2015 S2
Week 10
They cannot usurp the powers by which by the rules are vested in the directors any more than the
directors can usurp the powers vested by the rules in the general body of shareholders. John Shaw
& Sons v Shaw (1935)
The conduct of a companys affairs (includes the business management and internal
affairs of the company: s 53); or
Actual or proposed act or omission by or on behalf of a company; or
A resolution, or a proposed resolution, of members or a class of members of a company;
was either
Contrary to the interests of the members as a whole (s 232(d)); or
Oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or
members whether in that capacity or in any other capacity (s 232(e)).
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Objective test: ask how would a reasonable person view the conduct; whether a commercial
bystander would see it unfair
No need to show unlawful or dishonest conduct by others. It is the effect of the conduct that
is important
Common law derivation action (Foss v Harbottle) perceived to be problematic and inadequate
Barriers hindering use of remedies at common law:
o Restrictive access
o Impact and effect of ratification
o Uncertainty as to costs
Abolished precedent in Foss v Harbottle and its exception (except for personal action) in 2000
Replaced with Part 2F.1A (the SDA) to overcome inadequacy of common law
S 236 allows shareholders and officers (both current and former) to apply to court for leave (consent)
to bring a SDA.
Court may only do so only if following criteria are met (s 237(2)):
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Ratification issue
-
S 239 overcome ratification issue by making prior ratification of conduct no longer prevent an
applicant from applying for leave to bring an SDA.
Cost issue
-
S 242 gives court power to have the company pay the legal costs of the applicant.
Research suggests 21% of successful applicants were granted costs, none of which required
the company to fund applicant. Hence, costs remains as a great inhibitor to shareholder
litigation.
Critics have suggested SDA to follow the NZ and Canadian model where company must pay
for costs when leave is granted.
S 1324 provides the court with the power to order an injunction to stop a person from
engaging in conduct that is in breach or would breach the CA.
Any person whose interests have been affected by wrongful conduct or ASIC may apply.
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The case confirms that members have property rights in their shares which simply cannot
be taken away for the purposes of increasing business.
The case imposed two-staged test for assessing the validity of alteration of constitution to
compulsory acquire shares of minority shareholders:
o Proper purpose
o Is it fair?
Gambotto succeeded because high court held that the amendment was not for proper
purpose.
Highly controversial
o Should share be treated like any other property or should it be viewed simply as a
dividend stream which can be compulsorily acquired provided the price offered is
fair
o Greenmail: minority shareholders preventing a corporate restructure with
commercial benefits unless they are paid a price well above the fair value of their
shares.
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