Oppression Action - Remedy for Oppressed Shareholders

Generally, the internal management of a company is governed by the majority rule, and the Court will be slow to interfere or enquire into the acts of those who control or manage the company’s affairs[1].

As such, what are the options available to oppressed shareholders?

Section 346 of the Companies Act 2016 (the “Act”) (in pari materia to Section 181 of the old Companies Act 1965) provides a remedy to any member[2] of the company where there is oppression or prejudice to the member.

The oppressed shareholder has to demonstrate that[3]:

1. The affairs of the company are being conducted in a manner that is oppressive to the shareholder or in disregard of the shareholder’s interest as members of the company;
2. The powers of the directors are being exercised in a manner that is oppressive to the shareholder or in disregard of the shareholder’s interest as members of the company; or
3. That some act of the company has or is threatened to be done, or some resolution of the members of the company was or is proposed which unfairly discriminates against or is otherwise prejudicial to the shareholder. 

The oppressed shareholder ought to establish that there has been:

1. a visible departure from the standards of fair dealing[4]; and
2. a violation of the conditions of fair play which a shareholder was entitled to expect[5].

Some examples of instances of oppression:

1. The oppressed shareholder was prevented from participating in the management of the company despite an implied agreement between the shareholders[6];  or
2. There has been an unexplained failure to declare dividends[7].

Interestingly, an oppression remedy is not confined only to minority shareholders. Majority shareholders may also claim for relief under Section 346 of the Act where they are unable for any reason to exert their will at a general meeting of the company[8].

If the Court finds that a case of oppression has been made, the court may make an order to remedy the matters complained of, and the order may[9]:-

1. direct or prohibit any act or cancel or vary any transaction or resolution;
2. regulate the conduct of the affairs of the company in the future;
3. provide for the purchase of the shares or debentures of the company by other members or debenture holders of the company or by the company itself;
4. in the case of a purchase of shares by the company, provide for a reduction accordingly of the capital of the company; or
5. provide that the company be wound up.

In conclusion, the Court has wide powers to provide the appropriate remedies according to the particular circumstances of the case. For instance, if the company is a going concern, the Court may order a buy-out instead of winding-up the company[10].