|European Union / EEA|
|UK / Ireland / Commonwealth|
In corporate law in Commonwealth countries, 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. It was introduced in response to Foss v Harbottle, which had held that where a company's actions were ratified by a majority of the shareholders, the courts will not generally interfere.
It has been widely copied in companies legislation throughout the Commonwealth, including:
Introduction in the UK
210. (1) Any member of a company who complains that the affairs of the company are being conducted in a manner oppressive to some part of the members (including himself) or, in a case falling within [s. 169(3)], the Board of Trade, may make an application to the court by petition for an order under this section.
- (2) If on any such petition the court is of opinion—
- (a) that the company's affairs are being conducted as aforesaid; and
- (b) that to wind up the company would unfairly prejudice that part of the members, but otherwise the facts would justify the making of a winding-up order on the ground that it was just and equitable that the company should be wound up;
- the court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether for regulating the conduct of the company's affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and, in the case of a purchase by the company, for the reduction accordingly of the company's capital, or otherwise.
In the Companies Act 2006, the relevant provision is expressed in s. 994 (and the Secretary of State has similar authority under s. 995):
994. (1) A member of a company may apply to the court by petition for an order under this Part on the ground—
- (a) that the company's affairs are being or have been conducted in a manner that is unfairly prejudicial to the interests of members generally or of some part of its members (including at least himself), or
- (b) that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial.
Conduct that is considered to constitute "unfair prejudice" has been given a broad interpretation, which can include:
- exclusion from management in circumstances where there is a legitimate expectation of participation;
- the diversion of business to another company in which the majority shareholder holds an interest;
- the awarding by the majority shareholder to himself of excessive financial benefits; and
- abuses of power and breaches of the Articles of Association.
The conduct is not confined to a specific group. In Re HR Harmer Ltd, Jenkins LJ noted that the definition is "wide enough to cover oppression by anyone who is taking part in the conduct of the affairs of the company whether de facto or de jure." Therefore, it can cover the actions of:
- a controlling shareholder,
- persons with de facto control of the company,
- a class of shareholders, or
- conduct of a related company.
Application in Canada
Canadian legislation (both federally and in all provinces other than Prince Edward Island) provides for a broad approach to the oppression remedy. In Peoples Department Stores Inc. (Trustee of) v. Wise, the Supreme Court of Canada noted:
48. ...The oppression remedy of s. 241(2)(c) of the CBCA and the similar provisions of provincial legislation regarding corporations grant the broadest rights to creditors of any common law jurisdiction. One commentator describes the oppression remedy as “the broadest, most comprehensive and most open-ended shareholder remedy in the common law world.”
In the CBCA, s. 241 states:
241. (1) A complainant may apply to a court for an order under this section.
- (2) If, on an application under subsection (1), the court is satisfied that in respect of a corporation or any of its affiliates
- (a) any act or omission of the corporation or any of its affiliates effects a result,
- (b) the business or affairs of the corporation or any of its affiliates are or have been carried on or conducted in a manner, or
- (c) the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner
- that is oppressive or unfairly prejudicial to or that unfairly disregards the interests of any security holder, creditor, director or officer, the court may make an order to rectify the matters complained of.
- (3) In connection with an application under this section, the court may make any interim or final order it thinks fit including, without limiting the generality of the foregoing,
- (a) an order restraining the conduct complained of;
- (b) an order appointing a receiver or receiver-manager;
- (c) an order to regulate a corporation’s affairs by amending the articles or by-laws or creating or amending a unanimous shareholder agreement;
- (d) an order directing an issue or exchange of securities;
- (e) an order appointing directors in place of or in addition to all or any of the directors then in office;
- (f) an order directing a corporation, subject to subsection (6), or any other person, to purchase securities of a security holder;
- (g) an order directing a corporation, subject to subsection (6), or any other person, to pay a security holder any part of the monies that the security holder paid for securities;
- (h) an order varying or setting aside a transaction or contract to which a corporation is a party and compensating the corporation or any other party to the transaction or contract;
- (i) an order requiring a corporation, within a time specified by the court, to produce to the court or an interested person financial statements in the form required by section 155 or an accounting in such other form as the court may determine;
- (j) an order compensating an aggrieved person;
- (k) an order directing rectification of the registers or other records of a corporation under section 243;
- (l) an order liquidating and dissolving the corporation;
- (m) an order directing an investigation under Part XIX to be made; and
- (n) an order requiring the trial of any issue.
A "complainant" is deemed to be a current or former registered security holder, a current or former director or officer, the Director appointed under the CBCA, or "any other person who, in the discretion of a court, is a proper person to make an application under this Part." In that regard, it can include a creditor of the corporation, but not every creditor will qualify.
- Does the evidence support the reasonable expectation asserted by the claimant? and
- Does the evidence establish that the reasonable expectation was violated by conduct falling within the terms “oppression”, “unfair prejudice” or “unfair disregard” of a relevant interest?
Where conflicting interests arise, it falls to the directors of the corporation to resolve them in accordance with their fiduciary duty. This is defined as a "tripartite fiduciary duty", composed of (1) an overarching duty to the corporation, which contains two component duties — (2) a duty to protect shareholder interests from harm, and (3) a procedural duty of "fair treatment" for relevant stakeholder interests. This tripartite structure encapsulates the duty of directors to act in the "best interests of the corporation, viewed as a good corporate citizen". Following BCE, the Court of Appeal of British Columbia noted that "breach of fiduciary duty ... 'may assist in characterizing particular conduct as tending as well to be 'oppressive', 'unfair', or 'prejudicial'". More recently, scholarly literature has clarified the connection between the oppression remedy and the fiduciary duty in Canadian law:
84. Upholding the reasonable expectations of corporate constituents is the cornerstone of the oppression remedy. Establishing a breach of the tripartite fiduciary duty has the effect of raising a presumption of conduct contrary to the reasonable expectations of a complainant.
The remedy can extend to a wide variety of scenarios:
- It can be potentially used by any stakeholder to deal with any type of unfair conduct by a corporation
- It can cover an affiliate not incorporated under the same Act
- It has been used to enforce unpaid judgments against the corporation's directors, where the corporation had been subject to asset stripping
- It has also been used in conjunction with other remedies — including the threatened winding up of a company by the court — in order to resolve shareholder disputes in closely held companies.
- The Crown has employed the oppression remedy in its status as a creditor under the Income Tax Act, in order to set aside dividend payments that rendered a corporation unable to pay its tax liability.
- Where a company has made excessive salary payments to a controlliing shareholder, a judgment creditor has been permitted to be a complainant.
- A wrongfully dismissed employee can make a claim in order to thwart a corporation from conducting asset stripping in order to make itself judgment proof.
- The result of the exercise of the discretion contained in subsection 371(3) must be the rectification of the oppressive conduct. If it has some other result the remedy would be one which is not authorized by law.
- Any rectification of a matter complained of can only be made with respect to the person’s interest as a shareholder, creditor, director or officer.
- Persons who are shareholders, officers and directors of companies may have other personal interests which are intimately connected to a transaction. However, it is only their interests as shareholder, officer or director as such which are protected by section 371 of the Act. The provisions of that section cannot be used to protect or to advance directly or indirectly their other personal interests.
- The law is clear that when determining whether there has been oppression of a minority shareholder, the court must determine what the reasonable expectations of that person were according to the arrangements which existed between the principals.
- They must be expectations which could be said to have been, or ought to have been, considered as part of the compact of the shareholders.
- The determination of reasonable expectations will also[...] have an important bearing upon the decision as to what is a just remedy in a particular case.
- The remedy must not be unjust to the others involved.
Application in Australia
S. 234 of the Corporations Act 2001 provides that the following can apply for an order seeking relief for oppressive conduct:
- a member of the company, on behalf of himself or another member,
- a person who has been removed from the register of members, or has ceased to be a member under circumstances which are the substance of the application,
- a person to whom a share in the company has been transmitted by will or by operation of law, or
- any other person, with the consent of the Australian Securities and Investments Commission, in connection to a current or prior investigation into the company conducted by ASIC.
S. 232 states that the conduct of the company's affairs, an actual or proposed act or omission by or on behalf of a company, or a resolution or proposed resolution by all, or by a class, of the shareholders, must be:
- contrary to the interests of the shareholders as a whole; or
- oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a shareholder or shareholders whether in that capacity or in any other capacity,
in order for an application to be considered.
The oppression remedy, together with the option available for winding up a company and ASIC's use of the public interest ground in that regard, has received greater exposure and legal development since the onset of the global financial crisis.
- "Policy Statement 11.30 - Oppression Remedy Guidelines". Corporations Canada. 8 June 2005. Retrieved 2 July 2013.
- Stephanie Ben-Ishai; Poonam Puri (2004). "The Canadian Oppression Remedy Judicially Considered: 1995–2001". Queen's Law Journal 30: 79–114. Retrieved 2 July 2013.
- "Canada Business Corporations Act (R.S. 1985, c. C-44), s. 241".
- "Corporations Act 2001, Part 2F.1".
- Now "Part 30". of the Companies Act 2006
- Anthony Lee (1 November 2012). "Guide to Unfair Prejudice Against Shareholders". Ashfords. Retrieved 3 July 2013.
-  1 WLR 62 at 75
- Roman Tomasic; Stephen Bottomley; Rob McQueen (2002). Corporations Law in Australia (2nd ed.). Annandale, NSW: Federation Press. p. 414. ISBN 1-86287-314-3.
- D. Thomson (2000). "Directors, Creditors and Insolvency: A Fiduciary Duty or a Duty Not to Oppress?". University of Toronto Faculty of Law Review 58 (1): 48.
- Beck, Stanley M. (1982). "Minority Shareholders’ Rights in the 1980s". Corporate Law in the 80s, Special Lectures of the Law Society of Upper Canada. Don Mills: Richard De Boo. p. 312. ISBN 0-88820110-9.
- "Canada Business Corporations Act (R.S. 1985, c. C-44), s. 238".
- Frank Roberts (2000). "Creditor's use of the oppression remedy". McGill University. Retrieved 2 July 2013.
- BCE Inc., par. 68
- BCE Inc., par. 81-84
- Rojas, Claudio R. (2014). "An Indeterminate Theory of Canadian Corporate Law". University of British Columbia Law Review 47 (1): 59–128. SSRN 2391775.
- Icahn Partners LP v Lions Gate Entertainment Corp. 2011 BCCA 228 at par. 71, 333 DLR(4th) 257 (10 May 2011)
- BCE Inc., par. 99-100
- "The Oppression Remedy in Canada". McMillan LLP. July 2009. Retrieved 2 July 2013.
- Robert D. Chapman; Edward P. Kerwin (28 August 2008). "CBCA Oppression Remedy Extends to Non-CBCA Affiliate". McCarthy Tétrault. Retrieved 2 July 2013.
- Manufacturers Life Insurance Company v. AFG Industries Ltd. 2008 CanLII 873, 44 BLR (4th) 277 (17 January 2008), Superior Court of Justice (Ontario, Canada)
- Mark A. Wiffen (2011). "Getting blood from a stone – enforcing unpaid corporate judgments against directors". McMillan LLP. Retrieved 2 July 2013.
- Stephen Antle. "Oppression, just and equitable winding-up and the family company". Borden Ladner Gervais. Retrieved 3 July 2013.
- Safarik v. Ocean Fisheries Ltd. 1995 CanLII 6269, 22 BLR (2d) 1; 12 BCLR (3d) 342 (20 September 1995), Court of Appeal (British Columbia, Canada)
- J. Anthony Van Duzer (1993). "Who May Claim Relief from Oppression: The Complainant in Canadian Corporate Law". Ottawa Law Review 25 (3): 476. Retrieved 4 July 2013.
- R. v. Sands Motor Hotel Ltd, (1984) 36 Sask. R. 45 (Q.B.)
- Prime Computer of Canada Ltd. v. Jeffrey 1991 CanLII 7157, 6 OR (3d) 733 (13 December 1991), Superior Court of Justice (Ontario, Canada)
- Tavares v. Deskin Inc.,  O.J. No. 195 (Gen. Div.)
- Pelley v. Pelley 2003 NLCA 6 at par. 37, 221 Nfld & PEIR 1 (22 January 2003), Court of Appeal (Newfoundland & Labrador, Canada)
- of NLCA, equivalent to CBCA, s. 241(3)
- T. Mark Pontin; Tracey M. Cohen; Graeme Cooper (June 2011). "Distinguishing Oppression Claims and Derivative Actions". Fasken Martineau. Retrieved 2 July 2013.
- "Statutory Oppression Remedy under the Corporations Act 2001 (Cth)". Aherns.
- Michael Legg; Louisa Travers (2011). "Oppression and winding up remedies after the GFC". Company and Securities Law Journal 29 (2): 101–114.