Every shareholder deal has the potential to end in dispute and as a result, the winding up of the company. Contracting parties sometimes believe that as long as the parties agree on significant matters, minor disagreements generally resolve themselves.

It is not always that simple when it comes to allegations of oppression under section 232 of the Corporations Act 2001 (‘the Act’).

The case of Tomanovic v Argyle HQ Pty Ltd; Tomanovic v Global Mortgage Equity Corporation Pty Ltd NSWSC 152 (5 March 2010) is illustrative.  

Quick Facts

Tomanovic invoked the protection under several sections of the Act, alleging oppression:

• He sought a winding up order under section 233 of the Act alleging oppression;
• Alternatively, a buy out order under section 233 of the Act.

 Points of law

 The key points of law in this case involved identifying oppression. Some of the relevant principles highlighted by Justice Austin are listed below:

• The plaintiff seeking an order of oppression is under an onus to demonstrate the absence or lack of good faith – mere inconvenience is not to be regarded as oppression;
• Fairness and reasonableness are other principles to be taken into account;
• The conduct of the minority shareholders will also be considered;
• Winding up of a company and the court’s intervention should only be used as a last resort in such matters.
  

 Findings

• The Court found that there was no deadlock between the defendant and plaintiff – the business had carried on despite the strained relationship between the parties;
• Moreover, the plaintiff had become a dormant participant in the Company over the years;
• There was no oppression and no obligation for the defendant to buy the plaintiff’s shares.

 Resolution

The Court did not issue a winding up order. It resolved that the inability to dispose of shares or a difficult relationship does not amount to oppression. Moreover, where the commercial viability of the business is not frustrated, a winding up order on grounds of oppression would be inequitable.

The simplest and most proactive way to attempt to resolve or avoid potential shareholder conflicts is to not only to have a shareholder agreement in place but to have one covering all eventualities, such as terminations, buy-outs and exit strategies for instance.