What Are Oppression Proceedings & Members Derivative Proceedings?

If you are a shareholder in a company and you have been unfairly treated, discriminated or prejudiced against by actions of the Directors of the company, the Oppressive Conduct provisions of the Corporations Act 2001 may be of assistance.

Oppression Proceedings

Oppression proceedings often involve small family companies where a family member (who is a director) conducts the affairs of the company in an oppressive manner towards other family members (who are shareholders).

Section 232 of the Corporations Act provides that the Court may make an order if:

The conduct of a company’s affairs; or
An actual or proposed act or omission by or on behalf of a company; or
A resolution or proposed resolution, of members or a class of members of a company;

Is either:

Contrary to the interests of the members as a whole; or
Oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.

Oppressive Behaviour by a Director

Examples of oppressive behaviour by a director can include:

Running a company in their own interest and ignoring the interests of minority shareholders;
Issuing shares to themselves to out vote other shareholders;
Redirecting business opportunities from the company to themselves;
Paying themselves excessive salaries at the expense of paying dividends to shareholders;
Pointlessly wasting company resources;
Failing to act in the best interests of the company;
Approving the sale of assets of a company at below-market price;
Engaging in unfair conduct.

If the Court finds that oppressive conduct has occurred, the Court can make orders including but not limited to:

That the company be wound up;
That the company’s existing constitution be modified or repealed;
Regulating the conduct of the company’s affairs in the future;
For the purchase or sale of shares;
Restraining a member from engaging in specified conduct or acts; or
Winding the company up.

An oppression proceeding is generally commenced by a minority shareholder against the directors of a company.

Members Derivative Proceedings

A minority shareholder can also seek leave of the Court to bring an action (a members derivative action) on behalf of a company against the directors if they can satisfy the following with the Court:

It is probable that the company will not itself bring proceedings;
The applicant is acting in good faith;
It is in the best interests of the company that the applicant be granted leave; and
There is a serious question to be tried.