A shareholder or director may be assisted by the courts if their interests are oppressed, unfairly prejudiced, or unfairly disregarded either by the actions of the company, the way in which the business of the company is carried on or the way in which directors’ power is exercised.

Not only may the actions of the company be complained of, but also those of the persons related to the company. The concept of a related person involves control of the company, control by the company, or common control with the company, and includes holding company and subsidiary relationships.

‘Interests’ have a very broad scope, and would include, for example, understandings between the shareholders surrounding the management of the company, expectations regarding dividend policy, the hope of shareholders to receive dividends or of directors to receive directors’ remuneration.

The wide meaning of ‘interests’ will likely be tempered by the court’s consideration of what will qualify as ‘oppressive’ or ‘unfair’.

A consideration of ‘fairness’ usually involves equitable considerations, therefore the conduct complained of must depart from accepted standards of fair play or amount to unfair discrimination. The result of the act or omission, and not necessarily the act or omission itself, must have been oppressive, unfairly prejudicial or unfairly disregardful of a shareholder or director’s interests.

Conduct will probably not be seen as unfair if the applicant is a majority shareholder that could exercise its vote to avoid the oppression or unfairness, therefore in the majority of cases involving shareholders, the remedy would be invoked by minority shareholders.

The principle of majority rule must be borne in mind, and therefore it must be noted that a minority shareholder cannot obtain relief merely because he is outvoted on a certain issue. Not all acts which prejudicially affect shareholders or directors or disregard their interests will entitle such parties to relief. It must be shown that the conduct is not only prejudicial or that it disregards a party’s interests, but that it is also unfair.

In order to illustrate how oppression or unfairness can occur in practice, the example of a company may be considered, which does not declare dividends for years, not due to a lack of funds available for distribution, but due to a practice of retaining income, and funnelling it into large salaries and bonuses to directors each year. In this instance, as directors’ salaries require approval by 75% of shareholders, a majority shareholder could implement the dividend policy even if minority shareholders dissent thereto. The majority shareholder may be motivated to implement the policy due to the fact that he is also a director of the company, and thus extracts value from the company in this way. This policy would, however, be unfair to minority shareholders who may never receive any value for their shareholding in the company.

While the courts are reluctant to intervene in corporate management, a court in this instance is tasked by the Companies Act to provide relief from the oppression or unfairness to a shareholder if approached thereby.

There is no closed list of orders that the court may grant, but some possible orders are listed in the Companies Act, for example; an order restraining the conduct complained of or an order directing the company to repay the amount paid for shares. The applicant should state the general nature of the relief it seeks, however the court will not be limited by the relief sought, and may make any interim or final order it considers fit.

Written by Mercia Fynn, Director, KISCH-IP