TOPIC 7: SHAREHOLDERS’ RIGHTS AND REMEDIES….contd

Derivative Action A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a company against a third party. Often, the third party is an insider of the corporation, such as an executive officer or director. Shareholder derivative suits are unique because under traditional corporate law, management is responsible for bringing and defending the corporation against suit. Shareholder derivative suits permit a shareholder to initiate a suit when management has failed to do so. Because derivative suits vary the traditional roles of management and shareholders, many jurisdictions have implemented various procedural requirements to derivative suits.

Derivative Action Derivative suits permit a shareholder to bring an action in the name of the corporation against the parties allegedly causing harm to the corporation. If the directors, officers, or employees of the corporation are not willing to file an action, a shareholder may first petition them to proceed. If such petition fails, the shareholder may take it upon himself to bring an action on behalf of the corporation. Any proceeds of a successful action are awarded to the corporation and not to the individual shareholders that initiate the action.

Oppression Remedy In corporate law, an oppression remedy is a statutory right available to oppressed shareholders. It empowers the shareholders to bring an action against the corporation in which they own shares when the conduct of the company has an effect that is oppressive, unfairly prejudicial, or unfairly disregards the interests of a shareholder. An oppression remedy was adopted by the UK Companies Act in 1948 and was widely copied in the companies legislation of other commonwealth countries.

Oppression Remedy Accordingly, this is a powerful tool for rectifying circumstances where directors and/or majority shareholders squeeze-out a minority shareholder, director, or other stakeholder in the business. Costs in many cases are awarded against the defendant on the highest scale - substantial indemnity basis. The risk of a costs award should have the effect of encouraging a rational defendant to make a reasonable settlement offer to the plaintiff at an early stage in the litigation, otherwise the defendant risks incurring significant costs being awarded against him or her at a later stage

Oppression Remedy This oppression remedy adds additional obligations on top of a company’s strict legal duties. Those obligations are concerned with fairness in the context of business realities, not narrow legalities. The touchstone of oppression is the shareholder’s objectively reasonable expectations about how the company will be run. Whether conduct is oppressive depends on two things: Did it violate the shareholder’s reasonable expectations? Was it “oppressive”, “unfairly prejudicial” or did it “unfairly disregard” the shareholder’s interests?

Oppression Remedy If the court is satisfied there has been oppression, it “may make any interim or final order it considers appropriate”. This very broad discretion is what makes the oppression remedy so powerful. However, it is tempered by the requirements that the court act “with a view to remedying or bringing to an end the matters complained of ” and respect the shareholders’ reasonable expectations.

Oppression Remedy The most common remedies are orders: specifically remedying the conduct complained of; requiring the company or other shareholders to purchase the shareholder’s shares; appointing a receiver or receiver-manager; and dissolving the company. A shareholder may apply for a remedy from a company’s directors or officers personally. That requires that they have personally oppressed the shareholder and that the circumstances require that to be remedied by their personally compensating the shareholder.

Oppression Remedy That may be so where they have personally benefitted from their conduct or furthered their corporate control through it. The oppression remedy can be a powerful tool for resolving shareholder disputes. Because whether a shareholder has been oppressed is so fact specific, and the court has so much discretion in determining the appropriate remedy, Certified General Accountants are well-advised to seek legal counsel to plan an effective dispute resolution strategy.

Who May Claim Relief from Oppression The following members of a company shall have the right to apply:- in the case of a company having a share capital, not less than one hundred members of the company or not less than one tenth of the total number of its members, whichever is less, or any member or members holding not less than one-tenth of the issued share capital of the company, provided that the applicant or applicants have paid all calls and other sums due on their shares; in the case of a company not having a share capital, not less than one-fifth of the total number of its members.

Who May Claim Relief from Oppression Where any share or shares are held by two or more persons jointly, they shall be counted only as one number. Where any members of a company, are entitled to make an application, any one or more of them having obtained the consent in writing of the rest, may make the application on behalf and for the benefit of all of them. The Government may, if in its opinion circumstances exist which make it just and equitable so to do, authorise any member or members of the company to apply to the Company Law Board, notwithstanding that the above requirements for application are not fulfilled.

Who May Claim Relief from Oppression The Government may, before authorising any member or members as aforesaid, require such member or members to give security for such amount as the Government may deem reasonable, for the payment of any costs which the Court dealing with the application may order such member or members to pay to any other person or persons who are parties to the application.

Who May Claim Relief from Oppression If the managing director or any other director, or the manager, of a company or any other person, who has not been impleaded as a respondent to any application applies to be added as a respondent thereto, the Company Law Board may, if it is satisfied that there is sufficient cause for doing so, direct that he may be added as a respondent accordingly.

Who May Claim Relief from Oppression If the managing director or any other director, or the manager, of a company or any other person, who has not been impleaded as a respondent to any application applies to be added as a respondent thereto, the Company Law Board may, if it is satisfied that there is sufficient cause for doing so, direct that he may be added as a respondent accordingly.

Who May Claim Relief from Oppression (FIJI CASE) IN THE FIJI COURT OF APPEAL AT SUVA ON APPEAL FROM THE HIGH COURT OF FIJI CIVIL APPEAL NO. ABU0031 OF 1998S (High Court Civil Action No. HBF0043 of 1997L)   BETWEEN: CYRUS MOTORS COMPANY LIMITED AND PREM KUMAR Appellants AND: LUMBY PTY LIMITED Respondent

Who May Claim Relief from Oppression (FIJI CASE) Cyrus Motors through its lawyer’s was appealing the judges ruling from the high court to agree to the winding up of Cyrus Motors. The company wanted to stop this winding up notice placed by its creditor’s Lumby Pty Limited. The court of appeal held that the company had given a lot of false promise to pay its debt . When they paid their debts the cheques issue bounced, Cyrus Motors kept stalling and asking for extension and said they would make payments. It came to a point where the creditor could not hold off any longer so the best option to get their money was to file a bankruptcy claim against Cyrus Motors, which the courts held was correct as the creditor and all like him needed relief from this oppression. So the appeal was dismissed.

TO BE CONTD…….LECTURE 22