Taking Shareholder Rights Seriously - Research Paper Example

Taking shareholder rights seriously Contents 2 Introduction 2 General Picture 3 Shareholder rights 6 Oppression 13 Statutory Derivative Action 18 Conclusion 20 Bibliography 22 Abstract In the management of the company’s affairs and decision making processes, it is generally perceived that the interest of the minority shareholders is not taken into consideration. It is chiefly due to the impression that the minority shareholders are scattered and not united to espouse their causes effectively, and they have been relegated to the position of second fiddling to the decisions of the majority shareholders, who have representation in the management or they are in a position to influence the decision making process in their best interest. The Australian government, judiciary and executive authorities have contributed significantly to rectify the situation earlier prevailed, to ensure protection of the interests the minority shareholders over the period of time. The paper seeks to study the gaps at the legislation as well as implementation level in transforming these policy decisions to the fulfillment of the objectives desired or intended in line with the spirit behind the process, taking into consideration, the complications involved in social background and the interpretations. Introduction The issues connected with the shareholders are multifarious and are interconnected or interrelated to various stakeholders’ interest in a business, and hence it becomes too difficult to enumerate the various situations which could be foreseen at the time of legislation or practicable to include in statutes, which warrants interpretations in the court of law for equitable justice to the parties concerned. Direct involvement of all the members of a company in a complicated business enterprise is not feasible in modern times. Therefore the directors of the corporations are expected to exercise their powers taking into account the interests of all the stakeholders and the other stakeholders. In Sidebottom v Kershaw, Leese & Co., the majority shareholders who were also the directors, passed a special resolution to alter the articles by allowing the directors to require the transfer at full value of shares held by an shareholder who competed with the company’s business. Minority shareholders who ran a business that competed with the company sought a declaration that the amendment was invalid. The court held that the alteration satisfied the Allen’s test in that it was taken for the company’s legitimate business interests and not for the interests of specific members.1 However in various other decisions, the treatment has differed based on the circumstances obtained in the cases. General Picture Foss v Harbottle rule is a famous decision in corporate law. The rule ‘In any action in which a wrong is alleged to have been done to a company, the proper claimant is the company itself’ has two provisions namely ‘proper plaintiff rule’ and ‘majority rule principle’. This precedent established in Foss v Harbottle (1843) 2 Hare 461; 67 ER 189 has lost its relevance and impact on the later decisions on account of the exceptions to the rule necessitated over a period of time, in the backdrop of social and technological developments in the societies. Amendments to the existing laws or new legislations in line with the changing needs of the society have changed the legal landscape since the rule has been found inconsistent with the policy of providing protection to the minority shareholders. For instance, an important development in this regard is the Statutory Derivative Action. ----------------------------------------------------- 1 R. Tomasic, S. Bottomley & R. McQueen, ‘Corporations Law in Australia’, Second Edition. The Federation Press, 2002, p. 197. Shareholder litigation in Australia has a reputation of being rare. While there were 900 decisions reported in the Australian Corporations and Securities Reports between September 1989 and March 1994, of these only 93 decisions involved shareholder litigation”. Statutory Derivative Action (SDA) took effect from March 13, 2000 (Part 2FSection 236 and 237) and there were only 21 applications involving SDAs between 28 June 2000 and 27 August 2003. 2 The provisions of the Corporations Act, 2001 with regard to ‘Oppression’ are very clear and explicit. 104 Section 461 of the Corporations Act, 2001 is very comprehensive in this regard and enumerated the ‘General grounds on which company may be wound up by Court’. 104 (e) 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; or (f) 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 ---------------------------------------------------- 2 M. Hoffmann, ‘The Statutory Derivative Action in Australia: An Empirical Review of its Use and Effectiveness in Australia in Comparison to the United States, Canada and Singapore’, Corporate Governance eJournal, Bond University, 2005, p. 14, http://epublications.bond.edu.au/cgi/viewcontent.cgi?article=1012&context=cgej (g) an act or 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 was or would be contrary to the interests of the members as a whole; (k) the Court is of opinion that it is just and equitable that the company be wound up.3 In addition, the Members’ rights and remedies as specified in Chapter 2 F with Part 2F1 dealing with Oppressive conduct of affairs, Part 2F.2 dealing with the rights of the shareholders in relation to variation, cancellation or modification of the class rights4 and the powers of the court as specified under section 1324 to grant an injunction, on grounds specified therein on such terms as the Court thinks appropriate, restraining the first-mentioned person from engaging in the conduct and, if in the opinion of the Court it is desirable to do so, requiring that person to do any act or thing5 - provide protection to the minority shareholder against Oppression’ Part 2F.1A, Proceedings on behalf of a company by members and others is in respect of SDA. ---------------------------------------------------- 3 Corporations Act, 2001, ‘Section 461 General grounds on which company may be wound up by Court’, Comlaw, Australian Government, p. 285-286, http://www.comlaw.gov.au/ComLaw/Legislation/ActCompilation1.nsf/0/C1A0363A6806B9F1CA2570460014CD4C/$file/Corps2001Vol2WD02.pdf 4 Ibid., Chapter 2F Members’ rights and remedies p.280-296, http://www.comlaw.gov.au/ComLaw/Legislation/ActCompilation1.nsf/0/0286D20496C5C769CA2570460014CB1C/$file/Corps2001Vol1WD02.pdf 5 Ibid., Part 9.5—Powers of Courts, Section 1324 Injunctions (p.102-103) http://www.comlaw.gov.au/ComLaw/Legislation/ActCompilation1.nsf/0/D7D55FEB8068684ACA2570460016155A/$file/Corps2001Vol5WD02.pdf Shareholder rights The rights of the shareholders, especially in the case of minority shareholders, should be viewed from the angle of the company in the backdrop of the statutory provisions with reference to the violation of their rights, and the institutions such as stock exchanges and Securities and Investments Commission in the country with regard to their operations in dealing with the issues related to the shareholders to understand whether the shareholders’ rights are taken seriously. Role of the companies: The landmark decision of the High Court of Australia in Sons of Gwalia Ltd. V Margaretic (2007) allowing the claims of the shareholder who had suffered losses due to misconduct of the company underlines the need for further reforms to protect the shareholders’ interest who are misled in making investment in the shares of a company. In this case the plaintiff shareholder’s claim for treatment at par with the creditors in the insolvency proceedings was based on the provisions for investor protection, as he had suffered losses on account of misconduct of the company, and not in his capacity as a shareholder. Therefore, the decision is not applicable to the normal equity investments in the market.6 The High Court decision confirmed the rights of aggrieved shareholders under various statutory provisions for the protection of investors, while reinforcing the statutory obligations on listed companies to provide accurate and timely disclosure to the market, for the benefit of all interested parties, including creditors. ---------------------------------------------------------------------------------- 6 Corporations and Markets Advisory Committee, ‘Report on Shareholder claims against insolvent companies – Implications of the Sons of Gwalia decision’, Australian Government, 2008, p.2, http://www.camac.gov.au/camac/camac.nsf/byHeadline/PDFFinal+Reports+2009/$file/Sons_of_Gwalia_Report.pdf Market Controls: The entire gamut of shareholders rights hinges on several factors in relation to a country and one of the most important factors is market controls, which relate to several issues in the stock market such as, restrictions on short selling, insider information, mutual funds, exchange traded funds, margin requirements in the capital market transactions, new instruments in capital markets such as futures and options known as derivatives, requirements of disclosure and reporting, procedures for clearing and settlement, with an underlying objective to ensure fair treatment to all the market participants, especially the small shareholders in view of their lack of bargaining power individually, since they are scattered throughout the country, and have no ability to exercise any control over the issues involved due to ignorance or lack of understanding. However, it is in the interest of the economic growth of the nation that the industry is regulated to ensure the safety of the investors and provide protection to their interests. For example, Australian Securities and Investments Commission has issued Market Integrity Rules covering the Participants and their representatives, Client relationships, Records to be maintained, Procedures to be adopted in trading, Takeovers and functions of the market operators.7 Dissemination of information to the shareholders would create awareness among the shareholders and enhance the level of protection to the shareholder community as a whole. The government takes measures in line with the developments, and for instance Takeovers Panel was established in January 1991. ------------------------------------------------- 7 Australian Securities and Investments Commission, ‘ASIC Market Integrity Rules (ASX Market) 2010’, http://www.fido.gov.au/asic/pdflib.nsf/LookupByFileName/ASIC-ASX-Market-Integrity-Rules-20100801.pdf/$file/ASIC-ASX-Market-Integrity-Rules-20100801.pdf In the case of takeovers, “If the Panel finds unacceptable circumstances, it may make orders to protect the rights of persons affected by the circumstances or to ensure, as far as possible, that the takeover proceeds as if the unacceptable circumstances had not occurred”.8 The ethical responsibility and compliance of the procedures in word and spirits rest on the companies, which should be guided by proper risk management and corporate governance policies. Stock Exchange: Australian Security Exchange (ASX) on its part encourages the shareholders to explore their extensive range of education resources from online courses to trading games and investments seminars to booklets and podcasts, and advises them to learn about the features, benefits and risks of ASX Shares and strategies and techniques used to select shares included in the Share market Investment Strategies Course.9 The Australian Shareholders Association (ASA) established as a not-for-profit organization in 1960 for protecting and advancing the interests of investors. Inter alia “The ASA holds regular members’ meetings all across the country, and is also conducting very cost-effective adult education workshops aimed at improving members financial literacy”.10 --------------------------------------------------- 8 Takeovers Panel, Annual report 2009-2010, 2010, p. 7. http://www.takeovers.gov.au/content/reports/annual_reports/2009-10/downloads/Takeovers_Panel_Annual_Report_2009-10.pdf 9 Australian Securities Exchange (ASX) (2010) Personal Investors, http://www.asx.com.au/resources/personal_investors/index.htm 10 Australian Shareholders’ Association (2010) Home – What we do - About Us, http://australianshareholders.com.au/asa_site/index.php?option=com_content&view=article&id=47&Itemid=60 Protection of shareholders’ rights: As there is a risk that not all members in corporation will be treated fairly, the State ought to provide mechanisms whereby minority members can protect their interests.11 One principle, enunciated in 1887 in North-West Transportation v Beatty, states that each individual shareholder is free to exercise his or her voting power in his or her own self interest. This follows the fact that a share is an item of personal property, as are the rights (including voting rights) which attach to those shares.12 The overriding effects of the provisions of the common law limit the power of majority shareholders in respect of amendments to the constitution of the corporations, and the courts of law step into the picture with its interpretation of law, generally putting restraints on the power of the majority shareholders in altering the constitution, if it is justified, when the rights of the minority holders in this regard are in conflict with the rights of the majority shareholders. In general terms there are two possible responses to this problem. One is the classic liberal view that the rights of the individual must be given primacy. That is, minority shareholders should not be deprived of their rights involuntarily. On the other hand there is the utilitarian view which, in simple terms, aims to achieve the greatest welfare of the greater number of individuals. This view would support the capacity of majority shareholders to affect minority rights.13 --------------------------------------------------- 11 Roman Tomasic, Stephen Bottomley & Rob McQueen, op. cit., p. 400. 12 Ibid., p. 400-401 13 Ibid., p. 105 From this perspective, advocates of the shareholder value theory rely on the assumption that shareholders are entitled, morally, as well as legally, to direct the company, on the basis that because the shareholder invest their capital in the company, they own it in ways that are basically a mere extension of their natural right to own private property … under the common law approach, a director owed a duty to act bona fide in ‘‘the interests of the company’’ in which he or she is involved. Taken by itself, ‘‘the company as a whole’’ is an ambiguous term. Although there are earlier indications that shareholder value was an objective of companies in English law, the principal authority supporting a shareholder value interpretation is the 1951 case of Greenhalgh v Arderne Cinemas Ltd, … and that the decision suffers from several deficiencies as a legal precedent for the corporate objective issue.14 Alteration of rights: A critical situation arises if the majority of the shareholders’ rights interfere with the minority shareholders’ rights. If the majority shareholders want to alter the constitution in exercise of their voting powers which could adversely affect the interests of the minority shareholders, the minority could seek legal remedy. Dixon J observed in Peters’ American Delicacy Co. Ltd V Heath: “If there was no check upon the abuse of the power [to alter the article], it is conceivable that a three fourths majority might adopt an article by which the shares which they alone held would participate, to the exclusion of other shares, in the --------------------------------------------------- 14 D. Attenborough, ‘How Directors Should Act When Owing Duties to the Companies’ Shareholders: Why We Need to Stop Applying Greenhalgh’, International Company and Commercial Law Review. Volume 20, Issue 10, 2009, ISSN 0958–5214, p.339-346. surplus assets in winding up or even in distributions of profits by way of dividend..”. 15 Thus the court has emphasized the need for restraint on the power of altering the articles of association. However, while giving importance to the view that the minority shareholders interests should be protected, the utilitarian view in the larger interests of the greater number of people is also considered by the courts, if it is justified in the circumstance of the case. In the 1900 case of Allen v Gold Reefs of West Africa, Lindley MR states that: ”The power [to amend articles] must … be exercised subject to those general principles of law and equity which are applicable to all powers conferred on majorities and enabling them to bind minorities. It must be exercised, not only in the manner required by law, but also bona fide for the benefit of the company as a whole, and it must not be exceeded. These conditions are implied, and are seldom, if ever expressed”.16 In Gambotto v WCP Ltd. 99.7% of WCP Ltd’s share capital was owned by companies which where wholly owned subsidiaries of Industrial Equity Ltd. The remaining 0.3% of shares was distributed among minority shareholders, including Mr. Gambotto. The majority shareholders proposed a special resolution to alter the company’s constitution so that the majority could compulsorily acquire the shares of minority. At first instance McLelland J held that an amendment which permits minority shares to be expropriated by majority shareholders is an unjust oppression of the dissenting minority shareholders. The NSW Court of Appeal reversed this decision, finding in favor of the majority shareholders. The High Court upheld Gambotto’s ---------------------------------------------------- 15 Roman Tomasic, Stephen Bottomley & Rob McQueen, op. cit., p. 195. 16 Ibid., p. 195 appeal, holding that the amendment was invalid. In the case of Sidebottom v Kershaw there is question of competition with the company. Expropriation of minority shares was considered as an oppressive act in the case of Gambotto v WCP Ltd., and the final decision seeks to protect the individual rights of the minority shareholders. Consequent upon the Peter’s American Delicacy case, for expropriation of minority shares a two-part test is adopted, expropriation must be for a (1) proper purpose and (2) it must not operate oppressively in relation to minority shareholders and it must be fair in the circumstances.17 The judicial opinion expressed in the case Greenhalgh v Arderne Cinemas Ltd., the phrase ’the company as a whole’ has been subject to conflicting interpretations. Evershed LJ said that: “The phrase ‘the company as a whole, does not … mean the company as a commercial entity, distinct from the corporators: it means the corporators as a general body. That is to say, the case may be taken of the individual hypothetical member and it may be asked whether what is proposed is, in the honest opinion of those who voted in its favor, for that person’s benefit”.18 Differential rights: In the case of differential rights to shares, it can be varied in accordance with the procedure specified in the corporate constitution, and if not specified, then as per 246B (2) of the Corp Act. ------------------------------------------------------ 17 Roman Tomasic, Stephen Bottomley & Rob McQueen, op. cit., p. 198-199. 18 Ibid., p. 198 Oppression Section, 232 of the Corporations act 2001 deals with the grounds for the court order in respect of the oppressive conduct of affairs, and empower the courts to provide remedy if the conduct of the company is against the interest of the company as a whole, oppressive, unfairly prejudicial or discriminatory. It is pertinent to note here that the provision has not specified whether the applicant must be registered for this purpose. In the case of Nord Pty Ltd v Adelaide Petroleum NL (1990) ACLC 684, for example, it was held that an applicant must be registered in order to complain of oppressive conduct. In Re Independent Quarries Pty Ltd (1994) 12 ACLC 159, however, registration was not deemed as decisive.19 These nuances are always put the general public, in this case, the minority shareholders in a piquant situation, since the circumstances vary from case to case, and they may be defeated on technical grounds in the process, unless the courts takes a lenient view, considering the merits of the case. The phrases ‘Oppressive conduct’ is susceptible to narrow interpretation, which may be correct technically, but without taking into account its adverse effects on the minority shareholders. “According to Scottish Co-operative Wholesale Soc Ltd v Meyer [1959] AC324 “oppressive conduct” is conduct that is “burdensome, harsh and wrongful.” 19a However, the views of the court undergo changes keeping in tune with the circumstances of the individual cases. Nevertheless, these views act as the precedents for the subsequent decisions, making --------------------------------------------------- 19 Scribd.com, ‘Shareholder Rights and the Death of the Corporation’, http://www.scribd.com/doc/42017400/Week-11-Shareholder-Rights-and-the-Death-of-the-Corporation, p. 9. 19a Scribd.com, Ibid., p. 9. grounds of the case or appeal doubtful in the minds of the minority shareholders, whose stake in the proceedings could be much lower than the costs involved. The prohibitive costs involved in the process acts as a deterrent in seeking legal remedies by the oppressed small shareholders. Once you have established that the conduct in question relates to either s 232(a), (b) or (c), you must still establish that it is either: 232(d) or 232(e). Oppressive conduct is to be interpreted narrowly and focuses on the nature of the conduct rather than its effect. It includes conduct which “lacks the degree of probity which the members are entitled to expect in the conduct of the company’s affairs”: Re Jermyn Street Turkish Baths Ltd [1971] 1 WLR 1042.20 This decision makes the situation difficult in bringing actions against the company when it misuses or abuses its powers in managing the affairs of the company. The contextual definition of the oppressive conduct in various decisions of the court over a period of time includes terms such as ‘unfair’, ‘prejudicial’ and ‘discriminatory’ or phrases such as ‘unfairly prejudicial’, ‘unfairly discriminatory’, ‘prejudicial or discriminatory to the interests of the members’ to cover various contingencies or exigencies. What constitutes ‘overbearing act or attitude’ could not be defined precisely. It is open to the interpretations of the courts, based on the circumstances obtained in each case. Though it is understandable that we can’t simplify the whole process without having regard to the complications involved, it can be said that the guidelines for the proper conduct on the part of -------------------------------------------------- 20 Atherns Lawyers (2010) ‘STATUTORY OPPRESSION REMEDY UNDER THE CORPORATIONS ACT 2001 (CTH)’, http://www.ahernslawyers.com.au/newsletter.asp?ID=8774 the management or the directors of the company should aim to minimize the need for the minority shareholders to seek legal remedies to ensure protection of their interests. Directors: It has been decided in many cases that the directors should act in the interest of the company to the "benefit of the company as a whole". It is a clear principle of law that a position as a director is not to be used by an incumbent as an opportunity to serve only some sectional interest merely because that sectional interest elected the director, without regard to the interests of the company as a whole: Bennetts v Board of Fire Commissioners of New South Wales (1967) 87 WN Pt 1 (NSW) 307; Morgan v 45 Flers Avenue Pty Ltd. (1986) 10 ACLR 692 at 705.21 In Morgan v 45 Flers Avenue Pty Ltd (1987) 5ACLC222, the Supreme Court of NSW held that all these phrases must be considered as a whole. The court held that the different elements of section 232 should be considered merely as different aspect of the essential criterion, namely commercial unfairness. Commercial unfairness is to be determined objectively. Brennan J in Waydne v NSW Rugby League Ltd (1985) 3 ACLC 799 held that: The operation of [section 232] may be attracted to a decision made by directors which is made in good faith for a proper purpose within the directors’ powers but with reasonable directors would thing to be unfair.22 --------------------------------------------------- 21 Takeovers Panel, Cslrc Report No.8, p. 12. http://www.takeovers.gov.au/content/Resources/cslrc/cslrc_report_no_8.aspx 22 Scribd.com, op. cit.., p. 9. Valuation of shares: Remedies in respect of oppression to shareholders are claimed mostly in the case of private or closely held companies. Many a times the remedies are allowed in the form of compulsory purchase of the minority shareholding by the majority at a fair price, which appears to be reasonable in the absence of alternative relief available to the claimants. For example in Sanford v Sanford Courier Services the defendants were found to have awarded themselves excessive remuneration. A preemption provision existed which required the plaintiff to offer his shares to the defendant at a price to be determined by the company’s auditors. The court intervened however to ensure that shares were valued on the assumption that the defendants remuneration was, for the purposes of valuation, restated on a commercial basis.23 The first principle of determining fair value is that set out by Griffith CJ in Spencer v Commonwealth and more succinctly described by Williams J in Abrahams v Commissioner in Taxation in words cited by every valuer since, as determining “the price which a willing but not anxious vendor could reasonably expect to obtain and a hypothetical willing but not anxious purchaser could reasonably expect to have to pay.” 24 Injunction: Under Section 1324, the court may grant an injunction restraining a person from engaging in conducts in contravention of the act, if in the opinion of the Court it is desirable to ---------------------------------------------------- 23 P. Crofts ‘SHAREHOLDER RELIEF FOR OPPRESSIVE CONDUCT” PART III VALUATION ISSUES’, 2005, p. 3.http://new.vicbar.com.au/pdf/CLE_Seminar18052005.pdf 24 Ibid., p.2. do so. These powers also cover conducts relating to reduction of share capital and buyback of shares. The Court may, in addition to the grant of the injunction, order that person to pay damages to any other person under section 1324(10). Only a person whose interests have been affected or ASIC may apply to the court for a section 1324 injunction. In Broken Hill Proprietary Co Ltd v Bell Resources Ltd (1984) 2 ACLC 157 a wide interpretation was taken of such persons. This broad approach was subsequently endorsed by Airpeak Pty Ltd v Jetsream Ltd (1997) 15 ACLC 715 and Emlen Pty Ltd v St Barbara Mines Ltd (1997) 24 ACSR 303 at 306. Here it was held that shareholders and creditors had standing to apply for a section 1324 injunction against directors”.25 The scope of the remedies available to the minority shareholders has been enlarged through the wider interpretations. Personal rights under general Law: Despite abolition of the rights enjoined under general law under section 236(3) while dealing with the proceedings as per the act, the related issues being covered under sections 236(1) and 237(1-3) now, it is also stated in note 3 of section 236 that “this section does not prevent a person bringing, or intervening in, proceedings on their own behalf in respect of a personal right,” which relates to: “Matters dealing with the expropriation of shares: Gambotto v WPC Ltd (1995) 13 ACLC 342; Grey Eisdell Trimms v Combined Auctions Pty Ltd (1995) 13 ACLC 965. ---------------------------------------------------- 25 Scribd.com, op. cit.., p. 12-13. A member has the personal right to have their votes at general meeting counted: Pender v Lushington (1877) 6 Ch D 70. A member has the personal right to bring an action where it is alleged that an issue of shares was made for an improper purpose: Residues Treatment and Trading Co Ltd v Southern Resources Ltd (1988)”.26 Statutory Derivative Action In Australia, the proposal for inclusion of Statutory Derivative Action into the Corporations Law to address the inadequacies of the common law action was added in the Corporate Law Economic Reform Bill 1998, though it is criticized that statutory derivative remedy is not useful in a practical sense as there are other remedies available to the shareholders for redress of their grievances against the corporate companies.   It is necessary that the shareholders be given the right to commence action on the company’s behalf, usually because some or all of the board are themselves responsible for the wrong that has been committed. It is concluded that, although the rule in Foss v Harbottle may historically have prevented effective shareholder discipline over errant directors in many cases, the liberalization of the common law derivative action in more recent years, and the development of alternative remedies such as the statutory oppression remedy, have largely neutralized the limitations of the rule.27 --------------------------------------------------- 26 Scribd.com, op. cit.., p. 14. 27 M. Berkhan, ‘The Derivative Action in Australia and New Zealand: Will the Statutory Provisions Improve Shareholders Enforcement Rights?’, BondLawRw 5, (1998) 10(1) Bond Law Review 74, 1998, http://www.austlii.edu.au/au/journals/BondLRev/1998/5.html There is no requirement in Australia that the SDA be, prima facie, in the company’s interest. In the Companies & Securities Advisory Committee’s Report on a Statutory Derivative Action, the view of the Committee that the ‘serious question to be tried’ test was more favorable to the prima facie test was accepted. 28 Generally, SDA suit is not suitable for taking up especially the cause of ‘oppression’ since the cost of maintaining litigation could be high in the case of SDA due to the restrictions placed and the procedural requirements needed. In Brightwell v RFB Holdings the concern regarding prohibitive nature of costs in defending a SDA was raised. With respect to legal costs, which would amount to approximately $125,000.00 by the time the SDA was heard, Austin J was quite sympathetic over Mrs. Brightwell’s expenses burden. Even though the plaintiffs were successful in their application for leave to bring the SDA action, the plaintiffs were ordered to pay the costs of Mrs. Brightwell up to leave being granted to proceed with the SDA, because the earlier costs incurred by Mrs. Brightwell arose out of failure on the plaintiffsʹ side to make proper and appropriate claims in the original statement of claim. Austin J took a similarly flexible approach on costs in Shum Yip Properties v Chatswood Investment & Development, awarding costs and interest (in addition to damages) to the plaintiff. 29 As per Corp Act, Part 2F.1 the minority shareholders can seek a court order on the grounds of oppression, prejudice, unfair discrimination against him or if the actions of the majority --------------------------------------------------- 28 M. Hofmann, op. cit.., p. 9.. 29 M. Hofmann, Ibid., p. 13 shareholders are against the interests of the members as a whole. Compared to the statutory oppression remedy, the SDA is not frequently used in most jurisdictions. This is considered an advantage by some authorities, because the SDA works best when used infrequently and is necessary in the overall scheme for good corporate governance”.30 Misuse of SDA may result into unnecessary media attention, costly litigation expenses, decrease in share value in stock markets and in rare cases winding up of the company which is not in the interest of the growth and development of the economy. Conclusion Awareness among the shareholders with regard to their responsibilities and rights is very important for the statutory protection given to the shareholders in meeting the objectives. It is mentioned in the Report of the Parliamentary Joint Committee on Corporations and Financial Services (2008) that many shareholders have no interest in engaging with the companies they invest in and the powerlessness felt by individual investors over company decision-making and board composition compounded the disincentive to engage. The committee has made several recommendations with regard to Company Reports, AGMs, improving the attendance levels in AGM, best practice guidelines for company annual general meetings, disclosure of information to the shareholders, and other market related activities.31 --------------------------------------------------- 30 M. Hofmann, op. cit.., p. 14. 31 Parliament of Australia Joint Committee (2008), ‘Report of the Parliamentary Joint Committee on Corporations and Financial Services’, http://www.aph.gov.au/senate/committee/corporations_ctte/sharehold/report/c03.htm However, the recommendation 7 (3.90) with regard to abolition of the rule Section 249D(1) of the Corporations Act stipulating “The directors of a company must call and arrange to hold a general meeting on the request of: members with at least 5% of the votes that may be cast at the general meeting; or at least 100 members who are entitled to vote at the general meeting” may not be in the best interest of the shareholders, because the general meeting in this case would be simply satisfy the legal formalities, rather than improving the shareholder engagement. In the present scenario, at least the companies would encourage the shareholders to participate in the general meetings. With regard to AGM, the report states “(3.79) … that ASIC should carefully examine this area in preparation for establishing a comprehensive set of guidelines or principles for companies holding an AGM. These should include ways to improve the participatory aspect of meetings through discussion and questions, including questions on notice to the board, as well as maximizing shareholder attendance. The guidelines should also outline best practice for managing conflicts of interest at company meetings…”32 ----------------------------------------------------- 32 Parliament of Australia Joint Committee (2008), Ibid. Bibliography Atherns Lawyers (2010) STATUTORY OPPRESSION REMEDY UNDER THE CORPORATIONS ACT 2001 (CTH), Retrieved from http://www.ahernslawyers.com.au/newsletter.asp?ID=8774 Attenborough, D. (2009). How Directors Should Act When Owing Duties to the Companies’ Shareholders: Why We Need to Stop Applying Greenhalgh. International Company and Commercial Law Review. 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