A company is a separate legal entity, distinct from its shareholders and directors. The directors control the company.
A company is regulated by its constitution, the Australian Securities and Investment Commission and various statutes, including but not limited to, the Corporations Act 2001 (Cth) and the Australian Securities and Investment Commission Act 2001 (Cth).
Disputes between directors and shareholders often arise from:
- breach of director’s duties
- the company’s strategy & management
- withholding of dividends
- disparities between salaries and profit dividends
- separate business interests
- failure to provide financial, accounting and statutory information
- exclusion from meetings and management
- breaches of shareholder’s agreements
Whilst not required at law, we strongly recommend the shareholders enter into a shareholder agreement. A shareholders agreement addresses issues such as the funding, structure, management and direction of the business, the responsibilities and obligations of the business owners, share transfers and how disputes are to be resolved.
Our team of litigation and dispute resolution lawyers and accredited mediators can help facilitate resolution of a shareholder dispute through negotiation, mediation or other forms of alternate dispute resolution.
A shareholder can also seek relief from the court in certain circumstances. Section 232 of the Corporations Act provides that the court may make an order in relation to a director/shareholder dispute if it is found that either of the:
- conduct (includes proposed conduct) or omission, by or on behalf of a company, or
- the resolution proposed by the company is contrary to the interests of shareholders or amounts to oppressive, unfairly prejudicial or discriminatory conduct against its member(s).
Some examples of oppressive conduct include:
- an unfair allocation or restrictions on the payment of dividends to particular shareholders
- refusing access to information about the company’s affairs
- use of company funds for improper purposes – for example, personal expenditure
- denying other directors the opportunity to carry out their functions
- paying excessive remuneration to the person having control of the company
Section 233 of the Corporations Act grants the court a wide scope of powers to make orders it considers appropriate if it finds there has been oppression, including:
- winding up the company
- making orders regulating the conduct or affairs of the company in the future
- ordering the purchase of the shares of any member by other members
- ordering the company to institute, prosecute, defend or discontinue legal proceedings, or authorising the institution of such proceedings by a member of the company on behalf of the company
- appointing a receiver or a receiver and manager of the property of the company
- ordering a person to refrain from engaging in specified conduct
- ordering a person to do a specified act or thing
- modifying or repealing the constitution of the company
Our team of experienced litigation and dispute resolution lawyers and accredited mediators can help you institute proceedings to seek the orders you require in the event the matter can’t be resolved.