22 “No!” the other woman shouted. “He was your son. My baby is alive!”
“The dead baby is yours,” the first woman yelled. “Mine is alive!”
They argued back and forth in front of Solomon, 23 until finally he said, “Both of you say this live baby is yours. 24 Someone bring me a sword.”
A sword was brought, and Solomon ordered, 25 “Cut the baby in half! That way each of you can have part of him.”
1 Kings 3: 22- 25
Disputes among shareholders are often nasty, brutish, long and costly. The most common provisions (sections 232 and 461 of the Corporations Act 2001) used in shareholder disputes hinge on either “oppression” or assert that a company should be wound-up because it would be “just and equitable” to do so.
S 461 General grounds on which company may be wound up by Court
(e) directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members; or
(f) affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; or
(g) an act or omission, or a proposed act or omission, by or on behalf of the company, or a resolution, or a proposed resolution, of a class of members of the company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interests of the members as a whole; or …
(k) the Court is of opinion that it is just and equitable that the company be wound up.
S 232 Grounds for Court order
The Court may make an order under section 233 if:
(a) the conduct of a company's affairs; or
(b) an actual or proposed act or omission by or on behalf of a company; or
(c) a resolution, or a proposed resolution, of members or a class of members of a company;
is either:
(d) contrary to the interests of the members as a whole; or
(e) oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
…
The Court has wide ranging powers to resolve the dispute:
S 233 Orders the Court can make
(1) The Court can make any order under this section that it considers appropriate in relation to the company, including an order:
(a) that the company be wound up;
(b) that the company's existing constitution be modified or repealed;
(c) regulating the conduct of the company's affairs in the future;
(d) for the purchase of any shares by any member or person to whom a share in the company has been transmitted by will or by operation of law
(e) for the purchase of shares with an appropriate reduction of the company's share capital;
(f) for the company to institute, prosecute, defend or discontinue specified proceedings;
(g) authorising a member, or a person to whom a share in the company has been transmitted by will or by operation of law, to institute, prosecute, defend or discontinue specified proceedings in the name and on behalf of the company;
(h) appointing a receiver or a receiver and manager of any or all of the company's property;
(i) restraining a person from engaging in specified conduct or from doing a specified act;
(j) requiring a person to do a specified act.
…
In many circumstances, however, the fight leads to the liquidation of the company and all parties are very real losers. One example of the approach taken by the Courts was:
Galanopoulos v Moustafa & Ors [2010] VSC 380
31 In my opinion it is just and equitable that the Company be wound up for a number of reasons. The authorities are to the effect that the court can look at all of the circumstances obtaining in a particular company in order to determine whether it is just and equitable. Matters that are relevant include deadlock and whether there is a lack of confidence in the conduct and management of the company’s affairs. In my opinion there is a lack of confidence in the management of the affairs of the company in light of the state of affairs, including the state of the books, records and documents. Again it is not necessary to attribute blame, the fact is the books, records and documents are inadequate. …
Kyard Business Law takes the view that whenever possible, early and sincere attempts to resolve shareholder disputes by negotiation or mediation must always be attempted. Where, however, one party refuses to act in a sensible and commercial manner, there are tools available to enable a wronged shareholder to act. If the decision is made to fight then the decision needs to include a willingness to fight hard and to use the widest possible array of legal means available to achieve a just result.
This article is a brief summary of a complex area that is very much contingent of the precise facts. It is therefore not a substitute for detailed legal advice. While the key concepts have application in other jurisdictions, the relevant Law is that of Victoria as at May 2023.
Image from Christina Morillo
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