Shareholder disputes commonly arise, and fortunately there are legal avenues for shareholders to pursue their rights.
If you are shareholder concerned about the management of the company and your investment, you should consider the following options may be available to you.
Companies usually have written constitutions setting out rules for the management of the company, including the appointment and replacement of directors, voting at board meetings, and the rights and obligations of shareholders. The constitution is a contract between the company and its members. The terms of the constitution must be considered in the event of a shareholder dispute for the process and potential breaches.
Corporations Act 2001 – replaceable rules
The Corporations Act 2001 contains rules for the governance of companies and rights of shareholders. If a company has a written constitution, it will usually indicate whether all or some of the rules in the Corporations Act 2001 have been replaced or will apply. If there is no constitution, then the replaceable rules should be considered as to whether they apply in the circumstances of a shareholder dispute.
Often shareholders sign shareholder agreements that set out further rules and requirements for the governance of the company and the rights and obligations of members, which are in addition to the company’s constitution or replaceable rules. Shareholder agreements often contain provisions about how disputes must be handled, removal and replacement of directors, and buy-back of shares, so the terms will be relevant in the event of a shareholder dispute.
The Corporations Act 2001 enables shareholders to apply to the court for relief in the event that the company’s affairs are being conducted in a matter that is contrary to the interests of the shareholders 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.
The court can tailor the relief to the particular circumstances of the company, including orders regulating the company’s conduct, buy-out of a member’s shares, and winding up the company.
Winding up on just and equitable grounds
The Corporations Act 2001 enables shareholders to apply for the company to be wound up on just and equitable grounds. This remedy is often sought when there has been a complete breakdown in the relationship between the shareholders and directors, so that the ongoing operation of the company is untenable.
Shareholder derivative action
Company directors owe duties to the company as a whole, including duties to exercise powers with due care and diligence, to act in good faith for a proper purpose, and to avoid conflict. These duties are provided for in the Corporations Act 2001 as well as common law.
If the directors of a company are not acting in accordance with their duties, then shareholders may apply to the court for leave to pursue the directors on behalf of the company as a derivative action on behalf of the company .