Shareholder disputes – Supreme Court takes alternate approach

Many small to medium sized businesses face disputes between shareholders.  Often these shareholders are family members.  Shareholder disputes are notoriously expensive to resolve and typically take the form of “oppression” claims commenced in the Supreme Court of Victoria under the provisions of s 233 of the Corporations Act 2001 (Cth).  Although individual disputes will differ, all these disputes have in common allegations that the affairs of a company have been conducted in an oppressive manner.

Oppression claims are commonly instituted by minority shareholders where they believe:

• they have been “shut out” of the company’s decision making process; and/or
   
• the majority shareholders have been making decisions for the benefit of some, rather than all of the shareholders.

Examples of specific conduct giving rise to a potential oppression claim include:

• the misuse of company funds;
   
• payment of excessive remuneration to directors or their associates;
   
• exclusion from management and meetings;
   
• refusing to allow access to company information; and
   
• the issue of additional shares for the purpose of diluting a shareholding.

Oppression claims are particularly common in family companies, where decisions are often made with personal, as well as commercial objectives.  

Oppression claims are commenced by way of originating process.  Previously, a plaintiff wishing to file an oppression claim was required to submit a detailed affidavit setting out the facts of the alleged oppressive conduct and exhibiting a range of supporting materials.  It is our experience that these affidavits often run to a considerable length, and the cost involved in preparing them is substantial.  The time and cost associated with instituting and defending oppression claims can place considerable strain on shareholders and the resulting uncertainty can have an adverse effect on any business conducted by the company.

Pilot Programme

On 1 October 2014, the Supreme Court of Victoria introduced a “pilot programme” to deal with oppression cases.

Under the pilot programme, the plaintiff is no longer required to file substantial materials with the original application, and is instead only required to file a single affidavit (limited to three page in length), the purpose of which is to summarise the plaintiff’s claim.  No exhibits beyond a current company search are permitted.

Once the application is filed, the parties and their lawyers will then attend an initial conference before an Associate Justice to explore whether the dispute can be resolved before the parties incur substantial legal costs.

If the dispute does not resolve at the initial conference, orders will be made by the Associate Justice, including:

• permitting the plaintiff access to the company’s books;
   
• a valuation of the company be conducted (if necessary); and
   
• for a mediation to be held. 

The programme is scheduled to be reviewed in six months.

Update - 3 July 2015

The programme has now concluded, and the Supreme Court of Victoria has confirmed that oppression claims are again required to be instituted by way of originating motion.  

If you would like further information please contact:

Richard Anderson
Principal
Harwood Andrews
T: 5226 8524
E: randerson@harwoodandrews.com.au