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Shareholder Oppression. What it is, how it occurs and how to protect yourself and your business.

Shareholder oppression mostly commonly occurs when the majority shareholder(s) of a company misuse their majority power to oppress the minority shareholders or otherwise treat them unfairly.  There is no one set of activities which defines this , however, this will generally occur where a minority shareholder is subjected to unfairness or prejudice in, for example, the abuse of a majority power.

Oppressive Conduct

The Corporations Act 2001 (Cth) (Section 232) (“the Act”) details conduct that constitutes ‘oppressive conduct’ in these circumstances.

The alleged oppressive conduct must be objectively assessed as to:

  • whether it is contrary to the interests of the shareholders as a whole; or
  • whether unfair prejudice and / or discrimination against a shareholder(s) has occurred.

Conduct involving a mere failure to agree between majority and minority shareholders by itself is not enough to demonstrate oppression. Instead, there must be prolonged unjust treatment or exercise of authority evident through action.

The Court held in Roberts v Walter Developments Pty Ltd & Ors (1997), that conduct engaged in by the chairman and majority shareholder was oppressive. This included:

  • a failure to pay dividends;
  • a failure to consider the minority shareholder’s request that the remuneration of the majority shareholder as director be reduced; and
  • refusal to give the minority shareholder access to company records.

Oppression is not merely a shareholder losing confidence in the board of directors’ decision-making capacity. There must be a ‘combined effect’ of action. The court found in Jolan Pty Ltd v Essential Investments Pty Ltd (No 2) (2021) that the target of an ongoing campaign designed to prevent Jolan from participating in the management of the company and to frustrate Jolan’s efforts to sell its shares to a third party constituted oppressive conduct, was unfairly prejudicial or was unfairly discriminatory action.

Courts assess oppressive conduct by applying an objective test based on whether a ‘reasonable person’ would view the conduct as unfair. Further, the presence of prejudice or discrimination is not enough. There must also be an element of unfairness that goes beyond mere disadvantage.

Oppressive Conduct by a Minority Shareholder

While it is rare, courts have made findings where oppressive conduct has been committed by a minority shareholder. For example, where the minority shareholder has operational control of the company and in circumstances where the minority shareholder excludes the majority shareholder from operational decision-making.

Remedies for an Oppressed Shareholder

Where the conduct of a company’s affairs is either:

  • contrary to the interests of the members as a whole; or
  • oppressive, unfairly prejudicial or unfairly discriminatory to other members of the company (in that member capacity or another capacity);

remedies for oppressive conduct are available under Section 233 of the Act. Courts have the discretion to grant a range of remedies and can make any order that they considers appropriate in circumstances where oppressive conduct has occurred, such as that:

  • the company purchase the minority shareholder’s shares;
  • a receiver be appointed, and the company be wound up;
  • shares be purchased with an appropriate reduction of the company’s share capital;
  • the company’s constitution be modified or repealed;
  • a director or majority shareholder be restrained from a specific act;
  • one or more of the majority shareholders purchase the minority shareholder’s shares at a price determined by the court (i.e. one party buys out the other).

How to Protect a Shareholder’s Minority Interest

Unlike majority shareholders who have power in their vote, minority shareholders may not have sufficient votes to make a difference. So, what can a minority interest holder do to proactively protect their interest from unfair conduct by the majority?

1. Contractual Protections in a Shareholders Agreement

A shareholders agreement is the best form of legal protection for a minority shareholder. By incorporating certain express contractual provisions into the agreement, the minority shareholder obtains contractual rights additional to  those in the Act.

A well-drafted shareholders agreement should allow the minority to:

  1. participate in management through board representation;
  2. be involved in any major decisions (including a right of veto if possible);
  3. ensure protection against its share being improperly diluted;
  4. a fair and proper distribution of profits;
  5. access to information about the company's affairs by obtaining a right of inspection; and
  6. exit the company through tag-along rights.

2. Protecting the Interests of the Company as a Whole  

To protect the company from abuse of power by majority shareholders, it should be ensure that the company’s right of claim in its own right is not blocked by the majority’s voting rights.

Some common solutions are:

  1. setting up a committee in the company that excludes any appointees of the majority who will be responsible for such claims;
  2. ensure that the majority shareholders and their appointed directors will not be allowed to vote on or interfere with any such claim;

ensuring that the company maintains proper insurance, keeps proper records and ensuring that all affiliated companies and key employees enter into appropriate non-competition covenants, confidentiality agreements and employment contracts.

3. Conferring Rights on Different Classes of Shares

Rights are given to a particular class of shares, and company law can provide for certain protections for members of a class against any change in those rights. For example, certain reserved items in the Constitution may require the approval of all classes of shares. Minority shareholders can seek that they are given certain class rights by way of further protection.

4. Weighted Voting Rights

Having "weighted voting rights" ensures that the minority’s vote will hold more weight than what their minority percentage of shares actually weigh. For example, a minority shareholder's appointee as a director to the Board cannot be removed by the majority.

5. Veto Rights

Ensuring the minority shareholder has veto rights over certain major decisions by the company, such as:

  1. changes in the company's constitution;
  2. changes in the share capital of the company (including grant by the company of any share options or convertible securities);
  3. any significant change to the nature of the company's business;
  4. the company incurring capital expenditure or contract commitments in excess of pre-agreed financial limits or not specifically contemplated by an agreed budget;
  5. any borrowing by the company which would cause a pre-agreed borrowing limit to be exceeded;
  6. major business acquisitions or disposals by the company;
  7. dividend distribution below an agreed minimum level;
  8. appointment and dismissal of executive directors or other key personnel and directors (including approval of long-term service contracts or material variations to their remuneration or benefits);
  9. material dealings by the company with its intellectual property;
  10. dealings between the company and any of its shareholders (except, perhaps, arm's length dealings in the ordinary course of business); and
  11. voluntary winding-up.

It is necessary to incorporate these rights into the constitution of the company and to decide whether these matters should be entrenched at board or shareholder level.

6. Right to Dividends

The board of directors will declare dividends and the amount of each dividend distribution. A minority shareholder may seek to ensure that an agreed dividend and distribution policy is established at the outset to ensure that profits cannot be otherwise diverted in an unfair or discriminatory manner to the minority.

While these methods are possible ways to protect minority interests, they are highly fact-sensitive and shareholders should carefully consider what methods may be the most appropriate for addressing specific issues they are concerned about.

It is advised that minority shareholders should seek professional legal advice at the outset of planning to own their interest to determine how they want their rights to be protected and, in any dispute,  what kind of remedy they would seek.

At Burke & Associates Lawyers, our disputes lawyers have an extensive depth of experience in dealing with any dispute or litigation matter and in engaging in alternative dispute resolution processes. Our commercial & disputes division is led by our Principal, Meghan Warren who together with Special Counsel  Helen Mastos have the level of knowledge and expertise to advise on these situations.

If you require any advice regarding a potential shareholder oppression matter or would simply like to have speak with one of our senior lawyers, contact our office on +61 3 9822 8588 or via email here.

Insight written by Bianka Duzelovski


Meghan Warren


Meghan Warren

LL.B GAICD B.Bus (FinPlan)
Meghan is one of the few lawyers in Australia admitted in the State (Victoria) and Federal jurisdictions of Australia, and as an Attorney at Law to the New York State Bar in the United States.

Rosy Roberts


Rosy Roberts

Rosy has extensive experience in Litigation & Alternative Dispute Resolution having represented clients in all Victorian State Courts and the High Court of Australia. She is also a VCAT appointed Administrator.

Rohani Bixler

Special Counsel

Rohani Bixler

Special Counsel
LL.B (Hons) BA (PSYCH)
Rohani holds a Bachelor of Arts (Psychology) and a Bachelor of Laws (Honours) from Monash University, and has practiced exclusively in the areas of estate planning, deceased estate administration and estate litigation and disputes since...

Helen Mastos

Special Counsel

Helen Mastos

Special Counsel
Helen is a Special Counsel with over 25 years of experience in Commercial Litigation and Commercial Law.

Bianka Duzelovski

Bianka has an extensive background both in private practice and as internal counsel for a number of high-profile building and commercial businesses so provides the perfect balance of legal skills to our Commercial, Disputes and...

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