Membership and Members Rights
STATUTORY REMEDIES 1. Members statutory remedies: (a) oppression remedy, (b) court ordered winding up, (c)statutory injunction, (d) statutory rights to inspect company books 2. Members personal action 3. Members derivative action 1. (a) OPPRESSION REMEDY -
S.181 had 2 limbs. It gives the court to power remedy conduct where it is of the opinion that:
Conduct of the company’s affairs or directors powers are being exercised in an oppressive manner or manner or in disregard of members interest including interest including himself
An actual or proposed act or omission by or on behalf of the company or a resolution, or a proposed resolution of members or a class of members is either unfairly prejudicial to or unfairly discriminatory against members.
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It would appear to cover cases of fraud on minority and aspects of just and equitable ground for winding up – up –S.218(1)(i). S.218(1)(i). Refer to S.218(1)(f). S.181 is use to force controllers of the companies to consider the interest of the minority shareholders.
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The remedy can apply to any type of company but in practice, oppression actions must brought by members of private companies, that have only few participants and which the members involved in management.
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S.181(1)- a members or debenture-holders of a company or the Minister may apply for remedy. Niord Pty Ltd v Adelaide Petroleum NL
An equitable interest as an unregistered transferee is insufficient and does not confer the necessary standing upon the applicant to make an application under S.181.
Re A Company: Right to apply for remedy extends to a legal personal representative of a member and to a person to whom a share in the company has been transmitted by will or operation of law. Owen Sim Liang Khui v Piasau Jaya Sdn Bhd: A Bhd: A petitioner must be able to demonstrate that his/her name appears on a company’s register of members at date of presentation of petition. However, a R who is i s guilty of unconscionable or inequitable conduct is not permitted to rely upon the general requirement requir ement of membership in order to defeat a petitioner’ standing.
Membership and Members Rights
Kumagai Gumi Co Ltd v Zenecon-Kumagai Sdn Bhd: Minority shareholders may seek relief and majority shareholders in circumstances where they are unable for any reason to exert their will at general meeting of their company. -
Objective standard test is required. Unfairness determined objectively. It means the conduct may be considered oppressive or unfair even it is established that the person alleged to have been acting oppressively or unfairly did not intend to harm the complaining shareholder.
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Oppressive/unfair if no reasonable director would have acted in that way.
Not necessary for directors/majority shareholders acted dishonestly.
Disregard of interests of the members of debenture-holders: Re Kong Thai Sawmill (Miri) Sdn. Bhd- something more than a failure to take account of minority interest. There must be awareness of that interest and an evident decision to override it/brush it aside/ to set at naught the proper company procedure. Unfairly prejudicial/ unfairly discriminatory: Morgan v 45 Flers Avenue Pty Ltd- regard as a ‘composite whole’ and the individual elements should be considered merely as different aspects of the essential criterion, that is commercial unfairness.
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Examples of oppressive, disregard of members’ interests and unfairly prejudicial or unfairly discriminatory conduct:
Diversion of corporate assets or opportunity Scottish Co-operative Wholesale Society Ltd v Meyer, - co-operative society diverted the profits of the company to a new department of theirs, after failing to purchase the shares of the petitioners in the company. - It was held that the conduct of majority constituted oppression under English equivalent of S.181 and ordered majority to buy the shares of the minority. Kumagai Gumi Co Ltd: Diverting the company’s business opportunities to related companies amounted to oppression.
Diversion of profits Re Gee Hoe Chan Trading Co Pte Ltd : Directors by paying themselves directors’ fees and salaries but not declaring dividends had acted inequitable and was held to constitute a basis for an allegation of unfair prejudice.
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A majority may act oppressively/unfairly where the minority shareholders are excluded from being directors and a significant proportion of profits paid in form of high directors’ fees and low dividends to shareholders.
Membership and Members Rights
Directors’ failure to act in the in terest
of the company -minority may apply this
Re Spargos Mining NL - Court found that the affairs of the company were conducted in a manner that was oppressive and unfair. The directors exhibited ‘an endemic incapacity’ to deal with the company’s affairs by giving sloe attention to its interests. There were conflict of interests that were detrimental to the company, its shareholders and the minority SH not interested in other companies for whose benefit the transactions were undertaken. Transactions were almost entirely devoid of any commercial benefit to the company.
Shares issued for improper purposes If Ds who breached their duty which also a majority SH, they will act oppressively/unfairly if (as shareholders) they vote to ratify their improper purpose. Hannes v MJH Pty Ltd: A majority shareholder could not ratify his own breaches as it would be oppressive/unfair. The disinterested shareholders could only ratify the particular decisions made by the directors.
No dividend/inadequate dividend given Art 98-it gives the directors actual power to declare a dividend and to determine maximum amount. Low Peng Boon v Low Janie : the non-payment of dividend coupled with the misappropriation of company funds could amount to oppression. Eric Lau Man Hing v Eramara Jaya Sdn. Bhd. & Ors : Non-payments of dividends together with a failure to keep proper records amounted to oppressive conduct in disregard of the interests of the minority shareholders by the majority. Re Gee Hoe Chan Trading Co Pte Ltd: a minimum amount of dividend couples with a generous remuneration for the directors may be considered as a conduct that is oppressive/unfair.
Dominant members run the company as if it were their own, disregarding the rights and interests of the other company Re HR Harmer Ltd - H R Harmer founded a stamp business. In 1947, HRH formed a company t o buy the business; at this time, HRH was 77. The initial directors of the company were HRH and his sons Cyril H and Bernard H. The shareholders were HRH, CH, BH and HRH’s wife. Together HRH and his wife had over 7 5% of the votes, and his wife always voted with
Membership and Members Rights HRH. HRH ran the business in an autocratic way: hiring and firing ‘yes men’, ignoring views of the other directors, opening a branch in Australia which folded and sold a successful branch in the US. The sons sued for unfair prejudicial conduct. -The court ordered that HRH was to be employed as a ‘senior stamp consultant’ with a salary of £2500 per annum; HRH was not to interfere in any way with the running of the company; HRH was appointed as ‘president for life’ but with no powers; and the company was forced to buy his shares from HRH.
Re Coliseum Car Stand Service Ltd: Although there is no obligation on the Ds of
the company to recommend declaration of dividends, if the company has been making profit for several years or in situations where the directors have obtained excessive compensation or benefit, the members can apply for the oppression remedy. -
Orders that the court can make: S.181[2]
Winding up
Regulating the company’s affairs
Purchase or oppressed member’s shares
Appointment of receiver
Restraining someone from doing something, or requiring someone to do something.
1. (b) COURT-ORDERED WINDING UP -
A member of a company (creditor in some case) can apply to court to have the company wound up where:
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It is just and equitable to do so. S.218(1)(i), or
Directors acting in their own interest. S.218(1)(f), or
Oppresive, unfairly prejudicial; or unfairly discriminatory conduct. S.181(1)
Company, creditor, contributory and liquidator of company who apply for winding up cannot apply under S.218(1)(f) and (i) as they could pursue another remedy.
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Just and equitable ground: situations-s.218(1)(i) i)
Breakdown of mutual trust and confidence.
-in case of small companies that evolved partnerships or that operate in a similar manner to partnerships, it was held just and equitable to wind up the company when the relationship between ‘partners’ breaks down. Lawrence v Lawrick: Mutual trust and confidence between directors broke down when one D committed adultery with the wife of the other. Court ordered to wound up the comp. -if there is convincing evidence on breakdown of mutual confidence and good faith, it would justify the winding up on just and equitable ground.
Membership and Members Rights
ii)
Deadlock
-where shareholders in a company are deadlocked to the extent that the company is unable to function properly. There must be evidence of deadlock that clear and fully presented otherwise application will be dismissed. iii)
Fraud, misconduct or oppression
-this ground has been largely incorporated into S.181 that allows a wide range of remedies. iv)
Failure of substratum -means ceases to carry on the business for which it was formed. Re Eastern Telegraph Co Ltd: A shareholder who invested money in his shares for what the company is going to carry out particular object, he cannot be forced against his will to continue pay his money for different project or speculation.
1. (C) STATUTORY INJUNCTION -Court order to stop someone from breaching CA -Provisions: S.132C, S.132E, S.28 -Any member can apply 1. (D) INSPECT COMPANY BOOKS -S.157-member can apply to court for authorization to inspect company books -court can authorize either the member /representative -member must act in good faith 2.
MEMBER’S PERSONAL ACTION
-Personal action-legal action to enforce a personal right. -members have personal right from : * statutory contract(express)* S.33- AA/MM - between members and members vs company *Companies Act- eg: right of a member holding at le ast 10% of the paid up capital to call a general meeting- S.145 3.
MEMBER’S DERIVATIVE ACTION
-Derivative- an action to enforce a right of the company . Eg, to enforce a breach of directors duties. -even though a member brings a derivative action, the action is not for the benefit of the member but for the company’s benefit. -Any remedies goes to the company -wrongdoers cited as defendants, company joins as nominal defendant. -statutory derivative action(SDA): S.181A-181E
Membership and Members Rights
Mohd Shuaib Ishak v Celcom (Malaysia) Bhd . -improve position of minority SH Ng Hoy Keong v Chua Choon Yang -5 issues relevant to application for SDA:
Leave-S.181B
Good faith- S.181B
Reasonable notice-S.181A
Costs-indemnity order-S.181E
Interests of company-S.181B
