Bryan's 232, S461 (A) And S 232
Introduction
Many companies are controlled by single or a group of shareholders. This is particularly common in proprietary companies. In a majority-controlled company, minority shareholders face significant problem If the controllers run the company in their own interest or act unfairly discriminatory, unfairly prejudicial or oppressively. The Corporation Act provides effective procedures to enable members to obtain remedies in circumstances where the controllers of a company act oppressively or unfairly towards them.
In our case, Bryan is minority-shareholder; Don and his board faction are majority-shareholder. To protect Bryan’s interests and rights, there are two possible remedies can be advised to Bryan: s 232, s461 (1) (e), (f) and (g). S 232 provides a remedy where the affairs of a company are conducted in a manner that is contrary to the interests of the member as a whole, oppressive, unfairly discriminatory or unfairly prejudicial.1 The court may order the winding up of a company under s …show more content…
461 (e) if 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. S 461 (1) (f) and (g) permit the court to wind up a company where the ground set out in s 232 are established.2
Issue: Does Bryan satisfy criteria and procedure to apply for a remedy
There are several elements for each remedy application. It includes the applicant who may apply, about whose conduct, what kind of conduct, with Criteria and procedures that need to be complied with, and then orders that court can make.
1. Apply remedy under s 232
Section 234 states who may apply for an count order under s232, the accepted applicants include a member of the company, even though the application relates to an act or omission that is against the member in a capacity other than as a member: s234(a). The application may also relate to an act or omission that is against another member in their capacity as a member.3 Bryan is the director of COCO Company holding 30% shares presently, so he can apply for remedy.
During the Corporation Act S232: 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.4
From the s232 (a), the company’s affairs includes conduct of the directors, majority shareholders and substantial share holders, as well as the company itself.5 According to the S53, company’s affairs include the control, business, trading, transaction and dealing. Also include the internal management and proceedings.6 In our case, Don nominated members of the board and held director’s meeting are internal management. And Don awarded MYCO a three-year contract to supply COCO is business trading. So these are company’s affairs s 232 (a). From the s 232 (d), it is likely that conduct by directors in breach of their duties under s 181, s 182, s 183 would be contrary to the interests of the members as a whole: Campbell v Backoffice Investment.7 Directors’ duty s 181-183 includes act in good faith, use position and information properly.
In our case, Don use his director’s power given by company constitution to nominate a majority of the board. This helps Don easier to control the company and gain voting power in the director’s meeting. Don can make his decision as the company’s decision in order to dominance of board proceedings. And Don rewarded MYCO Company (which Don own 20 percent share) a three-year contract to supply COCO, without discuss the transaction with the board. Don has breached the fiduciary duty that is to avoid conflict interest, and also didn 't disclose the transaction to the board. So Don’s conduct of breaching director’s duty is contrary to the interest of the members as a
whole.
From the s 232 (e), the unfairness is determined objectively. A director’s conduct may be regarded as oppressive or unfair if no reasonable director would have acted in that way.8 In our case, Bryan complains that board meetings have been conducted without regard to the views of directors other than Don, that meetings of Don and his board faction are held before full directors’ meetings to formulate a position and strategy. As a reasonable director, to act in good faith and best interest for the company, it is important to receive as much as possible of suggestions and resolutions during the directors’ meetings. And sometimes Don restricts the speaking time available to Bryan at board meetings. This is obviously unfairly discriminate against Bryan.
To apply a remedy, either s 232 (d) or s 232 (e) need to be satisfy. So from now with my own opinion, Bryan has enough evidence to prove Don’s conduct contrary to the interests of the members as a whole, or act unfairly against members. So Bryan can apply for a remedy from court under section 232.
2. Apply remedy under s461(1)(e)
S 461 (1) (e) states that directors have acted in affairs of the company in their own interest rather than in the interests of the members as a whole. In our case, Don use his director’s power given by company constitution to nominate a majority of the board. Don can make his decision as the company’s decision in order to dominance of board proceedings. And Don rewarded MYCO Company (which Don own twenty percent share) a three-year contract to supply COCO, without discuss the transaction with the board. Don has breached the fiduciary duty that is to avoid conflict interest, and also didn 't disclose the transaction to the board. And board meetings have been conducted without regard to the views of directors other than Don, that meetings of Don and his board faction are held before full directors’ meetings to formulate a position and strategy. So Don has acted in affairs of the company in his own interest with dominance the board. So Bryan can apply for a remedy from court under section 461 (1) (e).
3. Apply remedy under s 461 (1) (f) and (g)
State with the s 461 (1) (f) and (g), court may order the winding up of a company if 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 an act of 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 in a manner that is contrary to the interests of the members as a whole;9
The s 461 (1) (f) and (g), which permits the court to wind up a company where the grounds set out in s 232 are established.
Remedies
The Court can make any order that it considers appropriate in relation to the company. The possible orders for Bryan v Don case including share buy-out, replacement of directors, appointment of receiver, authorization of legal action, director not to participate in management, alteration of constitution and winding up.10 But the most common remedy is share buy-out, which orders majority shareholders buy minority shareholders’ shares and this is the most probable remedy.
Conclusions
Bryan can apply remedy from court under s 232, for Don’s conduct contrary to the interests of the member as a whole, oppressive, unfairly discriminatory or unfairly prejudicial. The Court may order majority shareholders buy minority shareholders’ shares. The court may order the winding up of a company under s 461 (e), (f) and (g) if directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole; or the grounds set up in s 232 are established.
Bibliography
Book:
Lipton, Herzberg and Welsh, Understanding Company Law, Lawbook Co, Australia, 2009
Cases:
Campbell v Backoffice Investments Pty Ltd(2008) 66 ACSR 359; 26 ACLC 537; [2008] NSWCA 95 at [214] per Basten JA
Legislation:
Corporations Legislation 2012, Thomson Reuters, Australia
Many companies are controlled by single or a group of shareholders. This is particularly common in proprietary companies. In a majority-controlled company, minority shareholders face significant problem If the controllers run the company in their own interest or act unfairly discriminatory, unfairly prejudicial or oppressively. The Corporation Act provides effective procedures to enable members to obtain remedies in circumstances where the controllers of a company act oppressively or unfairly towards them.
In our case, Bryan is minority-shareholder; Don and his board faction are majority-shareholder. To protect Bryan’s interests and rights, there are two possible remedies can be advised to Bryan: s 232, s461 (1) (e), (f) and (g). S 232 provides a remedy where the affairs of a company are conducted in a manner that is contrary to the interests of the member as a whole, oppressive, unfairly discriminatory or unfairly prejudicial.1 The court may order the winding up of a company under s …show more content…
461 (e) if 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. S 461 (1) (f) and (g) permit the court to wind up a company where the ground set out in s 232 are established.2
Issue: Does Bryan satisfy criteria and procedure to apply for a remedy
There are several elements for each remedy application. It includes the applicant who may apply, about whose conduct, what kind of conduct, with Criteria and procedures that need to be complied with, and then orders that court can make.
1. Apply remedy under s 232
Section 234 states who may apply for an count order under s232, the accepted applicants include a member of the company, even though the application relates to an act or omission that is against the member in a capacity other than as a member: s234(a). The application may also relate to an act or omission that is against another member in their capacity as a member.3 Bryan is the director of COCO Company holding 30% shares presently, so he can apply for remedy.
During the Corporation Act S232: 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.4
From the s232 (a), the company’s affairs includes conduct of the directors, majority shareholders and substantial share holders, as well as the company itself.5 According to the S53, company’s affairs include the control, business, trading, transaction and dealing. Also include the internal management and proceedings.6 In our case, Don nominated members of the board and held director’s meeting are internal management. And Don awarded MYCO a three-year contract to supply COCO is business trading. So these are company’s affairs s 232 (a). From the s 232 (d), it is likely that conduct by directors in breach of their duties under s 181, s 182, s 183 would be contrary to the interests of the members as a whole: Campbell v Backoffice Investment.7 Directors’ duty s 181-183 includes act in good faith, use position and information properly.
In our case, Don use his director’s power given by company constitution to nominate a majority of the board. This helps Don easier to control the company and gain voting power in the director’s meeting. Don can make his decision as the company’s decision in order to dominance of board proceedings. And Don rewarded MYCO Company (which Don own 20 percent share) a three-year contract to supply COCO, without discuss the transaction with the board. Don has breached the fiduciary duty that is to avoid conflict interest, and also didn 't disclose the transaction to the board. So Don’s conduct of breaching director’s duty is contrary to the interest of the members as a
whole.
From the s 232 (e), the unfairness is determined objectively. A director’s conduct may be regarded as oppressive or unfair if no reasonable director would have acted in that way.8 In our case, Bryan complains that board meetings have been conducted without regard to the views of directors other than Don, that meetings of Don and his board faction are held before full directors’ meetings to formulate a position and strategy. As a reasonable director, to act in good faith and best interest for the company, it is important to receive as much as possible of suggestions and resolutions during the directors’ meetings. And sometimes Don restricts the speaking time available to Bryan at board meetings. This is obviously unfairly discriminate against Bryan.
To apply a remedy, either s 232 (d) or s 232 (e) need to be satisfy. So from now with my own opinion, Bryan has enough evidence to prove Don’s conduct contrary to the interests of the members as a whole, or act unfairly against members. So Bryan can apply for a remedy from court under section 232.
2. Apply remedy under s461(1)(e)
S 461 (1) (e) states that directors have acted in affairs of the company in their own interest rather than in the interests of the members as a whole. In our case, Don use his director’s power given by company constitution to nominate a majority of the board. Don can make his decision as the company’s decision in order to dominance of board proceedings. And Don rewarded MYCO Company (which Don own twenty percent share) a three-year contract to supply COCO, without discuss the transaction with the board. Don has breached the fiduciary duty that is to avoid conflict interest, and also didn 't disclose the transaction to the board. And board meetings have been conducted without regard to the views of directors other than Don, that meetings of Don and his board faction are held before full directors’ meetings to formulate a position and strategy. So Don has acted in affairs of the company in his own interest with dominance the board. So Bryan can apply for a remedy from court under section 461 (1) (e).
3. Apply remedy under s 461 (1) (f) and (g)
State with the s 461 (1) (f) and (g), court may order the winding up of a company if 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 an act of 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 in a manner that is contrary to the interests of the members as a whole;9
The s 461 (1) (f) and (g), which permits the court to wind up a company where the grounds set out in s 232 are established.
Remedies
The Court can make any order that it considers appropriate in relation to the company. The possible orders for Bryan v Don case including share buy-out, replacement of directors, appointment of receiver, authorization of legal action, director not to participate in management, alteration of constitution and winding up.10 But the most common remedy is share buy-out, which orders majority shareholders buy minority shareholders’ shares and this is the most probable remedy.
Conclusions
Bryan can apply remedy from court under s 232, for Don’s conduct contrary to the interests of the member as a whole, oppressive, unfairly discriminatory or unfairly prejudicial. The Court may order majority shareholders buy minority shareholders’ shares. The court may order the winding up of a company under s 461 (e), (f) and (g) if directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole; or the grounds set up in s 232 are established.
Bibliography
Book:
Lipton, Herzberg and Welsh, Understanding Company Law, Lawbook Co, Australia, 2009
Cases:
Campbell v Backoffice Investments Pty Ltd(2008) 66 ACSR 359; 26 ACLC 537; [2008] NSWCA 95 at [214] per Basten JA
Legislation:
Corporations Legislation 2012, Thomson Reuters, Australia