholders, they can sought for remedied based on s232. For example, in Campbell v Backoffice Investments Pty Ltd[12], Campbell is the defendant, Backoffice Investment Pty Ltd is the plaintiff. The company is a 5-5 joint venture owned by two shareholders, one of the director applied for a remedy under s 232 claiming that the other director excluded him from taking party in day-to-day management of the company’s business. In addition, the password to log in the company’s MYOB accounting systems was changed. The other director also prevented him from holding a board meeting to discuss company business. The defendant acted unfairly and oppressively. The plaintiff has the right to participate in company’s management, but he was intentionally excluded from company’s daily management, the action deprive the plaintiff of his member right.

Similarly, in the case Re H R Harmer Ltd[13], Mr Harmer the defendant, excluded other shareholders from company’s management. The plaintiffs are the minority shareholders of H R Harmer Ltd and the judge is Jenkins L J. H R Harmer Ltd was a family company of which Mr Harmer senior was both the majority shareholder and governing director. Mr Harmer treated the company as his own company and ignored the resolutions of the board. He relied on majority voting power dispensing with the proper procedure for producing a result, and simply insisted on his own will. And it has been proved that the irregular manner has a negative impact on the company. His conduct is oppressive because it deprived the minority of shareholders of their right as members of the company, and the company’s affairs were not conducted according to its articles of association, all his actions were contrary to the interests of the members as a whole. Subsequently, the court made an order that Mr Harmer senior was not allowed to interfere in the valid decisions that the board of directors made unless invited by the board and acted as a consultant in the company[14]. The requirement that not allow directors to participate in company management is a valid remedy for shareholders when directors interfere with company’s affaires too much. It can give other shareholders enough space to regulate the company in a fair and reasonable way.

Sometimes, companies may meet risks and minority shareholders interests can not be protected because of directors’ failure to act in company’s interest. As the case Re Spargos Mining NL[15] shows that the defendant, directors of Spargos, breached their fiduciary duty of being a director. The plaintiff is David Jenkins who was a minority shareholder of Spargos Mining company. The company was a member of Independent Resource Group. The majority shareholders took advantage of the company resource to support activities of other companies which were controlled by themselves and many of the company’s transactions proved to be almost entirely no obvious commercial benefit to the company. The conduct of the company’s affaires was oppressive and unfair since the majority shareholders only focused on their own interests and ignored the interests of shareholders as a whole, they breached their fiduciary duty. According to Murray J, the present board of directors was replaced, and new directors were ordered to act as a receiver to protect the company’s asset and investigate the former transactions of the company. Moreover, the president board of directors is granted an order to bring proceedings to the former directors[16]. Appointment of a receiver is an available remedy which can safeguard company’s asset and investigate alleged breaches of directors’ duties[17].

Conclusion:
A variety of oppressive and unfair conducts are taken by majority shareholders to exploit minority shareholders. They misuse their powers to divide corporate opportunities and business profits from the company, and issue shares for improper purposes, they also use their majority voting powers to exclude other shareholders from management of company’s business. In addition, sometimes, the majority shareholders don’t act in the company’s best interests and do not allow company to take measures against it. To against these unfair and oppressive conducts of majority shareholders, the corporate Act provides minority shareholders some remedies under s232 to protect their interests. These remedies include selling minority shareholders’ share to majority shareholders at a reasonable price, replacement of directors, appointment of a receiver, altering constitution of company, winding up and so on. The most common remedy granted by court is share buy-out[18], which is easy to be carried on and bring least harm to the company. While the court generally reluctant to wind up a company considering all shareholders’ interests.
Words: 1747

BIBLIOGRAPHY
A Articles/Books/Reports
Phillip Lipton,Abe Herzberg and Michelle Welsh, Understanding Company Law, Thomson Reuters Australia, 15th ED, 2012

B Cases
Re Bright Pine Mills Pty Ltd (1969)VR 1002
Sanford v Sanford Courier Service Pty Ltd (1986) 5 ACLC
Hannes v MJH Pty Ltd (1992) 10 ACLC 400
Campbell v Backoffice Investments Pty Ltd (2008) NSWCA 95
Re H R Harmer Ltd (1959) 1 WLR 62
Re Spargos Mining NL (1990) 3 WAR 166

C Legislations
The Corporation Act 2001(Vic)
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[1] Philip Lipton et al, Understanding Company Law (15th ed., 2010)
[2] (1969)VR 1002
[3] Corporation Act 2001(Vic)
[4] Lipton above n1 pp 515
[5] (1986) 5 ACLC
[6] Lipton above n1 pp 520
[7] Lipton above n1 pp518
[8] (1992) 10 ACLC 400
[9] Corporation Act 2001(Vic), s233ÿ3 ÿ
[10] Lipton Understanding Company Law (15th ed., 2010)
[11] (1969)VR 1002
[12] Corporation Act 2001(Vic)
[13] Lipton above n1 pp 515
[14] (1986) 5 ACLC
[15] Lipton above n1 pp 520
[16] Lipton above n1 pp518
[17] (1992) 10 ACLC 400
[18] Corporation Act 2001(Vic), s233（3）
[19] Lipton above n1 pp522
[20] Lipton above n1 pp517
[21] (2008) NSWCA 95
[22] (1959) 1 WLR 62
[23] Corporation Act 2001(Vic), s233
[24] (1990) 3 WAR 166
[25] Corporation Act 2001(Vic), s233
[26] Lipton above n1 pp 521
[27] Lipton above n1 pp 520